Greenhouse gas (GHG) emissions calculations are crucial to sustainability and climate change risk assessment. They help organizations quantify the impact of their sustainability actions, identify climate-related risks and opportunities, and demonstrate their sustainability success through eco-labels or GHG certifications. But, calculating GHG emissions can be a complex and overwhelming process.
To simplify, the process can be broken down into two phases:
Phase 1: Create a GHG Inventory List
A GHG inventory begins with the identification of all the entities, assets, operations, and the Scope 3 categories relevant to the organization.
- Organizational Boundary: Establish which entities and assets will be included in the Scope 1&2 inventory based on the control and ownership structure of the organization.
- Operational Boundary: Identity operations within the organizational boundary and classify them as direct or indirect and decide which indirect emissions to include based on relevance to the organization.
Phase 2: Calculate GHG Emissions
- Data Collection: Collect and track activity data from all the sources identified in Phase 1.
- Calculate GHG Emissions: Use appropriate emission factors to convert activity data to CO2 equivalent emissions.
In this article, we examine the first phase of the process. Our next article reviews the steps to collect data and calculate GHG emissions.
Creating a GHG Inventory
To start your greenhouse gas emissions calculations, you need to create an inventory of the GHG emission sources and categorize these into three types of emissions: Scope 1, Scope 2, and Scope 3. Scope 1 refers to direct emissions from an organization, Scope 2 is a specific type of indirect emission associated with purchasing electricity, steam, heat, or cooling, and Scope 3 is all other indirect emissions from the organization’s upstream and downstream value chain.
To create an inventory of all emission sources, an organization needs to identify all entities, assets, and operations and select Scope 3 categories to include in the inventory.
To identify the entities, assets, and operations, the GHG protocol defines methods for setting boundaries for greenhouse gas (GHG) inventory in its Corporate Accounting and Reporting Standard and Corporate Value Chain (Scope 3) Accounting and Reporting Standard.
Organizational Boundary
An Organizational Boundary reviews an organization’s control and ownership structure and helps categorize emission sources into the correct scope designation. The Organizational Boundary establishes which entities (e.g., subsidiaries, joint ventures, partnerships) and assets (e.g., facilities, vehicles) will be included in the scope 1 and scope 2 GHG emissions inventory.
The GHG Protocol defines two distinct approaches: equity share and control approaches.
Equity Share – An organization accounts for GHG emissions from operations and assets according to its share of equity in the operation. The equity share reflects economic interest, the extent of rights an organization has to the risks and rewards flowing from an operation.
Control Approach – Under the control approach, a company accounts for 100 percent of the GHG emissions from operations over which it has control. It does not account for GHG emissions from operations in which it owns an interest but has no control. Control can be defined in either financial or operational terms
- Financial Control – An organization accounts for 100 percent of the GHG emissions over which it has financial control. The organization has financial control over the operation if it can direct its financial and operating policies to gain economic benefits from the operation’s activities.
- Operational Control: An organization accounts for 100 percent of emissions from operations over which it or one of its subsidiaries has operational control. Generally, if the organization is the facility’s operator, it will have the full authority to introduce and implement its operating policies and thus has operational control.
In setting organizational boundaries, an organization chooses an approach for consolidating GHG emissions and then consistently applies that approach to define the entities and assets included in scope 1 and scope 2. Factors that affect the choice of consolidation approach include: influence over emissions, regulatory requirements, alignment with financial accounting. administrative costs, availability of data and completeness of reporting. The choice of approach also needs to coordinated with joint owners to avoid undercounting or double counting of emissions if joint owners choose different approaches.
In practice, these approaches differ most for leased assets.
How to Include Leased Assets
Some companies may lease assets to other companies, for example, real estate companies that rent office or retail space or vehicle companies that lease vehicle fleets. Other companies operate in leased offices and use leased vehicles. To avoid double counting, GHG Protocol defines whether the lessor or the lessee should categorize the emissions as Scope 1, 2, or 3. This depends on the type of lease and the consolidation approach chosen while establishing the organizational boundary.
The table below summarizes the guidance from GHG Protocol, Appendix F, Categorizing GHG Emissions Associated with Leased Assets
| Type of Lease | Lessor | Lessee |
| Finance or capital lease This type of lease enables the lessee to operate an asset and also gives the lessee all the risks and rewards of owning the asset. Assets leased under a capital or finance lease are considered wholly owned assets in financial accounting and are recorded as such on the balance sheet. | Any approach: The lessor does not have ownership or financial or operational control of these assets. Therefore, the associated emissions always are scope 3 (indirect) for the lessor, regardless of the organizational boundary approach selected. | Any approach: The lessee is considered to have ownership and both financial and operational control of the leased asset. Therefore, emissions associated with fuel combustion should be categorized as scope 1 (direct), and emissions associated with the use of purchased electricity should be categorized as scope 2 (indirect), regardless of the organizational boundary approach selected. |
| Operating Lease This type of lease enables the lessee to operate an asset, like a building or vehicle, but does not give the lessee any of the risks or rewards of owning the asset. Any lease that is not a finance or capital lease is an operating lease. | Equity or Financial control approach: The emissions associated with fuel combustion should be categorized as scope 1 (direct), and the emissions associated with the use of purchased electricity should be categorized as scope 2 for the lessor Operational Control approach: The emissions from fuel combustion and the use of purchased electricity will always be scope 3 (indirect) for the lessor | Equity or Financial control approach: The emissions associated with fuel combustion and the use of purchased electricity should always be categorized as scope 3 (indirect) for the lessee. Operational Control approach: The emissions associated with fuel combustion should be categorized as scope 1 (direct), and emissions associated with the use of purchased electricity should be categorized as scope 2 (indirect) for the lessee. |
How to include outsourced operations
The selected consolidation approach (equity share or one of the two control approaches) is applied to account for and categorize direct and indirect GHG emissions from contractual arrangements such as leased assets, outsourced operations, and franchises. If the selected equity share or control approach applies, the company accounts for emissions from the asset under scope 1. If it does not apply, then the company accounts for emissions from the leased assets, outsourced operations, or franchises under scope 3 in the appropriate scope 3 category.
Operational Boundary
After a company has determined its organizational boundaries in terms of the operations that it owns or controls, it then sets its operational boundaries. This involves identifying emissions associated with its operations, categorizing them as direct and indirect emissions, and choosing the scope of accounting and reporting for indirect emissions.
What are Scope 1 Emissions?
Scope 1 refers to direct GHG emissions that occur from sources that are owned or controlled by the company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc., and emissions from chemical production in owned or controlled process equipment.
- Stationary Combustion: Scope 1 emissions from stationary equipment like boilers and furnaces to generate steam, heat or power.
- Mobile Combustion: Scope 1 emissions from burning fuel in transportation equipment like cars, trucks, trains, planes, ships, etc.
- Fugitive Emissions: Scope 1 emissions that are not physically controlled but result from the intentional or unintentional releases of GHGs arising from the production, processing transmission storage, and use of fuels and other chemicals, often through joints, seals, packing, gaskets, etc.
- Process Emissions: Emissions from physical or chemical processing.
What are Scope 2 Emissions?
Scope 2 refers to emissions from acquired and consumed electricity, steam, heating, and cooling. These emissions are a consequence of activities of the reporting organization but occur at sources owned or controlled by another organization (for example, they are owned or controlled by an electricity generator or utility).
What are Scope 3 Emissions?
Scope 3 emissions are a consequence of the activities that occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels; and use of sold products and services. Scope 3 activities also include waste disposal, employee business travel, and outsourced operations.
See GHG Protocol terms for a reference to GHG definitions.
The established organizational and operational boundaries together constitute a company’s inventory boundary.
Scope 3 Categories
Another step to completing the inventory list is identifying the Scope 3 categories to include in the emissions footprint. Some factors influencing the selection of relevant Scope 3 categories are size, influence, risk, stakeholders, outsourcing, and sector guidance.
The GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard (“Scope 3 Standard”) presents details on all scope 3 categories and requirements and guidance on reporting scope 3 emissions. The protocol defines 15 categories of scope 3 emissions, though not every category will be relevant to all organizations.
Once all the sources and operations have been identified and classified into the right scope, the next phase in the process is to collect data and identify emission factors for each item in the GHG inventory list. Stay tuned for the next article where we’ll delve into the steps to collect data and calculate GHG emissions!
