Scope Review for the GHG Protocol

A breakdown of Scope 1, 2, and 3 emissions under the GHG Protocol and how to approach each category.

The Greenhouse Gas Protocol is the world's most widely used framework for measuring and managing greenhouse gas emissions. Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), it underpins corporate emissions reporting globally — including Australia's new mandatory climate disclosure regime under AASB S2.

The three scopes explained

The GHG Protocol's Corporate Accounting and Reporting Standard classifies emissions into three scopes. This classification helps organisations understand where their emissions come from and avoids double-counting between companies in the same value chain.

Scope 1: Direct emissions

Scope 1 covers emissions from sources that your organisation owns or controls directly. These are the emissions you have the most immediate ability to reduce.

Common examples include:

Combustion of fuel in company-owned vehicles
On-site burning of natural gas for heating or manufacturing
Fugitive emissions from refrigerant leaks in air conditioning systems
Process emissions from industrial activities (e.g. cement production)

Scope 2: Indirect emissions from purchased energy

Scope 2 covers emissions from the generation of purchased energy that your organisation consumes. The most common source is purchased electricity, but it also includes purchased steam, heating, and cooling.

The GHG Protocol requires two accounting methods for Scope 2:

Location-based method — uses average grid emission factors for the region where energy is consumed. This reflects the average carbon intensity of the local electricity grid
Market-based method — uses emission factors from contractual instruments such as renewable energy certificates (RECs), power purchase agreements (PPAs), or supplier-specific factors. This reflects your organisation's specific energy procurement choices

Under AASB S2, Australian entities must report Scope 2 using the location-based method, and may additionally report using the market-based method.

Scope 3: Value chain emissions

Scope 3 covers all other indirect emissions that occur across your value chain — both upstream (from suppliers) and downstream (from the use and disposal of your products). For most organisations, Scope 3 represents the largest share of total emissions, often 70–90%.

The Corporate Value Chain (Scope 3) Standard defines 15 categories:

Upstream categories (1–8)

Purchased goods and services — emissions from the production of everything you buy
Capital goods — emissions from producing long-lived assets (equipment, buildings, vehicles)
Fuel- and energy-related activities — emissions not included in Scope 1 or 2 (e.g. upstream extraction and refining of fuels, transmission losses)
Upstream transportation and distribution — emissions from moving goods to your organisation
Waste generated in operations — emissions from disposal or treatment of your operational waste
Business travel — employee travel for business purposes (flights, hotels, taxis)
Employee commuting — emissions from employees travelling to and from work
Upstream leased assets — emissions from assets you lease but do not own

Downstream categories (9–15)

Downstream transportation and distribution — emissions from moving your products to customers
Processing of sold products — emissions from further processing of intermediate products you sell
Use of sold products — emissions from customers using your products
End-of-life treatment of sold products — emissions from disposal of products you have sold
Downstream leased assets — emissions from assets you own but lease to others
Franchises — emissions from franchise operations
Investments — emissions from your equity investments and financing activities

Why Scope 3 is the hardest

Scope 3 presents unique challenges:

Data availability — you depend on suppliers and customers for data they may not yet collect or share
Boundary decisions — determining which categories are material and where to draw the line requires judgement
Methodology choices — the Technical Guidance offers multiple calculation approaches (supplier-specific, hybrid, average-data, spend-based), each with different accuracy and feasibility trade-offs
Scale — for many organisations, Category 1 (purchased goods and services) alone can dwarf Scope 1 and 2 combined

This is precisely why Australia's ASRS legislation provides transition reliefs and safe harbour protections for Scope 3 disclosures.

The GHG Protocol review process

The GHG Protocol is currently undergoing a significant review and update process. Key areas under consideration include:

Scope 3 inventory quality — improving guidance on data quality, calculation methods, and the hierarchy of approaches
Market-based accounting for Scope 3 — expanding the use of contractual instruments and supplier-specific data
Alignment with ISSB — ensuring the protocol supports the disclosure requirements of IFRS S2 and its national implementations (including AASB S2)
Land use and removals — clarifying how carbon removals and biogenic emissions should be accounted for

The review outcomes will likely shape how Australian entities approach their Scope 3 reporting in coming years. Watch the GHG Protocol website for updates.

Relevance to Australian reporting

AASB S2 explicitly references the GHG Protocol as the primary measurement framework for greenhouse gas emissions. Understanding the three scopes and the 15 Scope 3 categories is not optional — it is foundational to meeting your reporting obligations. Whether you are a Group 1 entity already reporting, or a Group 3 entity preparing for 2027, the GHG Protocol framework is where it all begins.