Scope Review for the GHG Protocol

The Greenhouse Gas Protocol splits emissions into three scopes: Scope 1 is what you burn directly, Scope 2 is the energy you purchase, and Scope 3 is everything else across your value chain, typically 70–90% of the total. AASB S2 names it the primary measurement framework, so it's where Australian reporting begins.

The GHG Protocol is the world's most widely used framework for measuring emissions, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Its Corporate Standard classifies emissions into three scopes so organisations can see where emissions come from and avoid double-counting between companies in the same value chain.

Scope 1: Direct emissions

Emissions from sources your organisation owns or controls directly, the ones you can act on most immediately. Common examples: fuel combustion in company vehicles, on-site natural gas for heating or manufacturing, fugitive emissions from refrigerant leaks, and process emissions from industrial activities like cement production.

Scope 2: Purchased energy

Emissions from the generation of purchased energy you consume, most commonly electricity, but also purchased steam, heating and cooling. The GHG Protocol requires two methods: the location-based method (average grid factors for your region) and the market-based method (factors from contractual instruments like RECs or PPAs). Under AASB S2, Australian entities must report Scope 2 location-based, and may additionally report market-based.

Location-based vs market-based: two numbers, same electricity

The two methods answer different questions. Location-based asks: what was the average emissions intensity of the grid where you consumed the electricity? It uses regional grid factors and ignores your contracts entirely. Market-based asks: what emissions attach to the specific products you chose to buy? If you've surrendered renewable certificates or signed a renewable PPA, that shows up here; the electricity you haven't covered is assigned a residual-mix factor.

A counterintuitive consequence: if you buy no renewable instruments, your market-based figure can come out higher than location-based, because the residual mix (the grid with the already-claimed renewables stripped out) is more carbon-intensive than the average.

Working a Scope 2 number from an electricity bill

The formula is simple; the care is all in the inputs:

Electricity consumed (kWh) × grid emission factor (kg CO₂-e/kWh) ÷ 1,000 = tonnes CO₂-e

The three things that go wrong are all in the inputs, not the arithmetic: pulling the wrong number off the bill (you want total kWh across peak, shoulder and off-peak, not the dollar amount, not the demand charge in kVA), applying the wrong state factor (grid intensity varies several-fold between states, so a national average misstates every site), and mixing up kWh and MWh (a factor-of-1,000 error, and some large-site bills report MWh). Emission factors are also revised each year, so a stale factor quietly biases your trend.

Illustrative only. Use the current-year state factors from the NGA Factors workbook (DCCEEW) for real reporting; the exact figures are revised annually.

Scope 3: Value chain emissions

All other indirect emissions across your value chain: upstream (suppliers) and downstream (use and disposal of your products). For most organisations this is the largest share, often 70–90% of total emissions. The Corporate Value Chain (Scope 3) Standard defines 15 categories.

Illustrative split. The exact shares vary by industry, but Scope 3 almost always dominates.

You screen all 15; you report the ones that are material

The 15 categories are a checklist to consider, not a quota to fill. AASB S2 requires you to disclose which categories you've included, which means the exclusions need a reason on record, not that every category needs a number. For most organisations only about five to eight are material, and which ones depends heavily on the business: purchased goods & services (Category 1) for anyone buying physical goods; use of sold products (Category 11) for energy and manufacturing; investments (Category 15) for financial institutions, where it can be nearly the entire footprint.

A workable screen for each category: do you have material activity here, can you get data or a defensible estimate, and would leaving it out misrepresent the total? Document the answer. Spend-based estimates are acceptable in the early years. The expectation is that you improve data quality over time, not that you're perfect from year one.

Why Scope 3 is the hardest

Data availability: you depend on suppliers and customers for data they may not yet collect. Boundary decisions: deciding which categories are material takes judgement. Methodology choices: supplier-specific, hybrid, average-data and spend-based approaches each trade accuracy against feasibility. Scale: for many organisations, Category 1 (purchased goods and services) alone dwarfs Scope 1 and 2 combined. This is exactly why Australia's ASRS legislation provides transition reliefs and safe harbour for Scope 3.