Category 3 Fuel and Energy Related Activities – The best calculation guidance

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Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2
Overview – Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2
Category 3 Fuel and Energy Related Activities – Calculating upstream emissions of purchased fuels (activity A of table 3.1)
Calculating upstream emissions of purchased electricity (activity B of table 3.1)
Calculating emissions from transmission and distribution losses (activity C in table 3.1)
Calculating life cycle emissions from power that is purchased and sold (activity D in table 3.1)

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2

Category description – Category 3 Fuel and Energy Related Activities includes emissions related to the production of fuels and energy purchased and consumed by the reporting company in the reporting year that are not included in scope 1 or scope 2.

This guidance page for Category 3 Fuel and Energy Related Activities serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Category 3 excludes emissions from the combustion of fuels or electricity consumed by the reporting company because they are already included in scope 1 or scope 2. Scope 1 includes emissions from the combustion of fuels by sources owned or controlled by the reporting company. Scope 2 includes the emissions from the combustion of fuels to generate electricity, steam, heating, and cooling purchased and consumed by the reporting company.

Overview – Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2 (often abbreviated as Category 3 emissions) refer to indirect emissions associated with a company’s value chain, which are not directly controlled or owned by the organization but result from its activities. These emissions primarily stem from sources such as upstream and downstream activities, including extraction, production, and distribution of fuels and energy that a company utilizes but does not directly manage. Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: The categorization of greenhouse gas (GHG) emissions is defined by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources that are owned or controlled by the company, such as onsite fuel combustion. Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions along the value chain, including both upstream and downstream activities.
  2. Category 3 Emissions: Within Scope 3 emissions, Category 3 specifically focuses on fuel and energy-related activities that are not included in Scopes 1 or 2. These emissions arise from sources outside the company’s direct control but are associated with the company’s activities, such as the extraction, production, and transportation of fuels and energy sources used by the organization.

Characteristics:

  1. Indirect Nature: Category 3 emissions are indirect emissions, meaning they result from activities associated with the company’s value chain but occur outside of the company’s operational boundaries.
  2. Complexity: Assessing and managing Category 3 emissions can be challenging due to the complexity of tracing emissions throughout the supply chain, as well as the diverse range of activities involved in fuel extraction, production, and distribution.
  3. Scope and Coverage: Category 3 emissions cover a broad spectrum of activities, including but not limited to upstream activities such as extraction and processing of raw materials, transportation of fuels, and downstream activities like refining and distribution.

Examples:Category 3 Fuel and Energy Related Activities

  1. Upstream Activities: Emissions associated with the extraction of fossil fuels such as oil, natural gas, and coal, including drilling, mining, and processing.
  2. Transportation: Emissions from the transportation of fuels and energy sources, including shipping, pipeline transport, and road transport of crude oil, refined products, and natural gas.
  3. Refining and Processing: Emissions generated during the refining and processing of crude oil and natural gas into usable fuels and energy products, such as gasoline, diesel, and electricity.
  4. Distribution: Emissions related to the distribution of fuels and energy sources to end-users, including storage, handling, and transportation to retail outlets or industrial consumers.

Importance:

  1. Comprehensive Emissions Accounting: Addressing Category 3 emissions allows companies to achieve a more comprehensive understanding of their carbon footprint and environmental impact, enabling better-informed decision-making and targeted emission reduction efforts.
  2. Supply Chain Management: Managing Category 3 emissions necessitates collaboration and engagement with suppliers and partners throughout the value chain, promoting sustainability and environmental stewardship across the entire supply network.
  3. Risk Mitigation: Understanding and mitigating Category 3 emissions can help companies reduce their exposure to regulatory, market, and reputational risks associated with climate change and carbon-intensive activities.

Considerations:

  1. Data Availability and Accuracy: Assessing Category 3 emissions requires access to reliable data on emissions factors, energy consumption, and supply chain activities, which may pose challenges due to data availability and accuracy issues.
  2. Supply Chain Engagement: Engaging with suppliers and partners to address Category 3 emissions requires collaboration, transparency, and alignment of goals and objectives, which may necessitate developing partnerships and implementing supply chain sustainability initiatives.
  3. Lifecycle Analysis: Conducting lifecycle assessments of products and services can help identify hotspots and opportunities for emissions reductions across the entire value chain, including Category 3 activities.

Conclusion:

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2 represent a significant component of a company’s indirect emissions profile, reflecting the environmental impact associated with the extraction, production, and distribution of fuels and energy sources used in its operations. By comprehensively addressing Category 3 emissions and integrating sustainability principles into supply chain management practices, companies can enhance their environmental performance, mitigate risks, and contribute to global efforts to combat climate change.

This category includes emissions from four activities (see table 3.1).

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Fuel and energy related emissions not included in scope 1 or scope 2

Table 3.2 explains how each company accounts for GHG emissions. In this example, the emission factor of the electricity sold by Company B is 1 tonne (t) CO2e/MWh. All numbers are illustrative only.

Table [3.2] Accounting for emissions across an electricity value chain

Category 3 Fuel and Energy Related Activities

Category 3 Fuel and Energy Related Activities – Calculating upstream emissions of purchased fuels (activity A of table 3.1)

This activity includes the extraction, production, and transportation of fuels consumed by the reporting company. Companies may use either of the following methods to calculate scope 3 emissions from upstream emissions of purchased fuels: Category 3 Fuel and Energy Related Activities

  • Supplier-specific method, which involves collecting data from fuel providers on upstream emissions (extraction, production and transportation) of fuel consumed by the reporting company
  • Average-data method, which involves estimating emissions by using secondary (e.g., industry average) emission factors for upstream emissions per unit of consumption (e.g., kg CO2e/kWh).

Activity data needed

Companies should collect data on: Category 3 Fuel and Energy Related Activities

  • Quantities and types of fuel consumed. Category 3 Fuel and Energy Related Activities

Emission factors needed

To calculate emissions from this activity, companies should use life cycle emission factors that exclude emissions from combustion, since emissions from combustion are accounted for in scope 1 (in the case of fossil fuels) or in a separate memo item (in the case of direct CO2 emissions from combustion of biomass or biofuels).

If using the supplier-specific method, companies should use fuel-provider-specific emission factors for extraction, production, and transportation of fuels per unit of fuel consumed (e.g., kg CO2e/kWh), by fuel type and country/region. Category 3 Fuel and Energy Related Activities

If using the average-data method, companies should use average emission factors for upstream emissions per unit of consumption (e.g., kg CO2e/kWh).

Data collection guidance

Companies may obtain data by:

  • Reference to their scope 1 GHG inventory, including quantities, sources and types of fuels consumed
  • Collecting data from their fuel procurement departments
  • If necessary, collecting data from fuel suppliers
  • Reference to life cycle databases.

A list of third-party databases is on the GHG Protocol website (http://www.ghgprotocol.org/Third-Party-Databases).

Additional databases may be added periodically, so continue to check the website.

Some sources of emission factors may provide upstream emissions of purchased fuels, excluding emissions from combustion. If this is not the case, companies should determine upstream emissions from purchased fuels (excluding emissions from combustion) using the following formula.

Category 3 Fuel and Energy Related ActivitiesIf possible, the combustion and life cycle emission factors should be from the same temporal, technical, and geographic representativeness (see table 7.6 of the Scope 3 Standard).

Calculating upstream emissions of purchased electricity (activity B of table 3.1)

This activity includes the extraction, production, and transportation of fuels consumed in the generation of electricity, steam, heating, and cooling that is consumed by the reporting company. Companies may use either of the following methods to calculate scope 3 emissions from upstream emissions of purchased electricity:

  • Supplier-specific method, which involves collecting data from fuel providers on upstream emissions (extraction, production and transportation) of fuel consumed by the reporting company
  • Average-data method, which involves estimating emissions by using secondary (e.g., industry average) emission factors for upstream emissions per unit of consumption (e.g., kg CO2e/kWh).

Activity data needed

Companies should collect data on: Category 3 Fuel and Energy Related Activities

  • Total quantities of electricity, steam, heating, and cooling purchased and consumed per unit of consumption (e.g., MWh), broken down by supplier, grid region, or country.

Emission factors needed

To calculate emissions from this activity, companies should use life cycle emission factors that exclude emissions from combustion, since emissions from combustion are accounted for in scope 2 (in the case of electricity).

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Companies should select an emission factor using one of the following approaches: Category 3 Fuel and Energy Related Activities

Supplier-specific method

  • Utility-specific emission factors for extraction, production and transportation of fuels consumed per MWh of electricity, steam, heating, or cooling generated.

If data for the above is not available or applicable, companies should use the following approach: Category 3 Fuel and Energy Related Activities

Average-data method

  • Grid-region, country, or regional emission factors for extraction, production, and transportation of fuels per unit of consumption (e.g., kg CO2e/kWh) of electricity, steam, heating, or cooling generated.

Companies should ensure that emission factors used to calculate upstream emissions of purchased electricity do not include emissions from combustion because emissions from combustion to generate electricity are accounted for in scope 2 (see figure 3.1).

Category 3 Fuel and Energy Related Activities

Data collection guidance

Companies should disaggregate the total amount of electricity, steam, heating, or cooling purchased, by characteristics such as supplier, grid region, or country. Energy consumption data should then be multiplied by representative emission factors (e.g., supplier or grid region) to calculate emissions.

Data sources for activity data include: Category 3 Fuel and Energy Related Activities

  • Reference to their scope 2 GHG inventories, including quantity and sources of electricity, steam, heat, and cooling consumption and the grid mix where the electricity was consumed
  • National statistics published by government agencies
  • Government agency energy management departments
  • If necessary, energy suppliers or generators.

Data sources for emission factors include: Category 3 Fuel and Energy Related Activities

  • Supplier developed emission factors for life cycle of fuels
  • Life cycle databases – excluding emissions from fuel combusted to generate electricity and transmission and distribution (T&D) losses.

The combustion and life cycle emission factors should be from the same temporal, technical, and geographic representativeness (see table 7.6 of the Scope 3 Standard).

Scope 2 includes emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company. In some regions, electricity emission factors include life cycle activities related to electricity, such as transmission and distribution of electricity, or extraction, processing and transportation of fuels used to generate electricity.

Non-generation activities related to electricity are accounted for in scope 3, category 3 (Fuel- and energy-related activities not included in scope 1 or scope 2), rather than in scope 2.

As a result, companies should seek (and emission factor developers should provide) transparent, disaggregated electricity emission factors that allow separate accounting of emissions from electricity generation in scope 2 and non-generation activities related to electricity in scope 3.

Proper accounting creates consistency in scope 2 accounting and reporting among companies and avoids double counting of the same emission within scope 2 by more than one company. See figure 7.2 in the Scope 3 Standard for more information on different types of electricity emission factors.

Calculation formula [3.2] Upstream emissions of purchased electricity

Upstream CO2e emissions of purchased electricity

(Extraction, production, and transportation of fuels consumed in the generation of electricity, steam,

heating, and cooling that is consumed by the reporting company) =

sum across suppliers, regions, or countries:

Σ (electricity consumed (kWh) × upstream electricity emission factor (kgCO2e)/kWh))

+ (steam consumed (kWh) × upstream steam emission factor (kg CO2e)/kWh))

+ (heating consumed (kWh) × upstream heating emission factor (kg CO2e)/kWh))

+ (cooling consumed (kWh) × upstream cooling emission factor (kg CO2e)/kWh))

where:

upstream emission factor = life cycle emission factor – combustion emissions factor – T&D losses

Note: T&D losses need to be subtracted only if they are included in the life cycle emission factor.

Companies should check the emission factor to establish whether or not T&D losses have been taken into account.

Calculating emissions from transmission and distribution losses (activity C in table 3.1)

This activity includes the lifecycle emissions of electricity, steam, heating, and cooling that is consumed (i.e., lost) in a transmission and distribution (T&D) system.

Companies may use the following methods to calculate scope 3 emissions from T&D losses:

  • Supplier-specific method, which involves collecting data from electricity providers on T&D loss rates of grids where electricity is consumed by the reporting company
  • Average-data method, which involves estimating emissions by using average T&D loss rates (e.g., national, regional, or global averages, depending on data availability).

Activity data needed

Companies should collect data on: Category 3 Fuel and Energy Related Activities

  • Electricity, steam, heating, and cooling per unit of consumption (e.g., MWh), broken down by grid region or country.

Emission factors needed

Companies should collect combustion emission factors for electricity, steam, heating, and cooling, and also use the approaches below to collect data on T&D loss rates.

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Supplier-specific method

  • Utility-specific T&D loss rate (percent), specific to the grid where energy is generated and consumed.

If data for the above is not available or applicable, the following approach should be used: Category 3 Fuel and Energy Related Activities

Average-data method

  • Country average T&D loss rate (percent)
  • Regional average T&D loss rate (percent)
  • Global average T&D loss rate (percent)

Data collection guidance Category 3 Fuel and Energy Related Activities

A World Bank database provides T&D loss rates by country (http://data.worldbank.org/indicator/EG.ELC.LOSS.ZS?order=wbapi_data_value_2009+wbapi_data_value+wbapi_data_value-last&sort=desc).

Calculation formula [3.3] Transmission and distribution losses

CO2e emissions from energy (generation of electricity, steam, heating,

and cooling that is consumed (i.e., lost) in a T&D system) =

sum across suppliers, regions, or countries:

Σ (electricity consumed (kWh) × electricity life cycle emission factor ((kg CO2e)/kWh) × T&D loss rate (%))

+ (steam consumed (kWh) × steam life cycle emission factor ((kg CO2e)/kWh) × T&D loss rate (%))

+ (heating consumed (kWh) × heating life cycle emission factor ((kg CO2e)/kWh) × T&D loss rate (%))

+ (cooling consumed (kWh) × cooling life cycle emission factor ((kg CO2e)/kWh) × T&D loss rate (%))

.

Example [3.1] Calculating upstream emissions of purchased electricity

Company A operates data center services in 10 countries. It purchases electricity, and in some countries, district heating, to run its data centers (district heating is a centrally operated heating system that services entire cities or other large areas). It is able to collect primary data on all electricity purchased through an energy tracking system, and uses an average-data method for relevant emission factors.

Note that this is an example for category 3 as a whole. As Company A does not sell purchased electricity, it does not have any emissions associated with category 3 activity D (life cycle emissions of power that is purchased and sold).

Category 3 Fuel and Energy Related Activities

Company A sources emission factors for extraction-, production-, and transportation-related emissions of fuels for producing electricity/heating, as well as T&D losses:

Category 3 Fuel and Energy Related Activities

upstream emissions from purchased electricity (category 3, activity B):

= (500,000 × 0.12) + (600,000 × 0.1) + (400,000 × 0.15) + (5,500,000 × 0.1) + (200,000 × 0.05)

= 740,000 kg CO2e

life cycle emissions from transmission and distribution losses (category 3, activity C):

= (500,000 × 0.8 × 0.1) + (600,000 × 0.4 × 0.13) + (50,000 × 0.15 × 0.05) + (400,000 × 0.8 × 0.15) + (5,500,000 × 0.5 ×

0.1) + (200,000 × 0.4 × 0.12)

= 404,175 kg CO2e

upstream emissions from purchased heating (category 3, activity B):

= 50,000 × 0.05

= 2,500 kg CO2e

total emissions from upstream purchased electricity and heat including transmission

and distribution losses is calculated as follows:

= 740,000 + 404,175 + 2,500

= 1,146,675 kg CO2e

Calculating life cycle emissions from power that is purchased and sold (activity D in table 3.1)

This activity includes the generation of electricity, steam, heating, and cooling that is purchased by the reporting company and sold to end users (reported by a utility company or energy retailer).

Companies may use the following methods to calculate scope 3 emissions from power that is purchased and sold:

  • Supplier-specific method, which involves collecting emissions data from power generators
  • Average-data method, which involves estimating emissions by using grid average emission rates.

Activity data needed

Companies should collect data on: Category 3 Fuel and Energy Related Activities

  • Quantities and specific source (e.g., generation unit) of electricity purchased and re-sold.

Emission factors needed

Companies should collect data using one of the following approaches: Category 3 Fuel and Energy Related Activities

Supplier-specific method

  • Specific CO2, CH4, and N2O emissions data for generation units from which purchased power is produced.

If data for the above is not available or applicable, the following approach may be used.

Average-data method

Calculation formula [3.4] Emissions from power that is purchased and sold

CO2e emissions from power that is purchased and sold

(generation of electricity, steam, heating, and cooling

that is purchased by the reporting company and

sold to end users (reported by utility company or energy retailer)) =

sum across suppliers, regions or countries:

Σ (electricity purchased for resale (kWh) × electricity life cycle emission factor (kg CO2e)/kWh))

+ (steam purchased for resale (kWh) × steam life cycle emission factor (kg CO2e)/kWh))

+ (heating purchased for resale (kWh) × heating life cycle emission factor (kg CO2e)/kWh))

+ (cooling purchased for resale (kWh) × cooling life cycle emission factor (kg CO2e)/kWh))

Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities Category 3 Fuel and Energy Related Activities

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