Scope 1, 2 and 3 EmissionsGHG
Under the Greenhouse Gas Protocol, scope 1 emissions come directly from sources a company owns or controls, scope 2 from the electricity, heat or steam it buys, and scope 3 from everything else in its value chain, such as suppliers and the use of its products.
Company climate targets are only as good as what they count. The three scopes decide whether a firm is counting its own chimneys, its power bill, or its entire supply chain.
- Category
- Commodities, Energy and Carbon
- Reading time
- 4 min
- Also called
- GHG scopes, Scope 3 emissions, Value chain emissions
- Updated
The three scopes in plain words
Scope 1 covers emissions straight from sources a company owns or controls.1
Scope 2 covers indirect emissions from purchased electricity, steam, heat or cooling.2
Scope 3 is all other indirect emissions in the value chain, upstream and downstream.1
How to read a company's emissions
List owned sources
Count direct emissions from sources the organization controls or owns.2
Add purchased energy
Include emissions tied to buying electricity, steam, heat or cooling.2
Note where they occur
Scope 2 emissions physically occur at the power plant but are still counted by the buyer.3
Map the value chain
Scope 3 covers activities from assets the organization doesn't own or control.2
Check coverage
See whether scope 3 is reported at all and which categories are included.
Find the hotspots
A full inventory shows where the largest reduction opportunities are.1
Worked examples
Example 1 — A small factory
72% is scope 3A hypothetical factory reports 2,000 t scope 1, 1,500 t scope 2 and 9,000 t scope 3 (CO₂e).
| Total | 2,000 + 1,500 + 9,000 = 12,500 t |
| Scope 3 share | 9,000 ÷ 12,500 = 72% |
Counting the full value chain shows where the biggest reduction opportunities sit.1
Example 2 — Switching power supply
Scope 2 halvesThe factory buys 3,000 MWh a year at 0.5 t/MWh, then switches half to zero-emission supply.
| Old scope 2 | 3,000 × 0.5 = 1,500 t |
| New scope 2 | 1,500 × 0.5 = 750 t |
| Reduction | 1,500 − 750 = 750 t |
Purchased electricity sits in scope 2, so supply choices move this number.2
Example 3 — Outsourcing trap
Total unchangedThe firm outsources a process that emitted 800 t of scope 1.
| Scope 1 change | 2,000 − 800 = 1,200 t |
| Scope 3 change | 9,000 + 800 = 9,800 t |
| Net total | 12,500 − 800 + 800 = 12,500 t |
Emissions from assets it no longer owns move into scope 3 rather than disappearing.2
Scope 1 vs 2 vs 3
| Aspect | Scope 1 | Scope 2 | Scope 3 |
|---|---|---|---|
| Source | Owned or controlled | Purchased energy | Rest of value chain |
| Direct or indirect | Direct | Indirect | Indirect |
| Data quality | Usually good | Good | Often estimated |
| Typical size | Varies | Varies | Often largest |
Why traders and investors care
ESG screening
Compare companies in Fundamental Analysis.
Green bonds
Check claims behind Green, Social and Sustainability-Linked Bonds and the Greenium.
Carbon cost exposure
Estimate Exposure to carbon pricing.
Portfolio tilts
Inform Portfolio Allocation decisions.
Advantages and disadvantages
Advantages
- A common, widely used framework.
- Separates what a firm controls from what it influences.
- Makes year-on-year tracking possible.
- Highlights supply-chain hotspots.
Disadvantages
- Scope 3 relies heavily on estimates.
- The same emissions can appear in several companies' scope 3.
- Boundary choices change totals.
- Disclosure rules differ by country.
Going deeper
Read as far as you need. Each level builds on the one before it.
Three buckets
Beginner
Scope 1 is direct; scope 2 is purchased energy; scope 3 is the rest of the value chain.1
Where emissions physically happen
Intermediate
Scope 2 emissions happen at the power plant but count in the buyer's inventory.3
Full inventories
Advanced
A complete scope 1, 2 and 3 inventory helps focus on the largest reduction opportunities; mandatory reporting requirements vary by country and regulator.1
Common mistakes
Ignoring scope 3
Judging a company on scopes 1 and 2 only.
Adding across companies
Double-counting shared scope 3.
Taking outsourcing as cuts
Emissions moving scopes, not falling.
Assuming one rulebook
Disclosure rules differ by country.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Scope 1 is direct emissions.
- Scope 2 is purchased energy.
- Scope 3 is the rest of the value chain.
- Scope 3 is often the largest and least precise.
- Reporting rules differ by country.
Frequently asked questions
Who sets the scope definitions?
Are scope 3 disclosures mandatory?
Why is scope 3 hard to measure?
Further learning
- Green, Social and Sustainability-Linked Bonds
Green and sustainability bonds.
- Greenium
Pricing of green debt.
- Fundamental Analysis
Using non-financial data.
- Portfolio Allocation
Applying ESG tilts.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- Greenhouse Gas Protocol (WRI/WBCSD). FAQ (opens in a new tab) Checked .
- U.S. Environmental Protection Agency. Determine Emissions Sources (opens in a new tab) Checked .
- U.S. Environmental Protection Agency. Renewable Energy in a Corporate GHG Emissions Inventory (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.