GHG Protocol and Emissions Scopes

Understanding greenhouse gas (GHG) accounting is fundamental to climate disclosure under AASB S2. This lesson covers the GHG Protocol framework that underpins emissions measurement and reporting worldwide, including the detailed requirements for each emissions scope.

Introduction to the GHG Protocol

The Global Standard for GHG Accounting

GHG Protocol Overview The Greenhouse Gas Protocol is the world’s most widely used greenhouse gas accounting standard, developed by the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD).

Key Components:

Corporate Accounting and Reporting Standard: Foundation for organizational GHG inventories
Corporate Value Chain (Scope 3) Standard: Detailed guidance for value chain emissions
Product Life Cycle Standard: Product-level GHG accounting
Policy and Action Standard: Government and policy-level accounting

Australian Adoption:

NGER (National Greenhouse and Energy Reporting) aligns with GHG Protocol
AASB S2 requires GHG Protocol-consistent methodology
Clean Energy Regulator uses GHG Protocol principles
Industry standards and voluntary programs adopt GHG Protocol

Core Principles

Relevance

Include all emissions sources and activities within the chosen inventory boundary
Reflect the GHG emissions profile of the company
Serve the decision-making needs of users

Completeness

Account for and report all GHG emission sources within the chosen boundary
Disclose and justify any exclusions
Use transparent methodologies and assumptions

Consistency

Use consistent methodologies over time
Document changes and recalculate historical data when necessary
Enable meaningful performance tracking and comparisons

Transparency

Address relevant issues factually and coherently
Disclose sufficient information for reviewers to make decisions
Provide clear documentation of methodology and assumptions

Accuracy

Ensure emissions quantification is systematically neither over nor under estimates
Reduce uncertainties as far as practical
Use conservative assumptions where uncertainty exists

The Six Kyoto Gases and CO2 Equivalents

Greenhouse Gas Types

Carbon Dioxide (CO2)

Sources: Fossil fuel combustion, cement production, deforestation
Global Warming Potential (GWP): 1 (reference gas)
Atmospheric Lifetime: 300-1000 years
Business Relevance: Primary emission for most organizations

Methane (CH4)

Sources: Agriculture, landfills, natural gas leakage, wastewater
GWP: 25 (100-year timeframe) / 82 (20-year timeframe)
Atmospheric Lifetime: 12 years
Business Relevance: Significant for agriculture, waste, oil & gas

Nitrous Oxide (N2O)

Sources: Agriculture, fossil fuel combustion, industrial processes
GWP: 298 (100-year timeframe)
Atmospheric Lifetime: 114 years
Business Relevance: Agriculture, chemical manufacturing, transport

Hydrofluorocarbons (HFCs)

Sources: Refrigeration, air conditioning, foam blowing, aerosols
GWP: 124-14,800 (varies by specific HFC)
Atmospheric Lifetime: 1-270 years
Business Relevance: HVAC systems, refrigeration, foam manufacturing

Perfluorocarbons (PFCs)

Sources: Aluminum production, semiconductor manufacturing
GWP: 7,390-12,200
Atmospheric Lifetime: 2,600-50,000 years
Business Relevance: Aluminum smelting, electronics manufacturing

Sulphur Hexafluoride (SF6)

Sources: Electrical equipment, magnesium production
GWP: 22,800
Atmospheric Lifetime: 3,200 years
Business Relevance: Electrical utilities, magnesium production

CO2 Equivalent Calculation

Formula: CO2e = (Activity Data) × (Emission Factor) × (Global Warming Potential)

Example Calculation:

Natural gas consumption: 1,000 GJ
CH4 emission factor: 0.001 kg CH4/GJ
CH4 Global Warming Potential: 25
CH4 emissions: 1,000 × 0.001 × 25 = 25 kg CO2e

GWP Timeframes:

20-year GWP: Emphasizes near-term climate impacts
100-year GWP: Standard for most reporting (IPCC AR5 values commonly used)
500-year GWP: Long-term perspective (rarely used in business)

Scope 1: Direct Emissions

Definition and Principles

Scope 1 Definition Direct greenhouse gas emissions from sources that are owned or controlled by the organization.

Key Characteristics:

Physical control: Organization has operational control over emission source
Direct emissions: Released directly from organization’s operations
Mandatory reporting: Required under most GHG reporting frameworks
High accuracy: Generally most accurate scope due to direct measurement

Major Source Categories

Stationary Combustion

Sources: Boilers, furnaces, power generation, heating systems
Fuels: Natural gas, coal, oil, biomass, waste
Calculation: Fuel consumption × emission factors
Data Sources: Utility bills, fuel delivery records, flow meters

Example Calculation:

Natural gas consumption: 10,000 GJ
CO2 emission factor: 51.3 kg CO2/GJ (Australian factor)
CH4 emission factor: 0.001 kg CH4/GJ
N2O emission factor: 0.0001 kg N2O/GJ
Total CO2e: (10,000 × 51.3) + (10,000 × 0.001 × 25) + (10,000 × 0.0001 × 298) = 513,548 kg CO2e

Mobile Combustion

Sources: Company vehicles, aircraft, ships, mobile equipment
Fuels: Petrol, diesel, aviation fuel, marine fuel
Calculation Methods: Fuel-based (litres × factors) or distance-based (km × factors)
Data Sources: Fuel cards, fleet management systems, logbooks

Industrial Processes

Sources: Chemical reactions, cement production, steel making
Types: Process emissions (non-energy), fugitive emissions
Calculation: Process-specific methodologies and emission factors
Examples: Cement calcination, aluminum smelting, ammonia production

Fugitive Emissions

Sources: Equipment leaks, venting, flaring, refrigerant losses
Types: Intentional releases, unintentional leaks
Measurement: Direct measurement, engineering estimates, emission factors
Management: Leak detection and repair (LDAR) programs

Australian-Specific Considerations

NGER Alignment

Scope 1 methodologies must align with NGER where applicable
Use Australian emission factors from NGER Technical Guidelines
Consider facility threshold requirements (25,000 tCO2e)
Maintain consistency between NGER and AASB S2 reporting

Emission Factors

Electricity: State-based grid emission factors (updated annually)
Fuels: Australian-specific factors from NGER Technical Guidelines
Industrial Processes: Sector-specific factors and methodologies
Updates: Annual updates through NGER Technical Guidelines

Scope 2: Indirect Energy Emissions

Definition and Methodology Options

Scope 2 Definition Indirect greenhouse gas emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the organization.

Location-Based Method

Approach: Uses average emission factors for grids on which energy consumption occurs
Data Requirements: Energy consumption data, grid emission factors
Use Case: Understanding regional grid impacts, regulatory compliance
Advantages: Simple, consistent, available data

Market-Based Method

Approach: Uses emission factors from contractual arrangements for energy purchases
Data Requirements: Energy consumption, supplier-specific emission factors, contracts
Use Case: Reflecting procurement choices, renewable energy purchasing
Advantages: Reflects purchasing decisions, incentivizes renewable procurement

Calculation Methodologies

Location-Based Calculation

Gather consumption data: kWh of electricity consumed by location
Apply grid factors: Use state/regional grid emission factors
Calculate emissions: kWh × emission factor = kg CO2e

Example:

NSW electricity consumption: 1,000,000 kWh
NSW grid emission factor: 0.79 kg CO2e/kWh (2023)
Scope 2 emissions: 1,000,000 × 0.79 = 790,000 kg CO2e

Market-Based Calculation

Identify energy contracts: Renewable energy contracts, supplier agreements
Apply contractual factors: Use supplier-specific or renewable energy factors
Use residual factors: For non-contracted energy, use residual grid factors
Calculate total emissions: Sum of contracted and residual emissions

Renewable Energy and Certificates

Australian Renewable Energy Certificates

Large-scale Generation Certificates (LGCs): For renewable electricity generation >100kW
Small-scale Technology Certificates (STCs): For small-scale renewable systems
Accounting Treatment: Can be used to claim zero-emission electricity in market-based method

Power Purchase Agreements (PPAs)

Physical PPAs: Direct delivery of renewable electricity
Virtual PPAs: Financial contract without physical delivery
Accounting: Physical PPAs clearly support zero-emission claims
Virtual PPAs: More complex accounting, may require additional certificates

Green Electricity Programs

GreenPower: Australian government-endorsed renewable energy program
Retailer Programs: Supplier-specific renewable energy offerings
Verification: Third-party verification of renewable energy delivery
Accounting: Can support zero-emission claims if properly verified

Introduction to Scope 3 Categories

Scope 3 Overview

Scope 3 Definition All other indirect greenhouse gas emissions that occur in an organization’s value chain, including both upstream and downstream emissions.

Materiality and Reporting

Materiality Assessment: Organizations should assess which categories are material
Reporting Requirements: AASB S2 requires material Scope 3 categories
Phased Implementation: Gradual introduction of Scope 3 requirements
Data Challenges: Often requires estimation and supplier engagement

The 15 Scope 3 Categories

Upstream Categories (1-8)

Category 1: Purchased Goods and Services

Description: Extraction, production, and transportation of goods and services
Examples: Raw materials, office supplies, professional services
Calculation: Spend-based, supplier-specific, or average product methods

Category 2: Capital Goods

Description: Production of capital goods purchased or acquired
Examples: Equipment, machinery, buildings, infrastructure
Calculation: Often requires cradle-to-gate life cycle assessment data

Category 3: Fuel- and Energy-Related Activities

Description: Upstream emissions from fuels and energy purchased (not in Scope 1 or 2)
Examples: Fuel extraction, refining, transmission losses
Calculation: Fuel consumption × upstream emission factors

Category 4: Upstream Transportation and Distribution

Description: Transportation and distribution of products purchased
Examples: Inbound logistics, third-party transportation
Calculation: Distance-based, spend-based, or fuel-based methods

Category 5: Waste Generated in Operations

Description: Disposal and treatment of waste generated in operations
Examples: Landfill, recycling, composting, incineration
Calculation: Waste quantity × treatment-specific emission factors

Category 6: Business Travel

Description: Transportation of employees for business activities
Examples: Air travel, car rentals, public transport, accommodation
Calculation: Distance-based methods with mode-specific factors

Category 7: Employee Commuting

Description: Transportation of employees between homes and worksites
Examples: Car, public transport, active transport
Calculation: Survey data, regional averages, or modeling approaches

Category 8: Upstream Leased Assets

Description: Operation of assets leased by the organization (not in Scope 1 or 2)
Examples: Leased buildings, vehicles, equipment
Calculation: Similar to Scope 1 and 2 for relevant assets

Downstream Categories (9-15)

Category 9: Downstream Transportation and Distribution

Description: Transportation and distribution of products sold
Examples: Outbound logistics, retail distribution
Calculation: Product-specific transportation analysis

Category 10: Processing of Sold Products

Description: Processing of intermediate products sold by the organization
Examples: Further manufacturing, assembly, packaging
Calculation: Product-specific life cycle analysis

Category 11: Use of Sold Products

Description: Use of products sold by the organization
Examples: Energy consumption during product use phase
Calculation: Product lifetime × use-phase emissions

Category 12: End-of-Life Treatment of Sold Products

Description: Waste disposal and treatment of products sold
Examples: Landfill, recycling, incineration of products
Calculation: Product composition × treatment emission factors

Category 13: Downstream Leased Assets

Description: Operation of assets owned and leased to others
Examples: Buildings, equipment leased to tenants
Calculation: Tenant energy consumption and operations

Category 14: Franchises

Description: Operation of franchises not included in Scope 1 or 2
Examples: Franchise restaurant, retail store operations
Calculation: Franchise-specific operational emissions

Category 15: Investments

Description: Financed emissions from investments
Examples: Equity investments, debt investments, project finance
Calculation: Proportional share of investee emissions

Scope 3 Materiality Assessment

Quantitative Criteria

Size: Categories contributing >5% of total Scope 3 emissions
Growth: Categories with high growth potential or trends
Uncertainty: Categories with high data uncertainty or variability

Qualitative Criteria

Influence: Categories where organization has potential influence
Risk: Categories with associated business risks or opportunities
Stakeholder Interest: Categories of concern to key stakeholders
Outsourcing: Activities previously performed in-house but now outsourced

Data Quality and Accuracy Considerations

Data Hierarchy

Tier 1: Supplier-Specific Data

Description: Primary data from suppliers on their actual emissions
Accuracy: Highest accuracy and relevance
Challenges: Limited availability, collection costs, verification needs
Best Use: Key suppliers, significant emission sources

Tier 2: Secondary Data - Product or Service Specific

Description: Secondary data specific to product or service categories
Accuracy: Good accuracy for product-level decisions
Sources: Life cycle databases, industry studies, government data
Best Use: Standard products, moderate-scale suppliers

Tier 3: Secondary Data - Industry Average

Description: Industry average data for broad categories
Accuracy: Lower accuracy but often readily available
Sources: Economic input-output models, sector averages
Best Use: Initial estimates, small suppliers, immaterial categories

Uncertainty and Quality Management

Sources of Uncertainty

Activity Data: Measurement errors, estimation methods, data gaps
Emission Factors: Factor accuracy, temporal relevance, geographic relevance
Methodology: Allocation methods, boundary decisions, calculation approaches

Quality Improvement Strategies

Prioritize high-impact categories for data quality improvements
Engage suppliers for primary data collection
Use multiple data sources for verification and validation
Document assumptions and methodology choices clearly
Regular updates of emission factors and methodologies

Summary

The GHG Protocol provides the foundation for all greenhouse gas accounting under AASB S2:

Global standard widely adopted for corporate GHG accounting
Six Kyoto gases with different global warming potentials require CO2 equivalent calculations
Scope 1 emissions from direct operations are most accurate and controllable
Scope 2 emissions from purchased energy require location-based and market-based approaches
Scope 3 emissions across 15 categories capture full value chain impacts
Data quality hierarchy guides prioritization of improvement efforts

Understanding these fundamentals enables accurate emissions measurement and strategic climate action.

Key Takeaways

✅ GHG Protocol is the global standard underlying AASB S2 emissions requirements ✅ Six Kyoto gases with different global warming potentials require CO2 equivalent conversion ✅ Scope 1 direct emissions are most accurate and within organizational control ✅ Scope 2 electricity requires both location-based and market-based calculations ✅ Scope 3 value chain emissions across 15 categories often represent largest impact ✅ Data quality hierarchy guides improvement priorities and resource allocation

Emissions Scope Summary

Scope	Definition	Data Quality	Control Level	AASB S2 Requirements
Scope 1	Direct emissions from owned/controlled sources	High	High	Mandatory, immediate
Scope 2	Indirect from purchased energy	Medium-High	Medium	Mandatory, both methods required
Scope 3	All other indirect value chain emissions	Variable	Low-Medium	Material categories, phased implementation

GHG Calculation Quick Reference

Scope 1 Stationary Combustion: Emissions = Fuel Consumption (GJ) × Emission Factor (kg CO2e/GJ)

Scope 2 Electricity (Location-based): Emissions = Electricity Consumption (kWh) × Grid Factor (kg CO2e/kWh)

Scope 3 Business Travel: Emissions = Distance (km) × Mode Factor (kg CO2e/km)

Practical Exercise

Emissions Inventory Design: For your organization or a case study:

Identify all Scope 1 sources in your operations (stationary combustion, mobile combustion, processes, fugitive)
Map Scope 2 energy purchases by location and supplier arrangements
Assess Scope 3 materiality across all 15 categories using quantitative and qualitative criteria
Prioritize 3-5 categories for detailed measurement and management
Design data collection approach using the data quality hierarchy
Plan improvement roadmap for data quality and scope expansion over time

Focus on accuracy for Scope 1, strategic procurement for Scope 2, and materiality-based approach for Scope 3.