Are You Prepared for Scope 3?
The GHG Protocol’s Scope 3 accounts for emissions across every link of the supply chain, as well as the tank-to-wheel emissions.
Suppliers’ heads keep spinning. If the challenges of inflation, energy costs, logistics and labor scarcity weren’t enough chaos, here comes another hurdle: The ongoing push for de-carbonization — reducing your company’s emissions footprint and that of its products — is wrapped into a new set of protocols called Scope.
Before we get too far into the weeds, it is important to understand key definitions used by government and industry to underscore emissions commitments. Carbon neutrality is the balancing out of emitting versus absorbing carbon over a timeframe. Several governments and companies have offered this as an early pledge, or low bar, to get all parties onboard.
A growing list of industry players are moving to renewable energy sources and the elimination of all waste during the manufacturing process, both in-house and across their supply chains. The aim is to achieve carbon net zero – no carbon emissions whatsoever, from raw material mining to end-of-use recycling. It’s a high bar indeed, and it’s aligned with the regulatory and corporate deadlines for the end of combustion-vehicle sales, replaced by 100% EV sales.
Amid these dynamics comes the Greenhouse Gas Protocol, a global greenhouse-gas (GHG) accounting standard. The GHG Protocol’s mission is to establish comprehensive guidance for measuring and managing GHG emissions from private and public sector operations up and down the value chain. The protocol is not just another eco-assertive NGO. It’s aligned with the World Business Council for Sustainable Development and counts a growing number of Fortune 500 companies that are implementing it in some way. Investors have taken notice. Regional and local governments are also jumping on board.
To help organizations to understand their full value-chain emissions and to focus their efforts on the greatest reduction opportunities, the GHG Protocol developed a full GHG emissions inventory that it calls Scope 1, Scope 2 and Scope 3. Scope 1 covers emissions from sources that an organization owns or controls directly, such as tailpipe emissions of non-EV corporate fleet vehicles. Scope 2 are a company’s indirect emissions from the energy it purchases and uses. An example would be grid electricity generated by coal that is used to power an EV fleet. Currently, these account for ~2% on average of total emissions over the vehicle life cycle, according to S&P Global Mobility research.
Scope 3 emissions are “a consequence of the activities of the company but occur from sources not owned or controlled by it,” according to the GHG Protocol. Scope 3 thus encompasses every link of the supply chain, as well as the tank-to-wheel emissions related to moving the vehicle and even vehicle recycling. Scope 3 accounts for roughly 80% of total vehicle lifecycle emissions.
Why is this so important to the supply base? Suppliers will be asked to improve their processes, optimize material choice and other energy consumption factors to reduce their own carbon footprints as well as those of their customers. They will also be tasked to offer technologies to reduce Scope 3 use-phase emissions — especially in the tank-to-wheel area.
Shifting to BEV propulsion technologies and structures will be a key enabler here. Scope 3’s impact on smaller, lower-tier suppliers will vary depending upon their CO2 footprint. In some cases, shifting to different upstream supply sources will be necessary. Some of these shifts could be onerous, especially if decisions are not applied consistently between customers.
Driven by government and societal goals, OEMs are orchestrating the shift to BEV propulsion with suppliers being required to do their share towards an ultimate net-zero carbon future. OEMs will not be able to achieve these gains alone. Smart, forward-looking suppliers should outline how they are part of the solution. Checking this box has critical implications for long-term success.