An introduction to scope 3 - chapter 4 - What type of Scope 3 input data do we need and how do we collect and manage this vast data?
When a company has identified its Scope 3 activities and created a priority list in accordance with the Scope 3 standard it is time to collect data to quantify emissions.
There are two main methods for quantifying scope 3 emissions: direct measurement and calculations.
In direct measurements GHG emissions are quantified with direct measurements on site. Direct measurements are usually not available and therefore very little used in Scope 3 inventories.
In calculation GHG emissions are quantified with the multiplication of activity data and a relevant emission factor. Activity data refers to information about the specific activities that are responsible for greenhouse gas (GHG) emissions. This can include factors such as the amount of fuel consumed, the distance traveled, or the amount of electricity used. In GHG emissions calculations, activity data is typically used in conjunction with emission factors, which represent the amount of GHGs that are released into the atmosphere as a result of the specific activity. By combining activity data with emission factors, it is possible to estimate the total amount of GHG emissions that are associated with a particular activity, such as a car journey or the operation of a power plant.
Scope 3 emission factors
As described in earlier issues of our Scope 3 article series, the Scope 3 standard does not have a single operational boundary for all the 15 Scope 3 categories. For example, some categories require reporting only combustion emissions (i.e., allocated Scope 1 and Scope 2 emissions of relevant suppliers) whereas some categories require reporting cradle-to-gate emissions. This affects the type of emissions factor that will be used in the calculations, whether to use a life cycle emissions factor (or cradle-to-gate emission factor) or a combustion emission factor.
If emissions are quantified for a purchased good (Category 1) or purchased capital goods (Category 2) then cradle-to-gate emission factors (also referred as upstream emission factors) should be used in the calculations. This applies to all purchased material and products. A cradle-to-gate emission factor should include all upstream emissions, in other words it should account for all emissions that occur in the life cycle of the product until it reaches the company premises, such as raw material extraction transportation between suppliers and processing manufacturing. Emissions generated in life stages after that, such as consumer use or waste handling at the end-of-life is not relevant. An emission factor that accounts for all life stages is referred to as life cycle emission factor. Scope 3 standard requires to quantify only cradle-to-gate emissions of purchased material and products therefore life cycle emission factors is not relevant here.
Selecting emission factor for fuels and electricity is however a bit trickier due to the system boundaries of Scope 1 and Scope 2 and Scope 3 emissions. What is critical here is whether the fuel or electricity is purchased directly by the company or if the fuel or electricity is consumed somewhere in the value chain. The last stage in the life cycle of fuel, which is also referred to as end-of-life is combustion. Therefore, upstream emission factors for fuel do not include combustion. Life cycle emission factors on the other hand includes all life stages, meaning it includes all upstream life cycle stages and combustion too.
If purchased directly by the company, then Scope 3 has a dedicated category for it, Category 3. In this case only upstream emissions are to be reported. This means for purchased fuels upstream emission factor which accounts for upstream emissions such as extraction, processing, production and transportation between suppliers should be used in the calculations. Similarly, for purchased electricity an upstream emission factor which accounts for emissions generated in life stages such as extraction, production, and transportation of fuels consumed in the generation of electricity (and other types of energy) should be used. The point here is to exclude emissions from combustion, which is already accounted for in Scope 1 and/or Scope 2 inventories, to avoid double counting of combustion emissions across Scope 1 Scope 2 and Scope 3 inventories which must be mutually exclusive.
If not directly purchased by the company but used elsewhere in the company value chain, then life cycle emission factors are to be used in the calculations, which includes also emissions from combustion in addition to all upstream emissions. However, there can be advantages in presenting upstream emissions and combustion emissions separately in the Scope inventory report.
To increase the transparency in the calculations NEMS calculates emissions from combustion and other life cycle stages (upstream) separately and presents them separately in the Scope 3 inventory reports for our customers. For example, for an E&P company Scope 3 emissions from a purchased drilling service is calculated separately for upstream emissions and combustion which is always significantly higher than the sum of all upstream emissions and are then presented separately under Category 1. Similarly, NEMS accounts for upstream emissions and combustion (end-of-life) of aviation fuel separately. Minimum Scope 3 requirement for aviation fuel consumed in connection with business travel and employee commuting (i.e., offshore helicopter transport) is combustion emissions. For a more complete Scope 3 inventory NEMS also accounts for upstream emissions of different types of aviation fuel consumed in the value chain in the final inventory for our customers.
Primary and secondary data
But where do we find these emission factors and activity data and how do we know that we are using relevant data for our activities?
The Scope 3 standard refers to two main types of data: primary data and secondary data. The term “data” here is used both for activity data and emission factors. Primary and secondary data refer to the sources of information that are used to collect data for this inventory. Primary data for scope 3 inventory refers to the direct data collected from a company's own operations and activities. This data is collected through various methods, such as surveys, measurements, and monitoring systems, and includes information such as fuel consumption, energy use, and waste generation. Primary data is often considered the most accurate and reliable source of information for a company's scope 3 inventory.
Secondary data for scope 3 inventory refers to data collected from external sources, such as government reports, industry databases, and published research studies. This data is typically used to supplement primary data and provide additional context for a company's scope 3 emissions. Examples of secondary data sources for scope 3 inventory include national emission inventories, life cycle assessment databases, and industry association reports. Secondary data is often less accurate and reliable than primary data but can still provide valuable insights into a company's scope 3 emissions.
However, it is important to stress that primary data does not always have better quality than secondary data. The quality of the data is dependent on how much the data actually represents the technology, time and geography of the emission producing activity in the value chain, and also how reliable the data source, data collection methods and verification processes are. To what fraction out of the total activities is represented and accounted for is also an important quality indicator. Therefore, secondary data should be used if the data quality of the available primary data is deemed poor. The quality of a Scope 3 inventory is dependent on the input data used to calculate emissions. If the quality of the data is compromised, then the inventory will be compromised. Primary data and secondary data can also complement each other and can be used together.
Data collection is a challenging task, mainly because all emission sources are out of company control or ownership, meaning that there will be a notable reliance on data input from value chain partners. Thus, less control over data quality.
What is the best practice to collect primary data?
Primary data collection efforts should be directed at priority activities, i.e., activities with highest emissions, highest cost, activities that comply with business goals etc. Upstream emission hot spots can effectively be identified with EEIO models (Environmentally Extended Input Output Models) which use the monetary value of a purchase (i.e., US dollar) and emission factors in form of kg CO2/US dollar for example. Procurement departments within a company usually keep detailed information about purchased goods and services.
Firstly, it should be investigated if there is any supplier data or other value chain partners data already available. Where shall we look?
- utility bills
- purchase records
- direct readings/monitoring
- already available or known mass and energy models, stichometry.
The second step is to engage with Tier 1 suppliers. Emissions are more likely to mount up upstream of a company’s Tier 1 supplier (i.e., raw material extraction and manufacturing). But since there will be some leverage over Tier 1 suppliers, they will be more motivated to collaborate. So, this will be a good start. This collaboration can later be extended beyond Tier 1 suppliers, via encouraging Tier 1 suppliers to collaborate with their own Tier 1 suppliers or directly targeting hot spots down the supply chain and engaging with Tier 2 suppliers or higher Tier suppliers.
What if there are too many Tier 1 suppliers? It is important to progress in understanding and quantifying Scope 3 emissions; aiming for perfection will do very little gain. It will instead hamper the process. Not all Tier 1 suppliers have significant impact on emissions. Some Tier 1 suppliers contribute to a very small fraction of the total activities and operations, or they generate very little emissions due to the nature of the goods and services they provide. These companies should be left out of the inventory. The final inventory should be representative of the company’s value chain emissions, it should not be exhaustive. Other approaches rather than aiming for a complete and exhaustive representation can add a much higher value to the inventory. For example, using the available resources to do a quick screening of the Tier 2 suppliers (i.e., ranking them based on their spent data or using industry experience and guidance to capture activities that are already known to be significant) and focusing on the hot spots here instead.
Data quality provided by suppliers and suppliers own progress in GHG accounting will vary vastly. Some suppliers might be head on their game, and some may not have started such a process yet. Therefore, primary data will almost never be sufficient. When primary data is not good or not available secondary data should be used to quantify emissions, either together with primary data or alone. When suppliers are not able to provide the requested input, it is then important to communicate clearly to the long-term suppliers that their input will be expected in the next years inventory and encourage them to start their own product level cradle-to-gate footprint and/or Scope 1 and Scope 2 assessments. Scope 3 data collection and assessment requirements should also be added to tender processes to ease these efforts.
But how do we collect such data from the suppliers? Do we call them, do we send them emails, do we meet them personally? And how do we manage this vast data once we have received it? In NEMS we have developed a solution for this via our product NEMS Panorama. NEMS Panorama is a SaaS reporting solution. Firstly, our custom-made questionnaire that is designed to gather the necessary quantitative and qualitative input data to calculate Scope 3 emissions is given to the chosen suppliers together with a letter of intent where the purpose and expectations from this is explained. This questionnaire works as a drag and drop into NEMS Panorama. All data is automatically registered within NEMS Panorama.
Our NEMS Panorama licensees can also choose to give access to their suppliers directly to NEMS Panorama to provide the necessary input. Then our experts do data verification to ensure that the data quality is deemed good. NEMS Scope 3 experts have ground expertise in choosing and allocating resources to collect relevant secondary data to fill in the gaps when primary data is not available.
Once the input data is provided, NEMS Panorama can calculate emissions under relevant Scope 3 categories and produce custom made Scope 3 reports. Calculations are in line with the calculation methods defined in the GHG Protocol Technical Guidance for Calculating Scope 3 Emissions.
Alongside, NEMS Panorama licensees can also choose to use Panorama as a full GHG reporting tool (which also includes Scope 1 and Scope 2 emissions) as well as a full ESG reporting tool where vast ESG data can be managed. Different reports can also be produced in parallel such as a separate Scope 3 report and a separate ESG report. It is very flexible and can be customized according to the client’s needs.
NEMS Panorama manages the vast input data needed to calculate value chain emissions, collects input data, calculates emissions, produces Scope 3 reports, tracks company and value chain partner performance over time.
In this issue we have discussed the type of data needed to prepare a Scope 3 inventory and how to collect and manage this data. Once the calculations are done it is time to focus on one of the essential objectives of preparing a Scope 3 inventory:
How can we reduce value chain emissions?
In our next issue we will discuss how to set GHG emission reduction targets, outline possible abatement measures and how to track performance over time.