Scope 1, 2, and 3 Emissions Explained
Last updated: April 2026
Summary
- Scope 1 = direct emissions from sources you own or control (vehicles, boilers, refrigerants)
- Scope 2 = indirect emissions from purchased electricity, heat, or steam
- Scope 3 = everything else in your value chain (supply chain, travel, waste, product use)
- For most businesses, Scope 3 is 70–90% of total emissions — but Scope 1 & 2 are where you start
Why Do Emission Scopes Exist?
The GHG Protocol — the global standard for carbon accounting — divides emissions into three scopes to prevent double-counting and make clear who is responsible for what. Without scopes, a company could ignore its electricity use ("that's the power station's problem") or its supply chain ("that's our supplier's problem").
Under AASB S2, Australian entities must report all three scopes (with Scope 3 phased in from Year 2). Understanding what falls into each scope is the first step toward measuring your carbon footprint.
Scope 1: Direct Emissions
Scope 1 covers greenhouse gas emissions from sources that your organisation owns or directly controls. If the combustion or release happens on your premises or in your equipment, it is Scope 1.
Common Scope 1 Sources
Company vehicles
Petrol, diesel, or LPG burned in fleet cars, vans, and utes
Gas heating and cooking
Natural gas used in boilers, furnaces, kitchens, or hot water systems
On-site combustion
Diesel generators, backup power, and on-site manufacturing processes
Refrigerants and fugitive emissions
HFC leaks from air conditioning units and commercial refrigeration
Australian Example
A construction company in Melbourne runs a fleet of 20 diesel utes. Each ute averages 25,000 km per year. Using the NGA 2025 emission factor for diesel (2.71 kg CO2-e per litre) and an average consumption of 10L/100km, each ute produces about 6.8 tonnes CO2-e per year. The full fleet: roughly 135 tonnes CO2-e — all Scope 1.
Scope 2: Purchased Energy
Scope 2 covers indirect emissions from purchased electricity, heat, or steam. The emissions happen at the power station, but because you created the demand by consuming the energy, they are attributed to you.
Two Calculation Methods
- Location-based: uses the average grid emission factor for your state or territory. This reflects the actual carbon intensity of the local grid. This is the primary method under AASB S2
- Market-based: accounts for renewable energy certificates (RECs/LGCs), power purchase agreements, or green power contracts. If you buy 100% renewable energy with matching certificates, your market-based Scope 2 can be zero — but you must still report location-based as well
Australian Grid Emission Factors (NGA 2025)
| State | Scope 2 factor (kg CO2-e/kWh) | Relative intensity |
|---|---|---|
| NSW & ACT | 0.64 | Medium (black coal + renewables) |
| VIC | 0.78 | High (brown coal) |
| QLD | 0.67 | Medium-high |
| SA | 0.22 | Low (wind + solar) |
| WA (SWIS) | 0.50 | Medium |
| TAS | 0.20 | Very low (hydro) |
| NT | 0.56 | Medium (gas) |
Australian Example
An office building in Sydney consumes 200,000 kWh of electricity per year. Using the NSW grid factor of 0.64 kg CO2-e/kWh, that is 128 tonnes CO2-e per year — all Scope 2. If the same building were in Tasmania (0.20 factor), it would be just 40 tonnes CO2-e — demonstrating how location dramatically affects Scope 2.
Scope 3: Value Chain Emissions
Scope 3 is everything else — all indirect emissions that occur in your value chain, both upstream (suppliers) and downstream (customers, product use). For most businesses, Scope 3 is the largest category by far.
The 15 Scope 3 Categories
The GHG Protocol defines 15 categories. Not all apply to every business — you report those that are material (significant in size or relevant to your stakeholders):
Upstream (your supply chain)
Purchased goods and services
Emissions from producing everything you buy — raw materials, office supplies, professional services
Capital goods
Emissions from manufacturing equipment, vehicles, or buildings you purchase
Fuel- and energy-related activities
Upstream emissions from fuel extraction and electricity transmission losses — not included in Scope 1 or 2
Upstream transportation
Third-party freight and logistics for inbound goods
Waste generated in operations
Emissions from landfill, recycling, or treatment of your operational waste
Business travel
Flights, hotels, taxis, and rental cars for work travel
Employee commuting
Staff travelling between home and work
Upstream leased assets
Emissions from assets you lease but don't include in Scope 1 or 2
Downstream (your customers and products)
Downstream transportation
Third-party freight for delivering your products to customers
Processing of sold products
Emissions from further processing of intermediate products you sell
Use of sold products
Emissions from customers using your products (e.g., fuel burned in vehicles you manufacture)
End-of-life treatment
Disposal or recycling of products you sold
Downstream leased assets
Emissions from assets you own and lease to others
Franchises
Emissions from franchise operations (for franchisors)
Investments
Emissions from equity or debt investments (mainly for financial institutions)
Australian Example
An accounting firm with 50 staff has minimal Scope 1 (no fleet) and moderate Scope 2 (office electricity). But their Scope 3 includes: staff commuting (Category 7), business flights to client sites (Category 6), purchased IT equipment and cloud services (Categories 1 & 2), and office waste (Category 5). These value chain emissions typically total 3–5x the firm's combined Scope 1 and 2.
At a Glance: Scope 1 vs 2 vs 3
| Scope 1 | Scope 2 | Scope 3 | |
|---|---|---|---|
| What | Direct emissions | Purchased energy | Value chain |
| Where | Your facilities & vehicles | Power stations | Suppliers, customers, employees |
| Control | Full control | Choice of supplier | Influence only |
| Data ease | Relatively easy | Easy (electricity bills) | Hard (supplier data, estimates) |
| Typical share | 5–15% | 5–20% | 70–90% |
| AASB S2 | Year 1 | Year 1 | Year 2 |
Getting Started: Where to Begin
- Start with Scope 2 — it is the easiest. Collect 12 months of electricity bills for every facility. Multiply kWh by your state's NGA grid factor. Done.
- Then Scope 1 — list your fuel-burning assets: vehicles, gas heating, generators. Collect fuel purchase records (litres of diesel, m³ of natural gas). Apply NGA fuel factors.
- Then Scope 3 — identify which of the 15 categories are material to your business. Start with the big ones: purchased goods (Category 1), business travel (Category 6), and employee commuting (Category 7). Use spend-based methods initially if supplier-specific data isn't available.
You don't need perfect data to start. The GHG Protocol explicitly supports estimation methods where primary data isn't available. The goal is to measure, report, and improve over time.
Frequently Asked Questions
What is the difference between Scope 1, 2, and 3 emissions?
Which scope is usually the largest?
Do I need to report all three scopes under AASB S2?
How do I calculate Scope 2 emissions?
What are the 15 categories of Scope 3 emissions?
What emission factors should I use in Australia?
Measure your emissions in hours, not months
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