In the energy and utilities sector, Scope 3, the indirect value chain emissions spanning 15 distinct categories, typically represent a massive portion of a company’s total carbon footprint. While Scopes 1 and 2 are largely within an operator’s operational control, Scope 3 requires a ripple effect of influence across suppliers, vendors, and end-users.
As stakeholders, investors, and regulatory bodies tighten disclosure requirements, and as companies make progress on their sustainability goals, Scope 3 is growing in importance. However, four systemic barriers make decarbonization across this scope uniquely difficult.
1. Measuring Scope 3 emissions is complex
Calculating Scope 3 is widely acknowledged as the single most difficult reporting hurdle. Because emission sources sit entirely outside the reporting company’s ownership, direct measurement can be impossible.
This forces companies to rely on secondary industry-average data, proxy metrics, and high-level assumptions. With 15 nuance-heavy categories to track, the risk of data missteps is high.
2. Suppliers need help getting started
Energy companies manage vast, multi-tier supply chains. Getting granular, product-level greenhouse gas (GHG) data from these partners is a massive logistical undertaking, with three major roadblocks preventing suppliers from getting started:
- Technical capacity: Many mid-tier suppliers lack internal resources or specialized knowledge to track their own GHG inventories accurately.
- Transparency and proprietary concerns: Suppliers can be hesitant to share detailed activity data due to confidentiality or a lack of trust in how the data will be utilized.
- Global fragmentation: Managing a global supply chain involves navigating inconsistent regional reporting standards and language barriers, stretching internal procurement teams to their limit.
3. Suppliers can’t access renewable energy markets
Even when suppliers are motivated to decarbonize, the market often works against them. Traditional renewable energy markets are tailored to large corporations, which means small and medium-sized enterprises (SMEs) are often locked out of the solutions they need to lower their emissions:
- Opaque market structures: Wholesale renewable markets and Energy Attribute Certificates (EACs) are complex and require dedicated procurement teams that smaller suppliers simply don’t have.
- Capital constraints: Retrofitting facilities for onsite renewables requires significant upfront CAPEX, which is difficult to secure through traditional financial markets for smaller value-chain partners.
It takes time for SMEs to reach a level of maturity where they are ready for decarbonization. Reporting companies need to provide tools and training to speed up the process.
4. Reporting on Scope 3 isn’t straightforward
Scope 3 reporting is anything but uniform. Each of the 15 sub-categories under the GHG Protocol has its own specific requirements.
For energy professionals, the challenge lies in reconciling these data points into a cohesive, auditable report. Gathering and synthesizing that data is complex and time-consuming.
Conclusion
Scope 3 emissions are still a significant reporting challenge for the energy industry, but every year, they become more important. As companies get control of their Scope 1 and Scope 2 emissions, the only place left to look is Scope 3.
New digital tools and platforms emerge every year to help companies better track value chain data and manage these complexities. As these technologies mature, the industry will be better positioned to move from high-level estimates toward more actionable insights.
