For companies with complex supply chains, tracking greenhouse gas emissions poses a unique challenge. The GHG Protocol, a set of international standards for measuring and managing greenhouse gases, categorizes emissions into three scopes. Scope 1 emissions concern GHG sources directly controlled by a company, while Scope 2 covers emissions from purchased energy. Scope 3 emissions, on the other hand, arise from indirect upstream and downstream activities in a company’s value chain.

Last year, the Securities and Exchange Commission released a draft rule that would require companies to disclose their Scope 3 emissions if they are “material” to operations. They often encompass the majority of a company’s total GHG emissions, and can include supply chain emissions, employees commuting and working from home, product use emissions, and more. As a result of new regulations and ambitious voluntary goals, companies are increasingly facing pressure to manage their indirect Scope 3 emissions in addition to Scopes 1 and 2.

A relatively new practice, tracking Scope 3 emissions will require collaboration between stakeholders to ensure that accounting is effective. What best practices should corporations follow? What are the challenges surrounding Scope 3 identification and reporting? And how can companies overcome these challenges?

In October, ELI holds an annual Corporate Forum to explore challenges in the sector. In 2022, the forum brought together experts from a variety of backgrounds to debate reducing value chain impacts.

The Corporate Forum

Ann Goodman, Author, Adapting to Change: The Business of Climate Resilience and Collaborating for Climate Resilience: Scope 3 greenhouse gas emissions are becoming increasingly important as the world is plagued by war, energy crises, droughts, fires, storms, and all manner of disasters. A focus on climate change is front and center to everyone from policymakers to companies to ordinary people. Organizations must now reduce their greenhouse gas emissions not just from direct sources, but also from indirect ones, referred to as Scope 3 emissions. These emissions are a huge issue environmentally as well as economically. With us today is a distinguished group of panelists to discuss best practices in this rapidly growing field. I’d like to invite Pankaj to speak first, as the World Resources Institute created the original Scope 3 emissions protocol and continues to be heavily involved in its evolution.

Pankaj Bhatia, Acting Director, Climate; Global Director, GHG Protocol, World Resources Institute: The Scope 3 terminology was introduced in 2001, in the first edition of the GHG Protocol that came out in the same year. Few know that the Scope’s framework was first used by BP, which had started applying this concept internally to organize their greenhouse gas inventory.

In simple terms, I would say the Scope 3 framework is a lifecycle accounting approach, where we are trying to account for the full range of emissions that a company would have upstream, on the production side, and downstream.

Traditionally, the approach was to focus on production. One example is the toxic release inventory, one of the most well-known accounting programs, in which, for example, you only focus on facility-level emissions that come from your smokestack.

In the absence of effective policies to control greenhouse gas emissions, we intended the Scope 1, 2, and 3 frameworks to introduce a strong incentive mechanism to hold companies accountable to the full range of their impacts. In that context, it was well understood that many companies have opportunities to undertake ambitious climate action, not just for what one would call Scope 1—emissions from production—but also Scope 2, which are emissions from energy use. That is one of the biggest sources of emissions, so if we only focus on Scope 1, we are missing those opportunities.

We can better explain the purpose of Scope 3 by looking at the example of an oil and gas company. If we were to hold such a company accountable only for their production emissions, we wouldn’t be asking them to control what happens when fossil fuels are used. They might say those emissions are the responsibility of customers. The Scope 3 framework recognizes that there are multiple parties who are responsible for a given category of Scope 3 emissions.

We never say that only oil and gas companies should be held accountable for their product’s use and emissions. Consumers also share responsibility. But we do say that companies should be held accountable, because they play a key role. And there are tremendous opportunities for companies to take action and make business decisions that can have a ripple effect throughout the value chain.

Now, Scope 3 has gained increasing levels of attention for many reasons. First, since the Scope 3 standard was published in 2011, there has been a lot of progress. There have always been some concerns raised about the difficulty of Scope 3 accounting. I completely agree, but the level of difficulty varies across sectors. For example, an oil and gas company should not make a public claim that Scope 3 accounting is very difficult. Even a high school student can calculate their Scope 3 emissions, because for the oil and gas industry, Scope 3 emissions are simply a function of how much they are selling and the emission factor of their products.

If only the oil and gas sector were accounting for Scope 3 emissions, I think the framework would have served its purpose. But the industry is still not doing it, even though it is not difficult for them. But there are many other sectors where calculating Scope 3 emissions is indeed challenging. One example is information technology, or the IT sector. Given the range of products and services that the IT sector offers, Scope 3 accounting would require a lot more thought, capacity, and resources. The retail sector also sells millions of products. While Scope 3 accounting is not going to be easy for retail, it is still going to be a very important and worthwhile exercise.

Policymakers should recognize this difference in capacities to account for Scope 3 emissions. The Securities and Exchange Commission recently adopted some draft rules related to Scope 3 that are undergoing finalization. If the SEC were to make Scope 3 a required reporting category, I think it would be a big step forward. But the commission may need to be thoughtful about which sectors to prioritize, in terms of their economic and environmental significance, as well as their capacity to quantify such emissions.

Stephen Harper, Global Director, Environment and Energy Policy, Intel Corporation: At Intel, we’ve been working on reducing our Scope 1 and 2 emissions for over 20 years.

Scope 3 is incredibly important to us. We issued a commitment to reduce our Scope 3 emissions substantially by 2030, just before the SEC rule came out. Our Scope 3 emissions make up 90 percent of our total footprint, divided between upstream and downstream. Eighty percent of that 90 percent comes from downstream. As for upstream operations, we have 9,000 tier-one suppliers in 87 countries. We are working on incorporating the biggest and the most important of these suppliers into the Climate Disclosure Project. We also have a rigorous supplier qualification process, which considers not just impacts on climate and the environment, but also labor, conflict minerals, and other areas.

Our biggest suppliers are receiving pressure from us and their other costumers to reduce their Scope 1 and 2 emissions—but it’s going to be difficult. Our industry trade association, the Semiconductor Industry Association, and SEMI, a large trade association of companies that make the machinery and chemicals we use, have just launched an initiative to standardize how our suppliers do accounting for Scopes 1 and 2. We’re hoping that that will improve things dramatically.

Downstream is where the challenges are going to be greater. McKinsey and the American Council for an Energy-Efficient Economy have found that the information and communications technology sector enables the saving of more energy than it is responsible for consuming. That happens through smart buildings and smart homes.

The data center is the hub of this network that produces huge net energy efficiency savings. But the greenhouse gas footprint of the data center sector needs to be as small as possible, and it needs to be powered by renewable energy as much as possible. We’re 100 percent renewably powered in our operations in the United States and 80 percent worldwide. We want our customers, particularly the data center operators, to be 100 percent renewable as well. So that’s one challenge.

Another challenge is figuring out how much energy is consumed by machines that contain our products, because we don’t sell directly to the consumer. When we try to estimate the energy consumed and associated greenhouse gas emissions caused by machines that are powered by our central processing units (CPUs), whether it’s in data centers or businesses that use laptops and desktops, it’s very difficult because we don’t know where those machines are located.

Our customers, such as Dell and Lenovo, are the ones that sell to individual customers. We rely on them to tell us as best they can where their products are being sold. Then we have to figure out the emissions factor, which means the greenhouse gas intensity of virtually every grid in the world. That’s difficult because even in the United States, we don’t know on a real-time basis the greenhouse gas intensity of the grid in most places.

We are also thinking a lot about what many people call Scope 4, which are sometimes described as avoided emissions. For example, if we sell chips to Johnson Controls or Schneider Electric, and they sell an energy efficiency solution to an industrial enterprise that improves their energy efficiency and reduces their Scope 1, who gets credit for that? We are not claiming that we are going to take credit for it. Schneider Electric or Johnson Controls probably won’t take credit for that—the end customer most likely will. But we want to be able to estimate that handprint.

We’re working with ACEEE to develop methods to measure this handprint, because we want to use that as part of the value proposition in selling our products and helping our customers sell their products. There’s been a lot of controversy about whether Scope 4 is legitimate or not. It needs to be nailed down in terms of what it can encompass and what it looks like.

Finally, we’re coordinating with the Department of Energy and state energy agencies to make sure that when money is spent for the bipartisan infrastructure package and the Inflation Reduction Act, the government is adopting digital technology strategies—and not just funding insulation and double-glazed windows. Digitalization offers many benefits that only recently are being recognized by policymakers.

Corinne Snow, Counsel, Vinson & Elkins LLP: I’ll talk broadly about the types of conversations that we are now having with clients about Scope 3. Many of these discussions have been prompted by the SEC’s proposed climate disclosure rules, which would require companies to disclose their Scope 3 emissions in their annual filings if “material” or if they have been voluntarily disclosing them already.

In thinking about Scope 3 and what your company should be doing, I think the first question to ask is: Why are you disclosing Scope 3? Is it because you have an obligation under a regulatory requirement? Is it because you have stakeholder pressure to do so—or is it because you think it’s the right thing to do? The answer could be all three, or any one of those three. But starting with that question helps determine how you’re going to calculate Scope 3 and how to share that information. And if you decided to share that information as a public company, there’s an increasing likelihood that you will have additional regulatory requirements.

The biggest piece of advice I would give is to only commit to what you can actually do, and check with your operational folks before you make those commitments. One reason is these emissions reductions targets—like going net zero by 2050—often started as aspirational goals. Yet now, these commitments are quickly becoming regulatory requirements as agencies like the SEC or the Federal Trade Commission get involved. They may investigate what they call greenwashing claims, which they say are false advertisements about becoming more environmentally friendly.

Sustainability used to be the realm of public relations. Now, it is much more interdisciplinary: your sustainability folks need to be talking to your legal folks, who need to be talking to your operational folks to understand what is involved in calculating emissions. I would respectfully disagree that calculating Scope 3 emissions is a simple task for companies like those in the oil and gas industry. Even calculating Scope 1 emissions poses challenges, particularly as these scopes are starting to get defined and the accuracy that’s required evolves in regulatory requirements.

I’ll give you an example. Many oil and gas companies have had to submit mandatory reporting to EPA for a number of years under the Clean Air Act Subpart W—and that’s only for specific facilities. Broadly, companies are submitting their best estimates to EPA, and then working with the agency to refine the numbers after these initial estimates. Those estimates begin with looking at the types of equipment you have and the emissions that are likely to come out of those. But then you have to go back on a more granular level and ask specific questions. For example, was any of that equipment offline for part of the year? Did we have any shutdowns? Did we have any leaks anywhere? And this process only encompasses Scope 1 emission for covered facilities.

Accounting for all emissions is a much broader task. One of my clients was trying to figure out the greenhouse gas emissions from leaf blowers used on their properties. Given all the miscellaneous ways your company uses fuel throughout mundane processes, such as travel for your employees, how are you going to calculate estimates that are accurate enough to report to an entity like the SEC? As just one example, what if somebody thought they were going to take a flight, but their flight got cancelled and they used a different airline or had to take a train instead? You would need to reconfigure those numbers if you’re going to accurately determine emissions. And that’s a real challenge.

While aspirational goals are useful, I would suggest that at a certain point resources are finite. How much time and energy are we putting into disclosure of information that may or may not be accurate or readily comparable between companies?

Scope 3 in particular poses real challenges. If you think about it, your Scope 3 emissions are everybody else’s Scope 1. You then need to worry about how accurate everybody else in your value chain is about their own emissions as well. You would even be potentially accountable to a regulator like the SEC for how accurate those emissions are. Can you reach that level of comfort with uncertainty? If not, are you just buying your company a lot of potential litigation risks? And are you just supporting a bunch of cottage industries that try to calculate numbers in the most accurate way, rather than perhaps putting those resources to better use by more directly addressing the larger climate issue?

Paul Davies, Partner, Latham & Watkins LLP: I agree that the GHG Protocol and Scope 3 will have significant roles to play in carbon accounting going forward. I want to start with discussing accuracy of data, which continues to be a significant challenge globally. If you extrapolate the earlier example of leaf blowers, you can look at how that applies to broader value chains around the world, and the challenges that companies have in collecting data from third parties. That’s why initiatives like the Partnership for Carbon Transparency, or PACT, are incredibly important. There needs to be more certainty in this data.

But more fundamentally, I think we need to start with the question of how to use Scope 3 reporting. For example, the GHG Protocol acknowledges that using Scope 3 as a “metric” doesn’t lend itself well to comparing companies with other companies. That’s a point we need to reflect on.

Look at for example the 15 subcategories in Scope 3. You often find companies within the same sector reporting to different subcategories. The result is you get very different results when you compare one company to another.

Double counting is another issue. The GHG Protocol acknowledges that double counting is an inherent aspect of Scope 3 accounting. But to echo some of this panel’s earlier points, if you’re going to be held accountable for your Scope 3 emissions, then double counting strikes me as a challenge.

In terms of what’s happening internationally, the International Sustainability Standards Board recently announced that they would report on Scope 3 emissions. But they also acknowledge that “there is going to be a need to provide protections for companies in relation to Scope 3 emissions.”

The Bank Policy Institute has also acknowledged that reporting Scope 3 emissions would undermine risk-based investment decisions and create an overly aggressive international baseline. While we are seeing a movement toward more Scope 3 emissions reporting internationally, for a number of the reasons given by this panel, there are significant concerns associated with the integrity of the data and how that data is being used.

To echo earlier points, there are changes and refinements being made to the GHG Protocol, such as the draft standard on land use change and carbon removals, which is a very welcome addition. And there is further work being done on Scope 3. Avoided emissions/Scope 4 is another active area of interest among companies.

Ann Goodman: I’d like to start by asking the panelists if they have any questions or comments for their fellow panelists.

Stephen Harper: When I was young, I worked in the oil and gas industry. I worked for Amoco Oil, which is now BP U.S., in their fuel regulatory program. I wholeheartedly concur with your comments that it’s not necessarily that easy to calculate Scope 3 even in a more straightforward sector like oil and gas compared to a sector like IT.

I will say, however, that this is one of my favorite axes to grind. When EPA issued their initial and subsequent revision to the greenhouse gas reporting rule, the U.S. semiconductor industry was responsible for something like 0.06 percent of total U.S. industrial greenhouse gas emissions, according to EPA’s inventory. The agency came out with a draft rule that would have cost us tens of millions in the first year and then a smaller percentage of that going forward.

The oil and gas industry in this case got to take advantage of its simplicity because they were allowed to use the mass balance approach, which doesn’t require much money at all. So you have a sector with huge emissions, the oil and gas industry, being able to do very simple calculations, and a sector with extremely small emissions, the semiconductor industry, having to go into great detail with its accounting. The expense and difficulty vary by regulatory regime. But on the double counting issue, I agree it will be an important topic to parse out because it’s unavoidable.

Pankaj Bhatia: On the point on how easy or difficult it is, I think we agree that Scope 3 is going to be a challenge for most sectors. But for the oil and gas sector, which was highlighted, I think the reporting doesn’t depend on equipment. It depends on how much fuel they consume. It doesn’t matter which equipment was closed or not working because it’s a very, very simple calculation for at least this sector. For the same type of emissions, that is also true for other sectors.

From a historical point of view, the GHG Protocol Corporate Standard was introduced for the first time in 2001, so we’ve been using this for about 21 years. In comparison, the financial accounting standard took more than a hundred years to reach its current state, and even now we can see that those standards are not perfect.

As mentioned by other panelists, whether we like it or not, the Scope 3 standard is going to be here for years to come. Initiatives all over the world and all the leading universities in the United States are now working on Scope 3 issues.

I sometimes use the analogy of penicillin, the first antibiotic introduced in the world more than a hundred years ago. We don’t use penicillin anymore, but we use antibiotics because there is a purpose and value in that concept. That worked in the past, but we continued to evolve. In a way, Scope 3 reporting is the first antibiotic we have introduced. It’s supposed to help us fight some of the illnesses we are facing with respect to climate. It’s not a perfect antibiotic; it has side effects. But it is the beginning of a journey. I think it will get there, but we will all have to work together on this.

Paul Davies: I absolutely agree that Scope 3 is here to stay. We all need to work on identifying the challenges associated with Scope 3 and work out how best to address those going forward. It isn’t perfect; and I think one of the key issues is that it’s being used in ways that may have never been envisaged when Scope 3 was first developed.

Corinne Snow: Even if you accept that Scope 3 is a useful framework in terms of helping individual companies figure out how to limit greenhouse gases, I think one problem is we assume a level of accuracy of these numbers that just isn’t available right now. If we obsess over the specificity and accuracy of that number, we might lose track of the larger goal here, which is to limit greenhouse gas emissions, including through value chains, and not just through individual company operations.

Ann Goodman: It seems that in calculating Scope 3 emissions, a number of different participants need to work well together. That includes working internally within a company, and externally with other companies and entities. Can the panelists here speak to how companies address that need?

Stephen Harper: I can speak from the perspective of a company that is struggling with that as we speak. For example, with our 9,000 suppliers, we could get very different data from all of them based on very different methodologies. We’re not going to chase down the 9,000th supplier. We’re going to focus on the big ones—the ones that are most strategically important to our company. But we’re working with those suppliers to make sure that we’re developing a common approach, so that when we get Scope 1 and 2 numbers from supplier A, who’s in the same business as supplier B, those two numbers are apples to apples. That’s going to take time, and it’s going to be difficult because, in many cases, a lot of these companies are not U.S.-based companies. They’re based in Asia. We may or may not be a huge customer for them, but our industry is, and that’s why we have to standardize the approach.

A similar issue we have faced very successfully is conflict minerals. Our industry is a relatively small user of conflict minerals compared to, for example, the auto industry or the jewel industry. But activists came after two companies on this issue, Apple and Intel, because of our brands. We took it on as a challenge well ahead of any government requirements for reporting, which exist now, and forced the industry and suppliers to develop a methodology to trace essentially every ounce of precious minerals and metals that we use in our products. That’s a problem we have largely solved, even though there are five or six steps in the supply chain between a mine and our factory gate.

During this process, it’s important to have some empathy for the suppliers. The last thing in the world the suppliers need is to get a different questionnaire requiring a different methodology from hundreds of customers. That is a recipe for disaster. That’s why, in conflict minerals, we tried to standardize it, and that’s what we’re trying to do throughout our industry.

A good example of where this concept worked for other environmental purposes is in the auto industry, which has developed a common database for all of the suppliers the big auto companies use. It enables companies to get data that’s developed on a consistent basis, and the suppliers aren’t driven crazy with ten different regimes.

Corinne Snow: Steve makes an important point about the impacts this has on the supply chain and new suppliers. If public companies need to get accurate information from their suppliers so they can meet their own inventory obligations, there’s certainly going to be winners and losers on the supplier side.

Bluntly, smaller companies will struggle with this more, because they are less likely to have the in-house resources or to be able to afford consultants to measure their Scope 1 emissions with the precision and accuracy that companies like Intel will be asking from them in the future.

Paul Davies: I think consistent methodology is critically important, especially for streamlining requests. We hear time and time again from clients about how frustrating it is to receive multiple questionnaires, and the waste in time and resources involved. Sharing best practices is very important. That’s why initiatives like PACT are crucial.

Pankaj Bhatia: I agree. We’re not here to count beans. Accounting is supposed to be a means to an end; it is not an end itself. We are still experiencing the evolution of the standard, and the concurrent evolution of the capabilities of companies to undertake accounting. Sector by sector, commodity by commodity, or category by category standardization need to take place. This is going to take some time.

We also have the opportunity to address these issues. Paul mentioned that the GHG Protocol will begin a process to update the Scope 3 standard and guidance. Generally, we think the standard itself has been stable. While we have not seen a need to significantly revise the 15 categories framework, we would like to have feedback on this process. We also have identified topics that need to be further addressed, like finance emissions, Category 15, which is becoming a very important category, and how to, for example, address the issue of cash held by companies in banks. There’s no guidance on that issue currently.

Some guidance on sub-categorization within these categories may help address the issue of accuracy and significance for different sectors. We are also hoping that the SEC comes up with robust guidelines and safeguards. If they don’t, Scope 3 will not be seen as an accurate inventory for many sectors.

Corinne Snow: SEC has put in place some safeguards against SEC enforcement, but those don’t protect you from shareholder suits—you can still get sued by people who buy your stock for inaccurate disclosures.

Paul Davies: I think the Corporate Sustainability Reporting Directive in Europe helps encapsulate this very nicely. While requiring Scope 3 emissions, the CSRD says that they shall take account of the difficulties that undertakings may encounter in gathering information from actors throughout their value chains, especially from those that are not obliged to report under CSRD. So on one hand, it’s acknowledging the role that Scope 3 and reporting against Scope 3 has. But it also acknowledges some of the difficulties associated with collecting, using, and reporting that data.

Stephen Harper: I’d like to echo the earlier point made that we’re only 20 years into the evolution and refinement of the GHG Protocol, as opposed to a one hundred year-old financial accounting system. I recently watched a great documentary about Enron called The Smartest Guys in the Room. Enron managed to get a clean audit throughout many years of financial manipulation and outright thievery while using the rules of this hundred-year old financial accounting system. My point is that there’s always going to be ways to game the system. While the system gets improved over time, we also need to look out for instances of egregious misuse.

The last thing I’ll say on the accounting and reporting front is that Scope 4 is very important to us and to other industries. We’d like to use the enabling effect of our products and our customers’ products as part of the value proposition to sell these solutions. But the other reason we want to estimate these avoided emissions and put it in our reports is we think it’s important to investors. We believe investors will value companies that are not just reducing their own emissions, but are also selling solutions to other companies to lower their footprint.

Ann Goodman: Any other comments or questions from our panelists?

Pankaj Bhatia: I’ll add one more point on Scope 4 or avoided emissions. Scopes have been designed for an inventory framework—so Scope 1, Scope 2, Scope 3 all represent an inventory impact. This is a technical term, but the point is they complete the full lifecycle or series of impacts for a company. But avoided emissions are not the same as inventory impacts. When you want to quantify avoided emissions from your products, you compare what would have happened if your product was not introduced. What was the alternative? That question gets into a different kind of approach. That has been one hesitation, at least from the GHG Protocol standpoint, to use Scope 4 as a label for avoided emissions.

Another difficulty is that even with the best of rules, there are always some players who will find ways to game the system. We are worried about cherry picking when it comes to avoided emissions. Companies may decide to highlight and focus on good things that they’re doing, but that might just be the tip of the iceberg. They may be obscuring the far greater number of bad things going on underneath.

In a system, how do you enforce a voluntary standard where, when you speak about or claim good things, you are also held accountable for things that are not so good going on in your business? We would very much welcome feedback and guidance on how to think about this issue.

Corinne Snow: Sometimes that’s based on the presumption that you even know how your products are going to be used. Going back to the oil and gas example we discussed earlier, a lot of these products are bought and sold on spot markets. You don’t actually know where your product is going. It’s a fungible commodity and it doesn’t all get burnt, or it may not all get burnt for the same purposes. Some of these fossil fuels are used to make petrochemicals, which include plastics that may be used to produce parts of wind turbines for energy.

That’s a specific example, but I think it’s true for every single product out there. At the end of the day, you are speculating the actual footprint of your product. You don’t know who your ultimate customer is in most situations or how they are going to use your product. That means you need to make guesses. Difficulties arise when you also need to comply with specific regulatory requirements on the accuracy of these scopes.

Paul Davies: If the overall objective is to reduce global emissions, then absolutely there is a role for Scope 4/avoided emissions. In the same way as the original architecture around the 2001 GHG Protocol has evolved, the views and the objectives of Scope 4 have changed and will continue to develop. Companies are currently engaging in an active debate on the importance of recording avoided emissions, and the role that avoided emissions will ultimately have in reducing global emissions.

Ann Goodman: We will now turn to our audience for questions.

Ethan Shenkman, Partner, Arnold & Porter Kaye Scholer LLP: I’m Ethan Shenkman with Arnold & Porter. Can you explain more the difference between Scope 3 and Scope 4? I think the concept of Scope 4 emissions, or avoided emissions, is important. If the goal is to incentivize the creation of new technologies that enable greater emissions reductions, then why shouldn’t this accounting system fully capture and reward those efforts?

At the same time, because Scope 3 emissions are so broad, do they already capture Scope 4 emissions? In some sense, your Scope 3 emissions are other companies’ Scope 1 and Scope 2 emissions. Therefore, if you enable companies upstream or downstream to lower their Scope 1 and Scope 2 emissions, aren’t you already lowering your Scope 3 emissions? I’m trying to understand better why it would be necessary to define a new scope to fully capture the benefits of and incentivize these technologies.

Pankaj Bhatia: You’ve arrived at the key point of distinction. The greenhouse gas inventory of a company is a subset of the global system of all companies. There is a value chain system of a company, and then there is everything that happens outside that system. You can use Scopes 1, 2, and 3 to capture all the emissions that will happen in the value chain of a company.

A company does not have any emissions outside the value chain. But you used a word at the end of your question that captures the point we are trying to understand: benefits. A company can have benefits or liabilities in terms of emissions outside its value chain. So while a company doesn’t have any emissions outside its value chain, it can have an effect—specifically, a market effect. If Intel were to introduce a product that is very efficient, it will of course be able to capture emissions from that product in its value chain and Scopes 1, 2, and 3. But that product will also begin to have a market effect—it will begin to displace inefficient products over a period of time.

That’s what some companies would like to capture because they are creating an impact by introducing more efficient products and displacing less efficient products in the market. These market effects are happening outside their value chain in the broader system. There is a desire to be able to account for those effects because they are meaningful. We provide a methodology in the GHG Protocol to account for those effects, which are called avoided emissions or market benefits.

Stephen Harper: From our perspective, we are not advocating that a new Scope 4, Scope 5, and Scope 6 should be created. We are not so much worried about market impacts or trying to track those. We just want to be able to take credit for direct impacts with our customers and our customer’s customers.

There is some tension between trying to get things as accurate as possible so that, if you look at a number that comes from a company, it means something, and simplicity.

I don’t think this could ever truly be simple, but if you get to the point of having to chase every decimal point and needing to divert resources from actual climate mitigation or other actions that would be of material value to your customers, then you have gone too far. Whether for regulatory or investment purposes, we as a climate community need to figure out where the sweet spot is between accuracy and simplicity. TEF