A New Dimension in Sustainability: Scope 4 Emissions

Kaan Vatansever 19 July 2024

 

What is Scope 4 Emissions?

In the fight against climate change, human interventions aimed at reducing greenhouse gas emissions play a critical role. In this context, Scope 4 emissions, also known as 'avoided emissions,' have emerged as a new and significant concept. Introduced by the World Resources Institute in 2013, this concept offers a new dimension in measuring a company's impact on greenhouse gas (GHG) emissions and assessing their environmental sustainability efforts. But what sets Scope 4 emissions apart from the traditional Scope 1, Scope 2, and Scope 3 emissions? To answer this question, we must first understand what traditional scope emissions entail. Below are the definitions of Scope 1, Scope 2, and Scope 3 emissions:

  • Scope 1 Emissions: These are direct GHG emissions from sources that are controlled or owned by a company, such as emissions from company-owned vehicles or facilities.

  • Scope 2 Emissions: These are indirect GHG emissions from the consumption of purchased electricity, steam, heat, or cooling.

  • Scope 3 Emissions: These include all other indirect emissions that occur in a company's value chain, such as emissions from the supply chain, transportation, waste management, employee commuting, and the end-of-life treatment of products.

Scope 4 emissions, on the other hand, refer to the reductions in GHG emissions that result from the use of a product or service. These reductions occur outside the product's or service's lifecycle or value chain but are directly attributable to its use. While traditional Scope 1, 2, and 3 emissions focus on direct and indirect emissions associated with a company's operations and value chain, Scope 4 emissions take into account the broader positive environmental impacts of a product or service.

For better understanding, consider this example: A company produces energy-efficient air conditioners. The emissions from the production and distribution of these air conditioners are considered Scope 1, 2, and 3 emissions. However, consumers who use these energy-efficient air conditioners will consume less energy compared to traditional models, leading to a reduction in overall energy consumption and associated emissions. These reduced emissions are considered Scope 4 emissions. Thus, the emission reductions that occur as a result of the air conditioner’s use, but are not directly tied to its lifecycle or value chain, are termed as Scope 4 emissions.

Examples of Scope 4 Emissions

Scope 4 emissions allow companies to evaluate their sustainability performance from a broader perspective by considering the environmental impacts of their products and services. Here are some examples of how Scope 4 emissions can occur:

  • Energy-Efficient Appliances: A company produces energy-efficient refrigerators. These refrigerators consume less energy compared to traditional models, resulting in energy savings for users and a reduction in carbon emissions from electricity generation. As users save on their energy bills, the consumption of fossil fuel-derived energy decreases, thus reducing carbon emissions.

  • Renewable Energy Systems: A company manufactures solar panels and installs them in homes and businesses. These systems reduce the use of fossil fuels for electricity generation. As solar energy replaces fossil fuel-generated electricity, carbon emissions are significantly reduced.

  • High-Efficiency LED Lighting: A lighting company produces LED bulbs that consume less energy than traditional incandescent bulbs. Energy savings are realized in homes and businesses, reducing electricity consumption and the carbon emissions associated with energy production.

  • Teleconferencing Systems: A software company offers high-quality video conferencing solutions. This reduces the need for business travel, allowing employees to work effectively from remote locations. As the need for physical travel decreases, travel-related carbon emissions are significantly reduced.

  • Fuel-Efficient Tires: A tire manufacturer develops tires that enhance fuel efficiency by reducing rolling resistance. As vehicles consume less fuel, carbon emissions from fossil fuel use decrease.

  • Smart Water Management Systems: Smart irrigation systems and water-efficient home appliances promote the efficient use of water. These systems save energy used in water pumping and treatment processes, indirectly reducing emissions.

  • Electric Vehicles: Electric vehicles, when used instead of fossil fuel-powered vehicles, significantly reduce transportation-related emissions. This reduction encompasses not only the emissions during vehicle use but also the emissions associated with the extraction, refining, and distribution of petroleum.

The examples listed above can lead to significant GHG emission reductions over their lifetimes. These reductions are crucial for combating climate change and achieving the Paris Agreement's 1.5°C target.

Importance of Scope 4 Emissions for Companies

Scope 4 emissions are a critical component in assessing a company's environmental sustainability performance. These emissions not only consider the direct and indirect emissions of a company but also the environmental impacts of the use of its products and services. This is essential for developing a more comprehensive sustainability strategy and offers companies various advantages such as competitive advantage, cost savings, innovation, and brand reputation. Focusing on Scope 4 emissions can help companies play a more effective role in combating climate change and building a sustainable future. The detailed advantages of effectively managing Scope 4 emissions for companies are as follows:

  • Competitive Advantage and Market Opportunities: Environmental sustainability is becoming an increasingly important criterion for consumers and investors. Companies that offer products and services that reduce Scope 4 emissions can gain a competitive edge in the market. For example, a company that produces energy-efficient LED bulbs not only helps consumers reduce their energy bills but also lowers GHG emissions from energy production. This provides both environmental and economic benefits, increasing the likelihood of market preference.

  • Regulatory Compliance and Incentives: Many governments implement regulations and incentive programs to promote low-carbon technologies and sustainable practices. Projects that reduce Scope 4 emissions can benefit from financial advantages such as government support, tax credits, and carbon credits. For example, under the European Union's Emissions Trading System (EU ETS), projects that reduce carbon emissions may be eligible for carbon credits.

  • Brand Reputation and Customer Loyalty: An environmentally conscious image enhances a company's brand value and strengthens customer loyalty. Companies that report and reduce Scope 4 emissions can more clearly demonstrate their commitment to sustainability. This not only strengthens relationships with existing customers but also attracts new customers who value environmental responsibility.

  • Innovation and Technology Development: Focusing on reducing Scope 4 emissions encourages companies to develop innovative solutions. For instance, in the automotive industry, the development and proliferation of electric vehicles can significantly reduce transportation-related emissions. Such technological innovations provide both environmental benefits and position companies as industry leaders.

  • Financial Performance and Long-Term Resilience: Sustainability practices can lead to long-term cost savings and improve financial performance. For example, energy-efficient production processes can reduce energy costs, increasing profitability. Additionally, by mitigating climate-related risks, companies enhance their long-term resilience and operational sustainability.

How to Calculate Scope 4 Emissions?

Calculating Scope 4 emissions is a complex process filled with various challenges and uncertainties. Firstly, accurate and comprehensive data collection is necessary, covering all stages of the supply chain and the entire product lifecycle. Obtaining such data is often difficult and costly. Moreover, since Scope 4 emissions include indirect emission reductions, the accuracy and validity of the methodology used are crucial. Ensuring consistency among different calculation approaches (e.g., consequential or attributional) can be challenging. These difficulties can hinder companies from accurately calculating and reporting Scope 4 emission values. Finally, the lack of a standardized reporting framework can lead to companies using different methodologies, reducing the comparability of results. Therefore, establishing reporting standards for Scope 4 emissions is important.

The two main approaches used in the calculation of Scope 4 emissions are the consequential and attributional approaches, detailed below:

  • Attributional Approach: The attributional approach evaluates the absolute emissions and removals of a product or service by comparing it with a reference product or service. This method is used to directly and simply compare the environmental impacts of products. For example, Scope 4 calculations can be made by comparing an energy-efficient LED bulb with a traditional incandescent bulb. The total carbon emissions from the production, use, and disposal stages of the LED bulb are compared to the emissions of an incandescent bulb with the same lifespan. Scope 4 emissions are represented by the lower emissions due to the LED bulb's lower energy consumption. This straightforward comparison helps determine which product is more environmentally sustainable. This approach is practical and provides quick results as it is based on specific data sets.

  • Consequential Approach: The consequential approach evaluates the broader system impacts of a product or service and includes how a decision or action affects the entire system. This approach considers secondary effects such as market changes, consumer behaviors, and industry dynamics, in addition to the direct impacts of the product. For example, when a company decides to implement a large-scale remote working program, the effects on public transportation and private vehicle use are evaluated. Remote working significantly reduces the need for commuting, decreasing traffic congestion and related carbon emissions. Additionally, energy consumption may decrease due to reduced office space usage. Such comprehensive analyses reveal the broader context and data variety required by the consequential approach.

In conclusion, calculating Scope 4 emissions is crucial for accurately measuring and reporting the environmental impacts of products and services. Both consequential and attributional approaches offer different perspectives on how these calculations should be performed. By following best practices, companies can effectively calculate Scope 4 emissions and better understand their environmental impacts.

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