The importance of addressing climate change has never been more pressing. Nations and companies are grappling with reducing greenhouse gas emissions. The categorisation of these emissions into three scopes — Scope 1, Scope 2, and Scope 3 — plays a pivotal role in transparency and accountability. Scope 1 and Scope 2 emissions, which are direct and electricity-related indirect emissions, respectively, are well-defined and mandatory for reporting. However, Scope 3 emissions, encompassing all other indirect emissions, have historically been optional and largely overlooked. Thus, there is a dire need to explore the legal consequences of recognising Scope 3 emissions, particularly in light of recent legal precedents and their broader implications for environmental regulation and corporate responsibility.
To effectively manage and report GHG emissions, it is essential to delineate direct and indirect emission sources. Scope 1 emissions refer to direct emissions from sources owned or controlled by the company, such as emissions from combustion in owned boilers or vehicles. Scope 2 emissions, on the other hand, account for indirect GHG emissions from the generation of purchased electricity consumed by the company. Both Scope 1 and Scope 2 emissions are mandatory for reporting under various GHG programmes to prevent double counting.
Scope 3 emissions, however, are more complex and encompass all other indirect emissions not covered by Scope 1 or Scope 2. These include emissions resulting from activities such as the extraction and the production of purchased materials, transportation of purchased fuels, and the use of sold products and services. Because they occur from sources not owned or controlled by the company, Scope 3 emissions present significant challenges in measurement and accountability.
A recent landmark judgment by the Supreme Court in the United Kingdom has set a new precedent for considering Scope 3 emissions in environmental impact assessments. The case, initiated by the campaigner, Sarah Finch, challenged the Surrey County Council’s decision to extend planning permission for an oil drilling well at Horse Hill without considering the downstream emissions from burning the extracted oil. The Supreme Court ruled that the “inevitable” future GHG emissions from the use of fossil fuels must be considered in environmental assessments, thereby recognising the significance of Scope 3 emissions. The court also stated that the combustion emissions of a fossil fuel project are part of its overall environmental effects, emphasising that once oil is extracted, it will likely be burned and release CO2, contributing to global warming. This ruling underscores the necessity of accounting for all significant environmental impacts regardless of where or when they occur, thereby broadening the scope of environmental impact assessments to include downstream emissions.
This decision is a significant victory for climate activists and sets a precedent for other legal challenges against fossil fuel projects. It highlights the legal obligation of public bodies to consider the full environmental impact of their decisions, including Scope 3 emissions, thereby strengthening the case for rejecting projects with substantial climate impacts.
The Supreme Court’s ruling has far-reaching implications beyond the specific case of Horse Hill. It signals a shift towards more comprehensive environmental assessments and could influence future regulatory frameworks and corporate practices. For instance, other ongoing lawsuits, such as that against the Rosebank and Jackdaw oil and gas fields in the North Sea, are likely to be bolstered by this precedent.
The decision also calls into question the adequacy of current regulatory approaches that overlook downstream emissions. It suggests a need for more robust legislation that mandates the consideration of Scope 3 emissions in all significant projects. This could lead to stricter environmental regulations and more rigorous scrutiny of projects with potential climate impacts.
Recognising Scope 3 emissions is crucial for achieving comprehensive GHG reductions. Scope 3 emissions often represent the largest share of a company’s total GHG footprint, especially in sectors like oil and gas, transportation and manufacturing. For instance, Scope 3 emissions account for about 75% of the total industrial carbon footprint, highlighting their critical role in addressing climate change.
Several companies are beginning to take proactive steps in managing their Scope 3 emissions. For example, Schneider Electric has launched The Zero Carbon Project, aiming to reduce its top 1,000 suppliers’ carbon emissions by 50% by 2025. Similarly, Infosys is working on strategies to reduce its Scope 3 emissions related to business travel and employee commute through digital collaboration and promoting electric vehicles.
However, the challenge of accurately measuring and reporting Scope 3 emissions remains significant. The large and dispersed supplier base across different geographies complicates data collection and baseline setting. Therefore, it is essential for companies to build robust organisational structures and involve all functions in addressing Scope 3 emissions.
Advancements in technology and innovation play a pivotal role in addressing the complexities of Scope 3 emissions. Artificial Intelligence-based and blockchain solutions for carbon accounting offered by companies like Net0, PlanA, and Accacia are helping firms track and manage their GHG emissions more effectively. These technologies enable accurate data collection and reporting, making it easier for companies to set targets and measure progress.
Moreover, sustainability reporting frameworks such as the Global Reporting Initiative and the Carbon Disclosure Project are becoming increasingly important. By aligning with these global standards, companies can enhance their transparency and accountability, thereby attracting investors and stakeholders who prioritise sustainability.
The recognition of Scope 3 emissions marks a significant shift in the approach to GHG accounting and reporting. The recent UK Supreme Court ruling underscores the importance of considering the full environmental impact of projects, including downstream emissions. This precedent is likely to influence future legal and regulatory frameworks, pushing for more comprehensive environmental assessments.
For companies, addressing Scope 3 emissions is not only a legal and regulatory imperative but also a critical component of their sustainability strategy. By leveraging technology and innovation, companies can improve their emissions tracking and reporting, driving significant reductions in their overall GHG footprint.
As the world grapples with the climate crisis, it is clear that a holistic approach to emissions accounting — encompassing all three scopes — is essential for meaningful progress. The legal consequences of recognising Scope 3 emissions underscore the need for a concerted effort by regulators, companies, and stakeholders to address the full spectrum of GHG emissions and achieve a sustainable future.
Vaanya Shukla is a student of liberal arts and a policy enthusiast
