Nature and Biodiversity

3 sectors share insights on measuring scope 3 emissions

How scope 3 emissions are measured and reported can have significant implications for trade policies.

How scope 3 emissions are measured and reported can have significant implications for trade policies. Image: Unsplash/no one cares

Marion Jansen
Director, Trade and Agriculture Directorate, Organisation for Economic Co-operation and Development (OECD)
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COP28

  • Measuring and reporting emissions in supply chains can be a key lever for decarbonization globally.
  • Diverse reporting standards, difficulties accessing accurate data and the complexity of modern supply chains make reporting unnecessarily challenging.
  • New technologies will be important for measuring emissions but firms and governments can also create well-functioning measurement systems that balance accuracy, feasibility and interoperability.

At the 2023 United Nations Climate Change Conference (COP28), one day will be devoted to how trade and trade policy can move towards a decarbonized economy. As trade occurs within global supply chains, measuring the resulting greenhouse gas (GHG) emissions will be crucial for climate action.

Many firms have started to report not only on their direct emissions (scope 1) and indirect emissions from purchased energy (scope 2) but also on emissions from upstream and downstream activities in their value chains (scope 3).

Scope 3 reporting is driven by new expectations from consumers, business partners, regulators, investors, employees and civil society. It is also becoming a requirement in new regulations discussed or implemented in the European Union, Japan and the United States.

Major developments are underway towards mandatory Scope 3 reporting
Major developments are underway towards mandatory Scope 3 reporting Image: World Economic Forum
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Access to data challenge

The complexity of modern supply chains presents several challenges in emissions measurement. Supply chains cut across multiple sectors, each with unique emission sources and measurement difficulties. Little access to reliable, firm-specific primary data leads to reliance on varying estimates.

Moreover, the landscape of emissions reporting is fragmented, with different methodologies and standards, creating challenges in comparability and benchmarking. Various calculation methods and emissions factors add to the complexity, requiring significant expertise and resources. Reporting requirements may disproportionately burden small and medium-sized enterprises and firms in developing countries.

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How can digital technologies help deliver the climate goals?

Lessons for a green transition

The report we published with the World Economic Forum and Business at OECD offers insights into practical challenges in three sectors.

1. Agriculture and food

Reporting standards in food supply chains: from broad principles to more sector-specific standards.
Reporting standards in food supply chains: from broad principles to more sector-specific standards. Image: OECD

The agriculture and food sector accounts for a substantial portion of human-caused emissions and faces unique challenges. As in other sectors, emissions reporting draws on the GHG Protocol and ISO standards. While these standards provide essential guidance, measuring emissions in specific activities entails many choices.

Think about the 600 million farms in the world and how farmers can account for their emissions that vary according to soils, climate and weather conditions. And think about how this information can be shared with firms downstream and verified. Firms downstream might prefer to rely on modelled estimates or emissions factors when confronted with fragmented data that are different across suppliers.

2. Mining

The mining industry is essential for transitioning to clean energy but struggles with scope 3 emissions reporting. Scope 3 emissions are mostly downstream in industries with their own measurement methods and over which mining firms have little control.

As in agriculture and food, there is a concern about a proliferation of reporting standards with the risk of different jurisdictions adopting different requirements when reporting becomes mandatory. Some convergence is underway and is necessary.

3. Steel

Steel is a downstream industry for the mining sector, highlighting the challenge of interoperability across measurement methods for sectors that belong to the same global supply chain.

As a significant carbon emitter, the steel industry’s diverse production methods and environmental impacts make standardization of emission measurements particularly challenging. Yet, it is crucial to achieve convergence so that firms can focus on decarbonizing supply chains.

Moving to net-zero emissions will require important transformations in technologies, processes and sourcing strategies in the steel sector.
Moving to net-zero emissions will require important transformations in technologies, processes and sourcing strategies in the steel sector. Image: World Economic Forum

How can policymakers work with business

Emissions measurement in supply chains is critical and necessary, requiring coordinated efforts from various stakeholders, including businesses, governments, international organizations and standard-setting bodies. The challenges and opportunities for driving meaningful climate action through improved transparency and accountability in supply chains are significant. We see some convergence and it is time for policymakers to take a closer look at what they can do together with businesses.

To develop methodologies across sectors that ensure comparability and effective management of emissions, measurement systems should have the following features:

  • Accuracy: benchmarking suppliers, tracking firms’ progress and integrating carbon footprints into procurement processes or financial requirements can only work if estimates are accurate.
  • Feasibility: Costs and time spent on reporting should remain manageable for companies, including SMEs and firms in developing countries.
  • Interoperability: While measurement standards (at the most detailed level) cannot be identical across sectors, measurement systems should be interoperable (i.e. one should be able to exchange and interpret data across sectors).

The implications for trade policy

How emissions are measured and reported can have significant implications for trade policies. Inaccurate or inconsistent measurements could lead to trade barriers or undermine the credibility of emissions reporting.

Therefore, policymakers must navigate this complex landscape carefully, ensuring emissions measurement becomes a tool for climate action rather than a trade barrier.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Nature and BiodiversitySupply Chains and TransportationClimate Action
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