From July 1, 2024, Australian companies that meet certain criteria will be required to report on their emissions and efforts to reduce them as part of their regular financial reporting. What is ambitious about this is that the reporting will cover scope 1, 2, and 3 emissions.
Given how crucial logistics and delivery is to almost every industry, this wide-reaching reporting will mean that even if you as a logistics provider are not required to report on your own business, if you have a large customer that is reporting, they will very likely ask you to provide emissions data or estimates.
If you’re working as part of a logistics team that’s been asked to provide emissions data, this blog is your handy introduction to an industry specific run down of what you need to know about scope 1, 2, and 3 emissions.
What are emission scopes?
Scopes were introduced to measure who is directly and indirectly accountable for emissions, and to prevent emissions from being double counted or lost in the accounting process.
Scope 1
These are any emissions that are produced as a direct result of your business or owned assets
Scope 2
These are emissions that are an indirect result of your business
Scope 3
These are all the remaining emissions produced throughout the supply chain, including emissions produced when customers use the products of your business
Scope 3 is the most confusing and difficult to understand category, and it’s also usually the largest of the three.
Examples of scope 1, 2, and 3 emissions for the logistics industry
To help make these clearer in a real world setting, here are examples of each for a mid-sized last-mile delivery company with a mixed fleet of ICE and electric vehicles, three rented depots, one of which includes refrigeration capabilities, and the business operates in two interstate cities.
Scope 1 example:
On-site combustion of fuels in the warehouse, for example if your hot water is powered by gas, you use ICE vehicles in your fleet (including forklifts), or have backup generators for cool rooms in case of power failures, these will all be considered scope 1 emissions.
Scope 2 example:
Purchased electricity used to power the lights, equipment, electric vehicles, and even batteries for forklifts are all scope 2 emissions.
Scope 3 example:
The most all-encompassing scope, this is where your scope 1 emissions become your customers’ scope 3 emissions, or your suppliers’ scope 1 becomes your scope 3. An example is a business that manages and maintains public equipment (like bus shelters, billboards, or in the old days, public phones). To keep this easy to track let’s call this company Chocolate. Chocolate has its own vehicle fleet for maintenance but during busy periods they outsource some of this maintenance to a third party called Vanilla.
The emissions from Vanilla’s fleet is Vanilla’s scope 1, and Chocolate’s scope 3 emissions.
Due to how far reaching it is, scope 3 usually accounts for the majority of a company’s emissions.
Reducing emissions and changing scopes
Switching from an ICE fleet to an EV fleet will have impacts on scope 1 and 2 emissions. Scope 1 emissions would be reduced, as you’re no longer purchasing fuel and using it to power a company owned vehicle. The purchased electricity to charge the EVs does come under scope 2, but installing solar panels or purchasing electricity from renewable energy sources would further reduce scope 2 emissions.
Emissions from warehouses are relatively high, and the most efficient way to reduce emissions from them is to make them more efficient, which translates into turning over stock in the warehouse faster. Reducing how long product sits in a warehouse and increasing the turnover means the warehouse as an asset has higher utilization and therefore improved efficiency.
How are CO2 emissions calculated?
Measuring emissions is not an exact science, and there’s a healthy dose of acting in good faith required.
The GHG Protocol Corporate Standard outlines best practice for measuring emissions, which comes down to 4 simple principles to follow:
- Complete - across the scope of your business, everything is accounted for
- Accurate - to the best of your ability, provide accurate measurements
- Consistent - the method used to calculate emissions must be consistent year to year, to enable fair comparisons
- Transparent - not all emissions can be measured accurately, so where you have had to use estimations or have missing data, disclose that
What falls into scope 1 vs scope 2 can sometimes change, depending on how your organization has chosen to account for emissions. For organizations that own or invest into other entities, who is responsible for what emissions can be tricky. That’s why, before emissions are calculated, the organization must split their assets either by equity share or by organizational control.
This can cause some confusion amongst teams where an emissions could fall under either scope 1 or 2 and they’re not sure where to put it. For a full explanation of the accounting methods, check the GHG Protocol.
Double counting of emissions can seem like an issue, but don’t worry, the design of the scopes explicitly accounts for unclear ownership of emissions being put into scope 3.
Centralized vs decentralized accounting
Using a depot or warehouse example, organizations can choose to take a centralized or decentralized approach to calculating emissions. In a centralized approach there’s a single team, usually from a head office, in charge of reporting. In a decentralized approach each warehouse or depot would be responsible for reporting their individual emissions back to head office.
If an organization has taken the decentralized approach, the biggest hurdle will be ensuring all locations are consistent in how they’re calculating emissions.
Using technology to report emissions is a good way to get everyone on the same page. Tools specifically for calculating the emissions of a fleet, warehouse, or depot, are rolling out. Adiona is one such tool, working to not only optimize last-mile delivery routes and simulate more efficient logistics planning including micro fulfillment center and depot planning, but also calculates emissions based on fleet vehicle model, including zero emission delivery methods like walking or EVs.
Tips for setting emission reduction targets
The GHG protocol recommends setting a target to be achieved over a multi-year time span. The reason is that a 12-month period can easily be disrupted by events outside of our control – something we’ve all learned from covid-19.
A multi-year time span gives some grace when an organization might not hit one year’s milestone target, but are able to make up for it the next year.
Before you’ve set your target, you’ll also need to pick your base year to compare against. For companies who’ve already been voluntarily reporting on emissions, you’ll have your choice on what year that is. However, if you’re only starting to measure emissions due to the mandatory reporting, 2024 (or the year it becomes mandatory for you) will be your base year.
If you’re not required to report in 2024, it might still be helpful to get a head start on it.
Your emissions targets should:
- Cover your entire business
- Address all three emissions scopes
- Aim for an absolute reduction in GHG emissions
In the mandatory reporting, organizations will need to include the gross and net emissions – so simply buying carbon offsets to reduce your emissions won’t be enough.
Remember to account for uncertainty
As mentioned above, it’s not always possible to account for 100% of your emissions. But where you can’t, it’s important to disclose that you’re aware of missing information or are using methods that can’t capture all the data.
There’s two key types of uncertainty:
- Scientific uncertainty
- Estimation uncertainty
Scientific uncertainty is where the method or science behind calculating emissions cannot be accounted for. An example is a supplier giving you an estimate of the emissions produced by their product under certain conditions, like ambient temperature. It’s unreasonable to expect you to be able to calculate the emissions of the product under non-standard conditions.
Estimation uncertainty is concerned with the mathematics or models used to estimate emissions. Again, it accounts for variations that are unreasonable for a regular organization to be able to calculate.
It’s best to err on the side of caution and conservative estimates to avoid being accused of not acting in good faith.
Resources
The GHG Protocol has developed a number of resources to assist organizations who are starting to measure emissions. Specifically, they have a worksheet for GHG emissions from transport or mobile sources.
Other emissions estimation tools are DHL’s carbon calculator, and EcoTransIT’s calculator. For comprehensive emissions tracking, including for low- or zero-emission transport methods like e-cargo bikes, EVs, and walking, talk to us about trialing Adiona to optimize your last-mile delivery routes, simulate scenarios, and track your emissions.
