Scope 4 Emissions Explained

While the 3 scopes of greenhouse gas emissions (Scope 1, 2 and 3) are ubiquitously used, there exists a less popular category for Scope 4 emissions.

What are Scope 4 emissions?

Scope 4 emissions refer to the avoided emissions (or positive comparative impacts) that are prevented or reduced as a result of a company's products or services. It refers to emission reductions that happen outside of a life cycle of the product or value chain, but as a result of the use of that product.

For instance, a company manufacturing five-star energy efficient air conditioners, can report on the emissions avoided from use of its product versus a traditional 2/3-star air conditioner.

Unlike the first three emission categories, higher Scope 4 emissions reflect better product performance and efficiency.

Why are they calculated?

The identification of emission reduction opportunities and, in extension, reporting on Scope 4 emissions is not officially required by most climate regulations. However, it forms an inseparable part of a comprehensive strategy for reducing emissions. By reporting on Scope 4 emissions, a company not only accounts for the emissions it directly or indirectly causes but also the emissions it helps to prevent through its innovative solutions.

And more often than not, these efforts are consumer driven. As per reports, around 75% of the Gen Z consumers seek products and services that are aligned with sustainability. Reporting on scope 4 emissions, highlights how purchasing and using a product could be beneficial for the environment – thus also lending a competitive edge over other less efficient products.

How are they calculated?

The World Resources Institute’s (WRI) 2019 working paper recommends two broad approaches to estimate avoided emissions (or the comparative GHG impact) – consequential estimation approach and attributional estimation approach.

Attributional Approach:

Attributional approaches generate inventories of absolute emissions and removals that are attributed to a given entity, such as a product, company, city, or nation.

Comparative GHG Impact = Life-Cycle Emissions of Reference Product – Life-Cycle Emissions of Assessed Product

Consequential Approach:

Consequential methods estimate the total, system-wide change in emissions and removals that results from a given decision or intervention, such as the decision to produce one extra unit of the assessed product or the introduction of a new government policy.

Comparative GHG Impact (Policy and Action Standard) = Emissions in baseline scenario – Emissions in policy scenario

Essentially, consequential approach, keeping other factors constant, only looks at emissions that change given a change in scenario. Further, it makes scenario-based comparisons than product-based comparisons.  

The consequential approach is considered free from the bias of a reference product and more appropriate for informing decision-making; but with the current state of data availability and limited company resources, most companies use the attributional approach of estimation.

Things to keep in mind while setting Scope 4 emission targets

Positive impacts frequently form part of companies’ “net positive” targets.

The first step before setting targets for comparative impacts, companies should set science-based reduction targets for their scope 1, 2, and 3 emissions (e.g., to reduce scope 3 emissions from sold products). In fact, the WBCSD’s latest ‘Guidance on Avoided Emissions’ sets an eligibility criteria that any climate solution should meet before a company calculates and claims avoided emissions. The first criterion itself requires the Company to set a ‘climate strategy with emission reduction targets (for Scope 1-3) that are aligned with climate science and can be proven through existing frameworks.’

In the event the Company cannot estimate or measure Scope 4 emissions, it could consider setting targets for product performance and R&D. For example, “Company A will increase the number of products that have a positive impact by 30% by 2028” or “Company B will increase the share of zero- and low-carbon products to X percent of overall products.”

What are the challenges of reporting Scope 4 emissions?

As described above, Scope 4 emissions are comparative numbers i.e. they are reported in comparison to another product or the baseline scenario. While a Company can measure its product or service in terms of carbon emissions associated with its use, it is difficult to compare it to with the rest of the products in the marketplace. Industry averages can be taken in such a case but it is difficult to set a baseline.

Another factor to consider while reporting is the risk of greenwashing. Companies must report Scope 4 emissions separately and should not use them to adjust Scopes 1, 2 or 3 emissions. Reporting of avoided emissions is best used to inform product or policy design rather than as an indication of climate mitigation efforts, which are primarily driven by Scope 1-3 emissions.

Do you wish to measure your organisation’s Scope 4 emissions? Reach out to us at info@esgityadvisors.com!