Iyou can’t measure it, you can’t improve it”. Peter Drucker’s advice can apply to emission reductions as well to address environment and climate change challenges. But scope 3 emissions poses a challenge for many.

Facing pressure from governments (committed to net zero) and customers (environmental conscious or themselves under pressure from governments or society), organizations around the world are rushing to decarbonize their businesses and operations. An essential step is to define and measure their greenhouse gas emissions (GHG) mainly carbon dioxide emissions. The most widely used definitions are scopes 1, 2 and 3 prescribed by the Greenhouse Gas Protocol.

The infographic from Visual Capitalist explains the three scopes with examples very well:

Scope 1 – Direct emissions🔥from the organization’s operations (factories, facilities, furnaces, vehicles, etc)
Scope 2 – Indirect emissions from purchased #energy (eg, emissions occurring at power generation plant that supplies electricity⚡️used by the organization)
Scope 3 – All other emissions associated with a company’s activities both upstream (ie, company’s suppliers) and downstream (ie, company’s customers)

Carbon Pricing

Scopes 1 and 2 are controllable by a company to a great extent, for example, by reducing its energy consumption and using #cleanenergy including renewables (eg solar☀️, wind 💨 hydropower💧) and nuclear ☢️. However, scope 3 emissions are more controllable by suppliers and customers and are often the largest proportion of total emissions, hardest to measure and most challenging to reduce. A company needs to work closely with its suppliers and customers on solutions to reduce their emissions. energy transition and energy efficiency are two key pathways to achieve net zero, decarbonization and sustainability 🌈targets by 2030 and 2050.

When it comes to decarbonization, all three scopes of emissions are important and must be avoided, reduced and mitigated. Categorization of emissions into three scopes help organisations identify the source of such emissions and the entity or stakeholder that should be engaged with and encouraged to abate and mitigate the relevant emissions.

On a country or wider basis, carbon pricing is a tool that is being adopted to incentivise the organizations to reduce carbon dioxide emissions. Carbon price puts a monetary value on the external costs (eg, environmental and social impact costs) of the CO2 emissions. It provides a mechanism for a fair comparison of fossil fuels against cleaner / renewable energy sources: it makes more polluting fuels, products and services more expensive and makes those responsible pay for emissions. Carbon tax and emission trading system (ETS), or “cap and trade” system are two main mechanisms to put a price on carbon. The former is a tax or levy applied directly to the production of carbon emissions, whereas the latter defines the cap on pollution and allows manufacturers / emitters to trade the emission permits or allowances or credits (and hence the carbon price changes over time in the market). Many countries have adopted either or both of these carbon pricing instruments. By 2021, around 25% of global CO2 emissions were covered by either carbon tax or ETS. See my recent LinkedIn post on this with an insightful infographic from Energy Minute:


Emission reductions and carbon pricing are getting significant importance recently as the European Union (EU) moves to introduce the Carbon Border Adjustment Mechanism (CBAM) – which applies a carbon tariff on carbon intensive products, such as cement and some electricity, imported by the EU, based on their carbon contents. CBAM aims to prevent ‘carbon leakage’ by subjecting the import of certain groups of products from third (non-EU and non-EFTA) countries to a carbon levy linked to the carbon price payable under the EU ETS when the same goods are produced within the EU. Currently being legislated as part of the European Green Deal, CBAM will take effect in 2026 with reporting starting in 2023.


Carbon Board Adjustment Mechanism (Source: Apala Group)

For a quick comparison of countries on carbon emissions, see my another recent LinkedIn post . Emission per capita is usually high (over 3 times the global average of 4.4 tonnes of CO2 per person per year) for the developed countries (eg, Canada, US, Australia, New Zealand) and Middle East due to higher energy consumption or production (also reflecting their higher living standards or GDP per capita). However, some developed countries with similar living standards (eg, UK, Spain, Portugal, France) have relatively lower, closer to global average, emissions per capita due to higher share of electricity produced from nuclear and renewables instead of fossil fuels.