Scope 1 and 2 emissions are the “easy” parts to address on the road to net-zero greenhouse gas (GHG) emissions – reducing the emissions you produce (Scope 1) and the emissions from the energy you consume (Scope 2). The heavy lifting will come from Scope 3 emissions – all the rest that come from upstream and downstream that indirectly impact the value chain.
Scope 3 is the hardest to both control and measure but also will have the greatest impact on overall emissions reductions. For the upstream part, a key aspect is ensuring the raw materials you buy, including the way they get to you, are also low carbon or carbon neutral.
That’s where big momentum is building. Chemical companies are increasingly being asked by customers about the carbon footprint of their products, which not only takes into account the direct emissions emitted to make that product and the energy required, but the carbon footprint of the raw materials used to make it.
Regulatory pressure on Scope 3 emissions disclosures is building as well – particularly in Europe and the US.
Broadening of interest
Switzerland-based Clariant is seeing a broadening of its customer base seeking carbon footprints of the products they buy.
“Even 6 months ago I would have said consumer-facing customers are more likely to be asking for product carbon footprints but we’re seeing it now across all industries,” said Richard Haldimann, chief technology and sustainability officer at Clariant, in an interview with ICIS.
“For tenders that are going into purely industrial applications and where you might think that the product carbon footprint is not going to play a significant role, we still have customers asking for this, for us to participate in a tender,” he added.
Clariant aims to cut Scope 1 and 2 greenhouse gas (GHG) emissions by 40% and Scope 3 emissions by 14% by 2030 – targets validated by the Science Based Targets initiative (SBTi). It is one of the few chemical companies that have outlined a Scope 3 emissions target.
Scope 3: largest part of the picture
On the journey to net-zero GHG emissions, measuring and reducing Scope 3 emissions is critical as it is by far the largest part of the overall emissions picture.
“For manufactured products, typically 60-80% of the total emissions will be Scope 3. When you start addressing Scope 3, you’re addressing the biggest part of your emissions,” said Arne Kaetelhoen, co-founder and CEO of life cycle assessment (LCA) company Carbon Minds, in an interview with ICIS.
For chemical companies, Scope 3 typically represents the majority of total emissions.
US-based Dow estimates its 2021 Scope 1 emissions were 28.3 million tonnes of carbon dioxide (CO2) equivalent and Scope 2 emissions were 5.7 million tonnes. That compares to estimated Scope 3 emissions of 77.6 million tonnes, or 70% of the total. Of Scope 3, which includes upstream as well as downstream emissions, over 50% were from purchased goods and services.
Dow had collected climate data from around 100 suppliers, representing 31% of its 2020 raw materials spend, and is targeting engagement with around 350 suppliers in 2022 and 500 in 2023, asking these suppliers to disclose carbon emissions data and reduction plans. The company plans to use the data to improve the accuracy of measuring its own Scope 3 emissions along with its ability to take action and track progress toward its emissions reduction goals.
The magnitude of the challenge in Scope 3 is evidenced by the fact that very few chemical companies have outlined targets for these emissions thus far. They have predominantly focused on goals for reducing Scope 1 and 2 emissions.
Driving down Scope 1 and 2 emissions to net zero is itself a big challenge, requiring substantial capital expenditures (capex).
Of course, chemical companies’ Scope 1 and 2 emissions become part of their customers’ Scope 3 emissions through the products they sell.
Supplier carbon footprints
Measuring and comparing carbon footprints of raw materials and products is a monumental challenge and critical for chemical companies to meet the sustainability goals of their customers. ICIS recently partnered with Carbon Minds to launch Supplier Carbon Footprints, which provides carbon emissions data for 71 bulk chemicals and plastics by supplier, plant and region on a global basis.
“This is a huge step forward for chemical companies in managing Scope 3 emissions. It will provide the information to create supply chains with lower climate impacts and find the right suppliers to achieve this goal,” said Kaetelhoen from Carbon Minds.
As companies see the climate impact of their supply chains and compare suppliers’ carbon footprints, “changing just one supplier could make an immediate and significant difference to Scope 3 emissions”, said Alison Jones, strategy director at ICIS.
Companies can also engage existing suppliers and help them implement sustainability initiatives, Kaetelhoen pointed out.
For companies looking to quantify and reduce their Scope 3 emissions, getting a more complete picture by product and actual plant location is vitally important.
“It’s always the life cycle perspective, including the entire upstream supply chain. For example, if you look at a polymer, the production process uses energy and has some direct emissions – together, this would be Scope 1 and 2,” said Kaetelhoen.
“But the far bigger part of the emissions picture will be upstream Scope 3 – how the input materials for this polymerisation process are produced, the oil or gas that comes out of the ground and the transportation in between. The sum of these emissions is what we call the carbon footprint of this product,” he explained.
Ultimately, these chemicals and polymers and their carbon footprints flow downstream to end market consumers, including brand owners and fast moving consumer goods companies (FMCGs) that are becoming hyper-focused on carbon impact.
Chemical companies seeking to stay relevant through the next decade must be able to evaluate their suppliers’ carbon footprints as well as benchmark their plants and products versus competitors globally.
“If you compare not only the most emission-intensive producer, but also the average producer to the cleanest producer, it’s a substantial difference across all the chemicals that we cover,” said Kaetelhoen.
Challenges in calculating Scope 3
Another challenge in evaluating Scope 3 emissions is that companies use different methodologies and data sources. Often primary data (from suppliers) is not readily available.
“We can now imagine hundreds of companies starting to calculate their carbon footprints. Some have specialised people and others don’t. At the moment, it’s a huge mess. People use different technology, different methodologies, different data sources. And right now, primary results are not comparable,” said Kaetelhoen.
The data from Supplier Carbon Footprints, while secondary data, is methodologically consistent, allowing for fair comparisons, he pointed out.
Carbon Minds also plans to adapt its carbon footprint model to new low-carbon process technologies as they are implemented.
“Our aim is to always model the current status of the chemical industry as precisely as possible. If in the future a non-negligible amount is produced based on a certain new technology, we need to keep up with it and include the impact,” said Kaetelhoen.
BASF maps out footprints
Highlighting the importance of measuring carbon impact, the world’s largest chemical company – Germany-based BASF – has completed a massive project to measure carbon footprints for its entire product portfolio. The company uses 20,000 raw materials to make 45,000 chemicals produced in 700 plants around the world.
The analysis includes the carbon used right up the chain to the exploration, production and refining of oil and conversion to naphtha or other upstream chemical feedstocks.
BASF has developed a Product Carbon Footprint (PCF) tool to show customers how they can reduce their Scope 3 carbon footprint through the use of products made, for example, with recycled feedstocks or green energy.
In June, BASF announced a range of chemical intermediates with carbon footprints well below the global market average.
The company aims to help its supply chain as well as competitors develop a consistent approach to carbon measurement for a level playing field. It is sharing its proprietary PCF digital solution and methodology to third parties active in software through licensing agreements.
“Although there are standards, there is room for interpretation of the standards. There is uncertainty about how you allocate emissions – for example when multiple products emerge from the same process – so if we want to benchmark companies we need more standardisation,” said Jan Schoeneboom, team lead, lifecycle assessment at BASF, in an interview with ICIS last year.
Ultimately, he believes, a consistent algorithmic allocation will be required for every company that participates in carbon data exchange along the value chain, based on consensus methodology.
“We realise we are quite a leader in this area of product carbon footprint quantification, but it will not be any good for us if we just keep this for ourselves. This is because the measurements will not be comparable, and hence, not useful along the value chain,” said Schoeneboom.
After providing carbon footprint transparency to customers since earlier this year, BASF is now working with them to develop tailor-made low-carbon and net-zero-carbon products.
In March, BASF and Henkel announced an initiative to replace fossil carbon feedstock with renewable feedstock for most products in Henkel’s European Laundry & Home Care and Beauty Care businesses over the next 4 years.
Critical to start now
While not all information is available today to fully measure Scope 3 emissions, it is still important to get ahead of what is no doubt going to be a big priority for customers as they work to meet their sustainability goals.
“There are a significant number of challenges remaining for an accurate measurement of Scope 3 emissions, but it doesn’t mean that we should not work towards reducing our Scope 3 already with what we have,” said Haldimann.
“We are fully aware and are working to improve the quality of Scope 3 data, but we believe that it’s critical and mandatory that we work with what we have and start now rather than wait until we have the highest precision,” he added.
Thus far there is no common agreement on how to best measure Scope 3 emissions in the chemicals industry, he pointed out.
Focus on purchased raw materials
When it comes to measuring and reducing Scope 3 emissions for chemical companies, increasingly the focus is on upstream – on the raw materials they buy.
That’s because downstream emissions resulting from the use of chemicals is exceedingly difficult to measure as they typically go into so many different applications, explained Clariant’s Haldimann.
“When we set a Scope 3 target, we decided we would focus on the parts we have the biggest chance of influencing, and that’s upstream. We actually set a target for Scope 3, Category 1 which is purchased raw materials,” said Haldimann.
“That we can influence by decisions on what kinds of raw materials we buy to make our products,” he added. Scope 3 emissions comprise over 60% of Clariant’s total GHG emissions.
Clariant works with suppliers to calculate the carbon footprints of the raw materials it purchases as well as consulting databases that calculate supplier-specific carbon footprints based on certain process technologies used.
Clariant is also part of the working group in Together for Sustainability (TfS), a chemical procurement organisation which has come out with a criteria catalogue for calculating product carbon footprints, he noted.
Regulatory pressure ramps up
Regulatory pressure is ramping up as well. The European Commission in April 2021 released a proposal for a Corporate Sustainability Reporting Directive (CSRD) which envisions the adoption of EU sustainability reporting standards. This would require all large and public companies to disclose Scope 3 emissions among other items.
The first set of standards would be adopted by October 2022, according to the proposal.
In the US, the Securities and Exchange Commission (SEC) has proposed a new rule that would require publicly traded companies to disclose GHG emissions, including Scope 3, along with climate-related risks and targets to achieve net-zero emissions.
Companies would be required to disclose Scope 3 emissions if they are material or if the company has set a GHG emissions reduction target that includes Scope 3, according to the proposed rule.
“Today, investors representing literally tens of trillions of dollars support climate-related disclosures because they recognise that climate risks can pose significant financial risks to companies, and investors need reliable information about climate risks to make informed investment decisions,” said SEC chair Gary Gensler in March when the rule was proposed.
The American Chemistry Council (ACC) expressed concerns about the proposed SEC rule, especially regarding Scope 3 emissions.
“The proposal’s heavy emphasis on Scope 3 emissions reporting raises particular concerns for ACC members… Public companies and their suppliers, customers, and end users may be subject to intense pressure to conduct onerous Scope 3 emissions analyses regardless of materiality,” said the ACC in a June statement.
“Scope 3 reporting should focus on qualitative assessments of investment risks and should not require quantitative reporting at this time,” the ACC added.
Yet companies have to prepare for detailed Scope 3 emissions disclosures, as that’s where the regulatory winds are blowing.
Joseph Chang is Global Editor, ICIS. Additional reporting by Will Beacham.