When discussing sources of greenhouse gas emissions, we often hear about Scopes 1, 2, and 3. Scope 4 is a relatively fresh and unfamiliar term to most people. So, what exactly is Scope 4, one of the names of Carbonstop's meeting rooms?

First, let's briefly review Scopes 1, 2, and 3 according to the definitions in the widely used GHG Protocol:

Scope 1: Direct greenhouse gas emissions from sources controlled or owned by a company;

Scope 2: Indirect emissions from electricity, steam, heating, or cooling consumed by a company;

Scope 3: Indirect emissions related to a company's operations, originating from 15 different categories within the value chain.

01

【 Definition and Importance 】

Definition

The World Resources Institute (WRI) defined Scope 4 in an article in 2013: "avoided emissions" are sometimes referred to as Scope 4, which refers to greenhouse gas emissions avoided due to the use of more efficient goods and services outside the lifecycle or value chain of a product.

Thus, Scope 4 can also be seen as the difference in greenhouse gas emissions between the general scenario [business as usual (BAU)] and the relevant solution.

The sources of Scope 4 mainly fall into two categories:

One is the replacement of one carbon-intensive product with another, such as using teleconferencing instead of traditional business travel and meetings, or the manufacturing of wind turbines helping to replace fossil fuel power generation, thereby reducing societal emissions.

The second is through the use of products to help other processes generate emission reductions, such as real estate companies considering public transportation facilities during neighborhood development, which can encourage residents to choose public transportation more after moving in, thus reducing emissions.

In short, Scope 4 primarily demonstrates the amount of greenhouse gases avoided through optimization, rather than emissions that need to be further reduced.

Importance

Compared to Scopes 1, 2, and 3, the focus of Scope 4 shifts from "doing less harm" to "doing more good."

(1) For Companies

The concept of "avoided emissions" becomes a way for companies to showcase the real positive impact of their products or services on the world, reflecting that companies are not only focused on reducing their own and supply chain emissions but also driving emission reductions for institutions using their products or services, something that traditional greenhouse gas emission inventories cannot show.

When formulating corporate strategic plans, companies can understand market dynamics and potential profit margins through scenario settings in the Scope 4 calculation process, which will help determine priorities for product development.

In supplier selection, companies can more targetedly choose equipment or solutions that help reduce carbon emissions to achieve their own carbon neutrality goals.

Paying attention to Scope 4 can bring competitive advantages in differentiated products and an environmentally friendly brand image, positioning the company as a leader in decarbonization.

(2) For Investors

An increasing number of investors are beginning to focus on and evaluate the environmental impact of their investment portfolios. Scope 4 calculations can support a more comprehensive measurement of emission reductions, particularly enabling investors to understand the positive effects of investing in sustainable projects.

Investors can better identify investment risks and opportunities and pay attention to more comprehensive ESG disclosures, bringing new dimensions to long-term portfolio strategies in the context of the low-carbon transition.

(3) For Society

Both the emissions generated and avoided across the entire system will become more transparent, helping consumers choose environmentally friendly products and enabling all stakeholders to monitor companies, promoting the low-carbon/zero-carbon transition of society and advancing the achievement of climate goals.

While the development of new products or processes may temporarily generate new carbon emissions, in the long run, increased efficiency of products will reduce emissions associated with such products, making the entire process more efficient and cleaner.

02

【 How to Calculate 】

Currently, there is no unified methodology for calculating Scope 4 globally, but a series of frameworks provide guidance for "avoided emissions." One of the earliest methodologies can be traced back to the Global e-Sustainability Initiative (GeSI)'s 2010 publication, Methodology for Evaluating the Carbon-reducing Impacts of ICT.

Nowadays, commonly used and recognized methodologies include the WRI's Estimating and Reporting the Comparative Emissions Impacts of Products and Mission Innovation's The Avoided Emissions Framework (AEF). Other guidelines written by organizations and institutions can be found in the table below.

In addition, some companies have developed methodologies based on their industry experience and academic literature. For example, Schroders Investment Management and Singapore Government Investment Corporation (GIC) wrote A Framework for Avoided Emissions Analysis, which helps measure emissions and integrate "avoided emissions" into investment or portfolio analysis.

LafargeHolcim set a goal to provide innovative and sustainable solutions to reduce its impact and that of its supply chain on climate change. By writing Accounting and Reporting Protocol for Avoided Greenhouse Gas Emissions along the Value Chain of Cement-based Products, they provided a unified and transparent methodology for greenhouse gas emission calculations for the cement industry and supply chain enterprises.

Among domestic companies, Alibaba Group released Scope 3+ Emission Reduction: A Methodology for Corporate Climate Action Beyond the Value Chain, providing methods, parameters, and reduction steps for avoiding emissions for various industries.

The calculation methods used in these methodologies generally fall into two types: the attributional approach and the consequential approach.

The attributional approach is the difference in greenhouse gas emissions over the entire lifecycle between a low-carbon product or service and a reference product or service that provides equivalent functionality; the consequential approach tends to analyze from a broader perspective, referring to the total emissions or removals that occur due to the presence of a low-carbon product or service compared to a scenario without it (BAU), representing the sum of all system-wide changes.

The attributional approach is easier to obtain data and perform calculations, but it does not consider market and policy factors; the consequential approach offers a more comprehensive analysis but requires greater data input and human resource costs.

Some companies are pioneers in the field of carbon neutrality and have already begun measuring and managing Scope 4.

For example, Pacific Gas & Electric Company (PG&E) mentioned Scope 4 in its Climate Strategy Report 2022 and proposed three ways to support consumers in reducing avoidable emissions.

IKEA disclosed in its 2022 climate report that the avoided emissions from SOLSTRÅLE home solar panels sold in 11 markets, compared to national grid data, were 220,000 tons of CO2 equivalents.

Telefónica set an avoided emissions target for 2025 in its 2022 Climate Action Plan and developed a methodology that includes 12 categories of products and services, such as cloud services, IoT, and video conferencing.

03

【 Challenges and Limitations 】

Measurement Difficulties

Verifying whether a product or service avoids emissions requires a complete measurement and tracking of the performance of new solutions. Since Scope 4 emissions do not actually occur, assumptions and estimates must be made regarding how users use and dispose of products. Calculations may also involve additional market research, such as determining how many consumers are using the old product and whether they are willing to switch to the new product, all of which require significant resources and time.

High Uncertainty

There is uncertainty in both the measurement of data and the assumptions made, and the sources of uncertainty differ between attributional and consequential methods.

Uncertainty in the attributional method comes from activity data and carbon reduction factors; while uncertainty in the consequential method also stems from scenario setting, especially when estimating future technology, where the development level of supporting infrastructure needs to be considered.

Moreover, calculations can involve technical success rates, future market research, technology adoption, changes in user behavior, etc.

Therefore, reports need to discuss the sources of uncertainty and potential impacts, and sensitivity analysis can be attached to show possible outcomes under different scenarios, using the most conservative assumptions to avoid overstating avoided emissions.

High Initial Costs

Resources are needed for R&D, testing, and other preliminary work. For example, carbon reduction factors require specific case-by-case analysis, and the same solution may produce different effects in different places, requiring scenario settings to be adapted to local conditions. These can result in higher emissions and costs in the short term.

Lack of Standards

Unlike Scopes 1, 2, and 3, there are no clear standards for Scope 4. Scope 4 involves theoretical quantification through reference scenarios, generally by comparing current solutions with market averages, previous solutions, or older products. This means that companies may need to develop their own Scope 4 calculation methods suitable for themselves.

The GHG Protocol recommends using the consequential method for calculations, but currently, most companies use the attributional method.

Risk of Greenwashing

Scope 4 applications are not suitable for all companies, products, or services.

For heavily polluting industries such as steel, oil and energy, and cement, the primary goal should be to reduce their own emissions. If such companies start calculating avoided emissions but only briefly mention Scopes 1, 2, and 3, there is a significant risk of greenwashing. Service providers with emission reduction potential, such as construction companies, consulting firms, and investment companies, can focus more on Scope 4.

Uncertainty in Attribution

Positive impacts are often generated by many companies along the value chain, and to avoid double counting, some companies assess and allocate impacts to each company in the value chain.

However, this process faces significant challenges because in many cases, no single attribution method can truly reflect the contribution of each partner to positive impact, especially for financial institutions providing loans, which can be even more difficult to implement.

04

【 Precautions 】

• When evaluating the impact of products already on the market using the attributional method, the reference product should be the most likely to be sold in the market, usually substitutes or competitors, rather than market average products.
• The WRI suggests that companies calculate and report emissions from Scopes 1, 2, and 3 before calculating and disclosing Scope 4.
• Scope 4 should be reported separately and should not be used as a target for mitigating climate change. The CDP 2023 Climate Change Scoring Method also mentions that “avoided emissions” should be reported separately outside of Scopes 1, 2, and 3, and not included in or removed from the Scope 3 inventory.
• SBTi believes that Scope 4 should not be counted toward short-term or long-term emission reduction targets and cannot be used to offset emissions from Scopes 1, 2, and 3.

05

【 Carbonstop Observations 】

Currently, obtaining comprehensive and complete BAU (Business As Usual) data for Scope 4 calculations is quite challenging, so reference products might use market averages, which is the best available data now. However, in the future, we can expect estimation results to become simpler and more accurate with improvements in digitalization and transparency.

Differences Between Scope 4 and Emission Reductions

Emission reductions typically refer to reductions within Scopes 1, 2, and 3, while Scope 4 refers to avoided emissions outside of these scopes. There is a significant difference between the two concepts, and they should not be confused.

Standards that can be referenced for emission reduction calculations include the GHG Protocol, PAS2050, ISO 14067, etc., but there are no clear standards for Scope 4 yet.

SBTi advocates for companies to take more proactive emission reduction actions and solutions and to set emission reduction targets, while there is no mandatory disclosure requirement for Scope 4, although climate action assessment systems like CDP have mentioned parts of avoided emissions in their climate change scoring methods.

The following example illustrates the difference between Scope 4 and emission reductions:

Scope 4 adds an additional perspective to carbon emission analysis, making it more comprehensive, and companies can begin to pay attention to it gradually. Carbonstop has been continuously monitoring companies' Scope 4 emissions and will continue to promote companies' participation in the calculation and management of Scope 4.

However, given the complexity of Scope 4 calculations and the fact that most companies are still in the early stages of carbon management, domestic companies disclose very little information about it. We also recommend that companies prioritize inventory and planning for Scopes 1, 2, and 3.