Scope 4: The what, the how, and the why

You’ve likely seen articles in Bloomberg, The FT, and many other prominent outlets discussing Scope 4 emissions. And recently, we’ve been thinking more about what scope 4 does and should look like as one of our customers, Crusoe, whose business centres on reducing methane emissions, asked us to provide feedback on their in-house Scope 4 emission calculations. We thought we’d share some of our thoughts on the key questions surrounding avoided emissions as a result.

This article, contributed to by Emitwise’s Carbon Accounting Technical Lead, David Turner, will cover how Scope 4 is calculated, why companies care, and the pitfalls to avoid. But first, let’s define avoided emissions. 

What is Scope 4?

Scope 4 is not an official term but is commonly known as avoided emissions, ​​climate-positive or net-positive accounting. Just as scope 4 has many names, so does it have many definitions. This article will use the definition most commonly used, outlined by the GHG Protocol.

“Scope 4 emissions refer to emission reductions that happen outside of a product’s life cycle or value chain resulting from that product.” – GHG Protocol (2019)

Companies often claim avoided emissions for new products that emit less than a competitor or an existing owned product. Through to a brand new low-carbon service, such as video conferencing systems as an alternative to travel.

Here David gives us a real-world example. “You are a plastic bottle manufacturer, and you decide to collect bottles at the end of their life and recycle them. By producing recycled plastics, you reduce the market demand for virgin plastics. You can quantify this amount of impact as the avoided emissions.”

Of course, this example simplifies the calculation effort and understanding of avoided emissions, so let’s look in more detail at how Scope 4 emissions can be calculated.

How do you calculate Scope 4 emissions?

Before we dig into calculation methodologies, let’s be clear, there isn’t currently a standardised method for working out avoided emissions. Companies typically choose between an Attributional Approach and a Consequential Approach.

Attributional Approach

Currently, the most common method, the attributional approach, looks at absolute emissions and removals of the product in question. Following on with David’s example. 1kg of recycled plastic versus 1kg of virgin plastic- this gives us the comparative impact of the product. The avoided emissions equal the anticipated sales of recycled plastic in kg multiplied by the ‘comparative impact’ for each option in kg. The difference gives you the avoided emissions. 

It sounds pretty simple, right? This approach sounds feasible if you understand your product range to that level of emission granularity through life cycle assessments (LCAs) and product emission factors (PEFs). However, it leaves some critical information out of the equation.

• How is the product in question chosen? 
• Does the market work in a 1:1 replacement ratio? E.g. for every kg of recycled plastic produced is one kg of virgin plastic not.
• Is the product like for like, e.g. does recycled plastic hold up to the same pressures as virgin plastic?
• What’s the time period for the assessment and comparison?
• What are the alternatives a consumer is already using?
• What are the uncertainty levels of the sales forecasts being used?

Consequential Approach

As it says on the tin, the consequential method looks at the system-wide consequence of emission removals from a given decision at a product or policy level. Basically, it looks at the broader effect of a decision, including the negative, neutral or positive emission changes.

As David highlights, “It all comes down to the consequences of your decisions; whichever decision you make, there will be emissions. This approach will inform you if those effects total a negative impact on emissions or a positive one, i.e. avoided emissions.”

While the WRI and GHG protocol recommend using a consequential calculation methodology for robust scope 4 calculations, the reality is that few companies currently use it. This is due to limited access to the level of data and resources needed to pursue this approach. In fact, many respondents to the CDP, one of the largest carbon disclosure bodies with over 13,000 companies reporting, already include avoided emissions in their annual reporting using the attributional approach. 

This does leave companies open to making claims they can’t truly substantiate. It’s fundamental that the calculation separates what is avoided and what is replaced by another source of emissions.

Why calculate your Scope 4 emissions?

With the lack of a clear and consistent calculation framework in mind, why do companies spend time and money understanding and sharing their scope 4 emissions?

It’s not just reporting season where we see mention of climate-positive endeavours and innovations. Think of your most recent trip to a supermarket; you probably encountered low-temperature detergents or fuel-saving alternatives when replacing your tyres.

There are clear advantages to highlighting your company’s avoided emissions. Below we explore some examples. 

• Promoting innovation: Rarely deemed to be low-cost, R&D innovation teams can secure budgets and build profitable long-term initiatives by creating products with an avoided emissions value proposition that can charge a green premium. e.g. electric cars. 
• Competitive advantage: Avoided emissions can be the cornerstone of a product’s unique selling point, enabling you to differentiate your offering from that of competitors on ‘green grounds’.
• Investment allocation: One of the reasons we see avoided emissions so readily reported in CDP submissions is for the benefit of investors looking to deliver carbon yield. (An allocation of capital to the most impactful investments in the quantity of avoided emissions per unit of investment over a particular timespan).
• Getting credit: Avoided emissions represent potentially positive aspects of business activities that aren’t always reflected in corporate Scope 1, 2 and 3 emissions inventories.
• Product decisions: Avoided emission calculations can inform product portfolio planning—determining which products to develop and which to retire.
• Supply chain collaboration: Calculating avoided emissions can galvanise and support the continued collaborative efforts of value-chain partners to improve and communicate the overall sustainability of products.

Risks attached to Scope 4 emissions

These gains, like most things, come with potential risks. Due to the undefined nature of avoided emissions, it is up to companies to define their calculation process, assumptions and system boundaries. This lack of consistency and transparency can undermine the validity of avoided emission claims and leave companies open to greenwashing accusations.

What’s more, a focus on avoided emissions can detract from the proven need for accurate Scope 1, 2 and 3 carbon inventories, which often produce less flashy marketing opportunities, yet provide meaningful opportunities for carbon reductions. 

Questions surrounding the genuine likelihood of emissions ever truly being avoided exist. As Andrews (2014) suggests, there are four steps towards decarbonisation: avoid, replace, reduce and repair. The argument is that very few emissions can genuinely be avoided in a capitalist market due to market substitution. As we discussed earlier, just because you produce something doesn’t mean the greater emitting solution stops or slows in the rest of the market.

Let’s focus on Andrews’ suggestions of ‘avoid’ and ‘replace’ for the sake of this scenario about home-working, one of the most cited examples of avoided emissions in a post-pandemic world. 

Video conferencing has become a mainstay alternative to emission-heavy business travel of a pre-pandemic world, but dialling onto a zoom call isn’t emissionless as some would have us believe. Some of the travel emissions have simply been replaced by the electricity needed for wi-fi, the energy required to power the electricity, whether coal, gas or renewable energy. Some emissions have been avoided altogether, like petrol or aviation fuel, but what do they genuinely account for? 

So while this is a great example of reducing and replacing emissions, only a certain amount has indeed been avoided as part of a system-wide activity.

Emitwise’s stance on Scope 4

A lot of avoided emission calculations fall short because of their lack of neutrality. They are biased to showcase the positives in isolation, ignoring the potential negative impacts. 

This isn’t just the fault of the companies. It’s where legislation and reporting frameworks haven’t kept up with industry demands for clarity. As we’ve previously seen with the lack of definition for net zero, until the Science-Based Target Initiative (SBTi) released one in 2021, a rudderless ship is hard to direct. 

For Emitwise one thing is obvious, nothing should detract from a company’s focus on accurately understanding their Scope 1, 2 and 3 emissions. Scope 4 is meaningless without an open-book approach to whether the other three scopes are increasing or decreasing. Avoided emissions are best used to inform product design rather than as an external indication of decarbonisation efforts.

However, we also understand the value of calculating avoided emissions, and all efforts to fundamentally reduce carbon across a product’s life cycle is a good thing, so below, we have outlined five questions to ask yourself regarding the validity of your Scope 4 approach. We also hope these are built into a consistent global framework to minimise greenwashing and promote carbon reduction by the GHG Protocol and other governing bodies. 

1. Consistency: Are you consistent in your definition of avoided emissions? Is your methodology for calculating avoided emissions the same every time? Have you cherry-picked products and sold them as company-wide avoided emissions?
2. Transparency: Could a third party calculate the avoided emissions from the data you’ve shared publicly?
3. Balance: Does the methodology equally explore the negative, neutral and positive emission outcomes? Does it consider the proportion of emissions that are replaced, not avoided?
4. Robustness: Do your calculations measure up to scrutiny? Do they include the complete product life cycle within the assessment boundary? Have you built some level of uncertainty in and reflected that in public claims?
5. Completeness: Do you already have clean, accurate and reliable Scope 1, 2 and 3 emission data?