Tackling Scope 3 emissions in chemicals industry crucial to net zero by 2050

The chemicals industry must rethink its supply chain to slash Scope 3 emissions, which are responsible for a third of all its emissions. Some mechanisms, however, may help chemical companies to better track and decarbonise their value chain emissions.

Scope 3 chemicals companies
The chemicals sector has seen its emissions increase by 6 per cent since 2013. It released 186 million metric tonnes of CO2e in 2022, according to the Environmental Protection Agency. Photo: Anton Eprev/Unsplash

Scope 3 emissions are tricky to measure. Few industries know this better than the chemicals sector, which is the third largest emitter – globally.

While tracking Scope 1 and 2 emissions may be straightforward, monitoring Scope 3 emissions presents more challenges as it includes a company’s indirect emissions, which are typically more difficult to track.

According to a Deloitte report, Scope 3 emissions in the chemicals industry – which are responsible for 75 of all its emissions – stem from three main sources: purchased goods and services; emissions resulting from using a product, such as fertilisers or refrigerants; and the emissions occurring at the end of a product’s life when it is landfilled, incinerated, or recycled.

The chemicals sector alone has seen its emissions increase by 6 per cent since 2013. It released 186 million metric tonnes of CO2e in 2022, Environmental Protection Agency (EPA) figures note. 

The industry’s emissions must “decouple” from production by 2030 to increase the chances of a net zero scenario by 2050, according to 2023 findings by the International Energy Agency (IEA), meaning that production processes must be modified or replaced with low-carbon alternatives that emit either significantly less or zero carbon emissions.

IEA findings also noted that the chemicals sector’s emissions must peak in the next few years and decline by roughly 15 per cent relative to current levels by 2030 to meet net zero emission goals.

At the same time, much of the world depends on this sector; chemical products are integral to almost every aspect of daily life, from the soap used to wash our hands, medicines to treat illnesses, to the materials used in construction, transportation, and electronics. 

This makes the chemicals industry one of the largest industries worldwide, with an estimated annual revenue of US$4.7 trillion, notes a McKinsey report.

“Addressing Scope 3 emissions is crucial because they represent a significant portion of the industry’s impact on climate change,” noted Maria Valentina Giraldo Martinez, co-chair of Together for Sustainability’s (TfS) Scope 3 Greenhouse Gas (GHG) emissions programme. “Achieving net zero goals requires comprehensive emission reduction across the entire value chain – not just within a company’s operations.”

TfS is a global non-profit initiative founded by chemical companies to promote sustainability practices in the industry’s supply chain.

Hurdles in tracking emissions

The Deloitte analysis, which looks at 250 publicly traded chemical companies, found that while over half report their Scope 1 and 2 emissions, only 30 per cent report Scope 3 emissions. The report attributed this to challenges in tracking emissions outside the reporting company’s control.

From a supply and value chain perspective, chemical companies have complex supply chains with multiple suppliers, which complicates emissions tracking across the entire value chain. There are more than 42,000 individual chemicals in US commerce alone, according to EPA data, with the number rising to 150,000 or more globally.

Gathering accurate data on emissions from suppliers also poses difficulties due to varying reporting standards and data availability. The low rate of Scope 3 emissions reporting makes it difficult to calculate the full carbon footprint of a specific product. Instead, many companies refer to industry-average data or input-output databases to estimate emissions, while those tracking Scope 3 often use varied data formats and measuring techniques. 

Companies lack direct control over their suppliers’ practices, making it more challenging to influence emission reductions, while technical adaptations present further hurdles, noted Giraldo Martinez. 

“To reduce Scope 3 emissions, chemical companies need to make decisions that might include changing some technologies, adapting production processes or sourcing materials, which could take time and resources,” she said.

Companies must therefore collaborate better with suppliers to reduce emissions from purchased goods, otherwise known as Scope 3.1 emissions, noted Peter Saling, director, sustainability methods, at global chemical company BASF. Saling also leads standardisation efforts to measure GHG emissions data in TfS’ Scope 3 GHG Emissions Programme. 

“For Scope 3.1, the suppliers are important because they are the ones who can reduce these emissions. For Scope 3 ‘downstream’ emissions, the impact on the companies is even lower,” Saling said, referring to the Scope 3 emissions that occur later in a chemical company’s value chain, which can include the downstream transportation of products, use of sold products, and end-of-life treatment.

“This will lead to more meaningful product carbon footprint calculations,” he added.

Chemical companies that lead in Scope 3 reporting can benefit by identifying value chain emissions sources and strategically lowering them, which can create value for their business.

Maria Valentina Giraldo Martinez

External pressures pushing for change

Regulatory pressure is also driving chemical companies to seek solutions, with those failing to address emissions risking reputational damage, and the loss of investor confidence and business loyalty.  

More regulators are requiring chemical companies to disclose their full carbon footprint, including Scope 3 emissions. This includes regulators in the European Union, Turkey, Nigeria, and Brazil, with governments in New Zealand, the Philippines, Singapore, and Taiwan also considering Scope 3 disclosures from companies. 

This is encouraging, Giraldo Martinez noted, as it will push stakeholders across the value chain to track, report and cut emissions to meet reduction targets.

However, a lack of industry-specific guidance and standardised calculations is hampering the chemical sector’s capacity to deliver accurate and transparent reporting of Scope 3 emissions.  

Currently, the Greenhouse Gas (GHG) Protocol – a global standardised framework for measuring, managing, and reporting greenhouse gas emissions developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development – provides standards and tools that help countries and cities trace their progress toward climate goals. 

While the GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard offers details on all Scope 3 categories, requirements, and guidance for reporting emissions, it is not specific to the chemical industry.

It is therefore still up to chemical companies to reference the GHG Protocol, noted Saling. “The most important standards are ISO standards and the GHG protocol, however, they are voluntary standards and cannot address specific needs and calculation approaches for the chemical companies. In the regulatory framework, new legislation is under development, depending on the region,” he said.

He added that the EU taxonomy and Carbon Border Adjustment Mechanism are regulatory frameworks that will become increasingly important, especially among European chemical companies. 

It takes two to meet Scope 3

TfS aims to fill the gaps left in the GHG Protocol and help chemical companies through its Scope 3 GHG Emissions Programme, which is a set of guidelines that measure emissions impact in the sector.

The programme strives to help chemical companies consistently determine their carbon footprint, identify emission sources in their value chains and strategically reduce them.

TfS has created a Product Carbon Footprint (PCF) Guideline as part of its Scope 3 GHG Emissions Programme, providing specific instructions on calculating emissions from the extraction of raw materials up to the production of the final chemical product. The guideline applies to most chemical products and hopes to standardise PCF calculation approaches across the industry. 

Giraldo Martinez noted that chemical companies that lead in Scope 3 reporting can benefit by identifying value chain emissions sources and strategically lowering them, which can create value for their business.

The PCF Guideline can also be used to calculate product emissions in other industries, especially those that rely on chemical products, added Saling.

“Several other sectors use chemical industry products, so they should be able to accept the PCF calculations as well. The PCF Guideline can be used as a ‘drop-in solution’ for other sectors, such as the automotive industry,” he says. 

With many chemical companies new to calculating their PCF, the PCF Guideline aims to answer specific questions about reducing Scope 3 emissions and lead to more standardised carbon footprint calculations, Saling highlights.  

Another tool is TfS’ PCF Exchange solution, a platform that helps chemical companies to calculate their carbon footprint based on the PCF Guideline and exchange emissions data and best practices between companies or customers and suppliers.

The platform also allows stakeholders to tap into supplier engagement tools and training to drive the reduction of their Scope 3 GHG emissions.

“Despite having a fully functional tool, the industry remains somewhat nascent regarding upstream PCF data exchange. To address this, we’re actively engaging with suppliers, urging them to calculate and share PCF data. Our efforts include creating robust supporting and onboarding materials for suppliers, engagement resources for our members, and training via the TfS Academy,” said Giraldo Martinez, referring to TfS’s online sustainability training platform.

With an increasing number of consumers opting for sustainable goods, Saling concludes that a business-as-usual approach cannot be sustained, noting that the chemical industry has to reduce emissions at speed to also maintain customer loyalty and trust down the line.

“Climate change stands as the greatest challenge of the 21st century, and it requires us to adapt our processes and reshape our product portfolio accordingly. We must expedite this transformation to ensure that our products continue to be accepted by society,” he said.

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