GHG emissions – the scope for improvement

Positive soundbites about achieving net-zero greenhouse gas (GHG) emissions by 2050 have been ubiquitous across government institutions and industry. However, actual responses have been fragmented and fitful. To achieve it requires the global decarbonisation of energy production and use, and the elimination of GHG emissions from the lifecycles of materials in manufacturing.

In energy production, there are bright spots: the exponential build-out of solar and wind power shows how quickly the experience curve can reduce costs and turbocharge the adoption of renewables, especially in countries that enjoy naturally favourable conditions. By contrast, other areas of the world show more limited progress, for reasons ranging from less favourable geography to poor access to capital. A particular challenge is the huge upgrading of system infrastructure required for the storage and transport (transmission and distribution) of low-carbon energy systems.

In manufacturing, a significant number of companies have published target dates for reaching net-zero emissions. However, these are mostly aspirations, rather than the endpoints of fully developed plans. Historical lack of interest and inadequate analysis means many corporates have been overwhelmed by the complex reality. Less acceptably, some are aware of reality but engage in predatory attempts to ensure any achievement of the net-zero target comes as late as possible.

GHG emissions can be categorised as follows: Scope 1 are direct emissions, for example, from a factory. Scope 2 emissions are those from purchased electricity, heat or steam. Scope 3 covers all other indirect emissions occurring throughout products' lifecycles, everything from ‘upstream’ sourcing of raw materials to ‘downstream’ disposal/recycle/recovery.

The real difficulties arise with Scope 3 emissions. For most businesses, these are costly to estimate. By definition, they may be difficult or impossible to influence. The biggest difficulties lie ‘downstream’ and can be summarised in the simple question: “What happens to our products?”

Pressure from financial regulators had been expected to force companies to systematise Scope 3 reporting. However, on 6 March 2024, the US Securities and Exchange Commission (SEC) formally announced its long-awaited final rules on ‘The Enhancement and Standardization of Climate-Related Disclosures for Investors’. Sadly, the provisions requiring disclosure of Scope 3 emissions were omitted, having been present in earlier discussion documents. Even Scope 1 and Scope 2 disclosure has been watered down by allowing a ‘materiality’ opt-out. A cynic might assume that industry lobbying convinced the SEC that Scope 3 reporting was either impossible or unimportant. Moreover, the lobbying is not over and it remains to be seen what aspects of the SEC’s rules will survive legal challenge.

In contrast, the International Financial Reporting Standards (IFRS) Sustainability standards (IFRS S2) require reporting of material Scope 3 emissions. This new standard is in the early stages of adoption, with the UK, Japan and Australia each having committed to adoption.

In addition to the obvious implications for manufacturing companies, IFRS S2 requires asset managers to report Scope 3 (in addition to 1 and 2) for each of their funds.

Investment houses will rely on the companies themselves to produce compliant, reliable data for their operations. Put simply, companies failing to produce the required depth and quality of reporting could be deemed un-investable by asset managers. So, the discipline of investors may end up having a crucial role in terms of ensuring GHG compliance across industry.

The chemical industry provides a unique window into the challenge of Scope 3 reporting. Almost every tangible product uses chemicals in its manufacture. Therefore, it is no exaggeration to say that essentially all of global manufacturing sits within Scope 3 for the chemical industry.

Progress on reporting and mitigation of Scope 1 and 2 emissions is well advanced across much of the industry, but the challenges of Scope 3 are clear. Some cross-industry collaboration is evident, for example, through the establishment and validation of Product Carbon Footprints, which simplify analysis and adaptation. Scope 3 reporting so far has been relatively successful on the ‘upstream’ supply side of the value chain (Scope 3.1). However, progress through the ‘downstream’ value chains (Scope 3.10, 3.11 and 3.12) is clearly proving to be more challenging. Even where usage and reporting can be established, actual reduction of emissions will necessarily be a slow process, in many cases requiring significant technical and commercial innovation.

Responsible chemical companies are taking ownership of driving Scope 3.10, 3.11 and 3.12 reductions, by providing solutions for their customers. It is simply not good enough to rely on customers having the technical capability to reduce emissions inherent in the use of the products they buy. A lifecycle approach is the route to achieving sustainable manufacture, requiring coordinated planning along value chains. But this will take time, and global environmental risks are rising as the clock ticks.

So, where are we at today on the world’s path to decarbonisation? An interim report on the status of global decarbonisation might usefully paraphrase Aesop: “When all is said and done, more has been said than done!”

Dr Paul Satchell