Environmental, Social and Governance (ESG) - Principles and Practice · Environment

Scope 1, 2 and 3 Emissions and Carbon Accounting

Updated 11 October 2026 · Fact-checked

Carbon accounting measures the greenhouse gases a company releases, stated in tonnes of CO₂ equivalent. Scope 1 is direct emissions, Scope 2 is emissions from purchased energy, and Scope 3 is all other value chain emissions. To solve a question, classify the source, multiply activity data by an emission factor, then add up.

Understand Greenhouse Gas Emissions and Carbon Accounting

Greenhouse gases (GHGs) trap heat in the atmosphere. The main ones are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), and fluorinated gases such as HFCs, PFCs, SF₆ and NF₃. Because each gas traps a different amount of heat, all are converted into one unit: tonnes of carbon dioxide equivalent (tCO₂e), using the global warming potential (GWP) of each gas.

Carbon accounting is the process of measuring, recording and reporting these emissions. The result is a company's carbon footprint. The most widely used method is the GHG Protocol, which splits emissions into three scopes so that nothing is missed or counted twice.

Scope 1: direct emissions from sources the company owns or controls. Examples: fuel burnt in its boilers, furnaces and company-owned vehicles, and leaks of refrigerant gases.
Scope 2: indirect emissions from the generation of purchased electricity, steam, heating or cooling that the company consumes.
Scope 3: all other indirect emissions in the value chain, both upstream and downstream. Examples: purchased goods, business travel, employee commuting, transport by third parties, use of sold products and their end-of-life disposal.

Scope 3 is usually the largest and the hardest to measure, because the data sits with suppliers and customers. Scope 2 can be reported by location-based or market-based method, and the choice depends on whether you use the average grid factor or the factor of the energy you actually bought.

A carbon credit is a tradable certificate representing the reduction or removal of one tonne of CO₂e. A company that buys credits and uses them to compensate for its own emissions is making a carbon offset. In practice the two terms are used closely: the credit is the instrument, the offset is the act of using it. Credits trade in compliance markets, which are created by law with caps or targets, and voluntary markets, where firms buy credits by choice.

In India, the Energy Conservation Act, 2001 was amended in 2022 to enable a domestic carbon market, and the government has notified the Carbon Credit Trading Scheme. Its compliance mechanism sets emission intensity targets for obligated entities in specified sectors, and an offset mechanism for voluntary projects. Check the latest ICSI material for the current sector and institutional details.

Carbon neutrality means balancing emissions with an equal amount of removals or offsets. Net zero is stricter: it requires deep cuts in emissions across the value chain, with only residual emissions neutralised by removals. Always cut first, offset last.

Key rules to remember

Emissions from an activity: Emissions (tCO₂e) = Activity data × Emission factor; Activity data is units used, such as litres of diesel or kWh. The emission factor must match the unit and the fuel.
CO₂ equivalent of a gas: tCO₂e = Tonnes of gas × GWP of the gas; GWP of CO₂ is 1. Use the GWP value given in the question.
Total footprint: Total = Scope 1 + Scope 2 + Scope 3; Add in tCO₂e only after converting all gases and units.
Emission intensity: Intensity = Total tCO₂e ÷ Output measure (such as ₹ crore turnover or tonne of product); Used to compare companies of different sizes and to set intensity targets.
Net emissions after offsets: Net emissions = Gross emissions − Credits retired; Carbon neutral when net emissions equal zero. One credit equals one tCO₂e.
Unit conversion: 1 tonne = 1,000 kg; Convert kg to tonnes before reporting in tCO₂e.

How to solve Greenhouse Gas Emissions and Carbon Accounting questions

Use this method for theory, classification and numerical questions on carbon accounting.

1Define the key term in one line: GHG, carbon footprint, credit or net zero, as the question asks.
2Name the framework you are using, such as the GHG Protocol, and state the three scopes.
3Classify each source in the case: owned or controlled means Scope 1, purchased energy means Scope 2, everything else in the value chain means Scope 3.
4For numbers, convert units, then multiply activity data by the emission factor or GWP. Show each line.
5Add the scopes, then deduct any credits retired to reach net emissions.
6Link to Indian practice where relevant, such as BRSR disclosure or the Carbon Credit Trading Scheme.
7Conclude with a recommendation: reduce first, then offset residual emissions, and disclose with assurance.

Quickest way: Three-bucket scope sort

When to use it: Use when a case lists many activities and asks you to classify or total emissions under time pressure.

Ask of each item: does the company own or control the source? If yes, Scope 1.
If not, is it purchased electricity, steam, heating or cooling? If yes, Scope 2.
Anything else, including suppliers, travel, commuting and product use, is Scope 3.
Write each figure beside its bucket and convert to tCO₂e once.
Total each bucket, then the grand total, then subtract offsets.

Common mistakes in Greenhouse Gas Emissions and Carbon Accounting

Calling purchased electricity a Scope 1 emission.
Students link electricity use with the company's own premises.
Fix: The emission occurs at the power plant, not on your site. Purchased energy is always Scope 2.
Treating a company-owned vehicle fleet as Scope 3.
Vehicles feel like transport, which is a Scope 3 category.
Fix: Ask who owns or controls it. Owned vehicles burning fuel are Scope 1. Hired third-party transport is Scope 3.
Adding kg and tonnes, or different gases, without conversion.
Rushing through the arithmetic.
Fix: Convert everything to tCO₂e first, then add. Write the unit beside every number.
Using carbon neutrality and net zero as the same thing.
Both involve balancing emissions.
Fix: Neutrality can be reached by offsets alone. Net zero needs deep value chain cuts, with offsets only for residual emissions.
Treating offsets as a licence to avoid cutting emissions.
Credits are easy to buy and look like a quick fix.
Fix: State the hierarchy: measure, reduce, then offset the remainder with credible, verified credits.
Ignoring Scope 3 because it is hard to measure.
Data is outside the company's control.
Fix: Say it is often the largest share. Mention estimation, supplier engagement and phased disclosure.

Worked examples

Example 1

Rajat Textiles Ltd. reports for a year: 400 tonnes CO₂ from diesel in its own boilers; 600 tonnes CO₂e from purchased grid electricity; 1,000 tonnes CO₂e from purchased raw materials and third-party transport. It retires 250 carbon credits. Classify the emissions, find the total footprint and net emissions.

Show the solution

Diesel burnt in the company's own boilers is a direct emission, so Scope 1 = 400 tCO₂e.
Purchased grid electricity is Scope 2 = 600 tCO₂e.
Purchased raw materials and third-party transport are value chain emissions, so Scope 3 = 1,000 tCO₂e.
Total footprint = 400 + 600 + 1,000 = 2,000 tCO₂e.
Each credit equals one tCO₂e, so 250 credits offset 250 tCO₂e.
Net emissions = 2,000 − 250 = 1,750 tCO₂e.
The company is not carbon neutral, since net emissions are above zero.

Answer: Scope 1 = 400, Scope 2 = 600, Scope 3 = 1,000 tCO₂e. Total footprint is 2,000 tCO₂e and net emissions after offsets are 1,750 tCO₂e.

Example 2

Sagar Foods Pvt. Ltd. leaked 2 tonnes of a refrigerant with GWP of 1,500 and used 10,000 litres of diesel in its own generators at 2.7 kg CO₂ per litre. Calculate its Scope 1 emissions in tCO₂e.

Show the solution

Refrigerant leak: 2 × 1,500 = 3,000 tCO₂e.
Diesel: 10,000 litres × 2.7 kg = 27,000 kg.
Convert to tonnes: 27,000 ÷ 1,000 = 27 tCO₂.
Both sources are owned or controlled by the company, so both are Scope 1.
Scope 1 total = 3,000 + 27 = 3,027 tCO₂e.
Note that the leak dominates the total, so refrigerant management is the priority for reduction.

Answer: Scope 1 emissions are 3,027 tCO₂e.

Exam tips

Open every answer with the definition and the three scopes. Examiners look for this base before the analysis.
In case studies, classify each fact by who owns or controls the source. Show the reasoning, not only the label.
Show every step of a calculation with units. Method earns marks even if a number slips.
Draw the line between carbon credit, offset, neutrality and net zero. This is a frequent short-note topic.
Link your conclusion to disclosure: BRSR reporting, assurance and the role of the company secretary in ensuring accurate data.

Practice questions from Environment

Greenhouse Gas Emissions and Carbon Accounting: frequently asked questions

What is the difference between Scope 1, Scope 2 and Scope 3 emissions?

Scope 1 is direct emissions from sources the company owns or controls. Scope 2 is indirect emissions from purchased electricity, steam, heating or cooling. Scope 3 covers all other indirect emissions across the value chain, upstream and downstream.

How do you calculate the carbon footprint of a company?

List all emission sources and classify them by scope. For each, multiply activity data by the right emission factor, and convert gases using their GWP. Convert to tCO₂e, then add the scopes to get the total.

What is the difference between a carbon credit and a carbon offset?

A carbon credit is the tradable certificate for one tonne of CO₂e reduced or removed. A carbon offset is the use of such credits to compensate for your own emissions. The terms are often used together.

What is the difference between carbon neutrality and net zero?

Carbon neutrality balances emissions with removals or offsets. Net zero requires deep cuts across the value chain and allows only residual emissions to be neutralised by removals.

Is India's carbon market relevant for CS Professional?

Yes. Expect questions on why carbon markets exist, compliance versus voluntary markets, and the Carbon Credit Trading Scheme under the amended Energy Conservation Act, 2001. Read the latest ICSI material for current details.