Why Do Companies Need to Calculate Carbon Emissions?
Carbon accounting is a core component of ESG reporting. HKEX requires listed companies to disclose greenhouse gas emission data, and global supply chains increasingly require upstream and downstream companies to provide carbon emission data. Mastering carbon accounting skills is crucial for ESG practitioners.
Carbon accounting follows GHG Protocol, dividing emissions into three scopes:
Scope 1: Direct Emissions
Definition
Greenhouse gas emissions from emission sources owned or directly controlled by the company.
Common Emission Sources
- Company fleet fuel consumption (gasoline, diesel)
- Natural gas and LPG combustion from own boilers and generators
- Manufacturing process emissions (e.g., cement, chemicals)
- Refrigerant leaks from air conditioning and refrigeration (F-gases)
Scope 1 Emissions = Activity Data × Emission Factor
Example: Diesel consumption (liters) × Diesel emission factor (kgCO2e/liter) = Emissions (kgCO2e)
Calculation Example
Company fleet consumes 10,000 liters of diesel annually. Diesel emission factor = 2.68 kgCO2e/liter
Scope 1 emissions = 10,000 × 2.68 = 26,800 kgCO2e = 26.8 tCO2e
Scope 2: Indirect Emissions from Purchased Energy
Definition
Emissions from purchased electricity, steam, heating, and cooling consumed by the company. Emissions occur at power plants but are caused by the company's electricity demand.
Common Emission Sources
- Purchased electricity (most important)
- Purchased steam or heating (less common in Hong Kong)
- Purchased cooling (district cooling systems)
Scope 2 Emissions = Electricity Consumption (kWh) × Grid Emission Factor (kgCO2e/kWh)
Hong Kong Example
Office consumes 150,000 kWh of electricity annually. Hong Kong grid emission factor ≈ 0.71 kgCO2e/kWh
Scope 2 emissions = 150,000 × 0.71 = 106,500 kgCO2e = 106.5 tCO2e
Note: Hong Kong's two power companies have different emission factors. CLP has lower emission factors due to more nuclear and natural gas compared to HEC.
Two Calculation Methods
- Location-based method:Uses average grid emission factor. Simple, reflects the overall carbon intensity of the grid you are connected to.
- Market-based method:If the company purchases renewable energy certificates (REC) or green electricity, lower emission factors can be used. Reflects the company's proactive choice.
- Recommendation: Use both methods for calculation and reporting to improve transparency.
Scope 3: Other Indirect Emissions in the Value Chain
Definition
All other indirect emissions occurring in the company's value chain, not directly owned or controlled by the company but related to its business activities. Typically accounts for 70-90% of the company's total emissions.
15 Categories (GHG Protocol)
| Category | Name | Typical Share |
|---|---|---|
| 1 | Purchased goods and services | Usually largest |
| 2 | Capital goods | Medium |
| 3 | Fuel-related activities (non-Scope 1/2) | Smaller |
| 4 | Upstream transportation and distribution | Medium |
| 5 | Operational waste treatment | Smaller |
| 6 | Business travel | Small to medium |
| 7 | Employee commuting | Medium |
| 8 | Upstream leased assets | Varies |
| 9-15 | Downstream transportation, product use, end-of-life, etc. | Depends on industry |
Calculation Methods
- Supplier-specific method:Obtain emission data directly from suppliers. Most accurate but hardest to obtain.
- Average data method:Use industry average emission factors × purchase amount or quantity. Most commonly used.
- Expenditure-based method:Use industry-specific expenditure emission factors (kgCO2e/HKD). Simplest but lower accuracy.
Scope 3 SimpleCalculation Example
Company spends HKD 500,000 on office supplies. Wholesale and retail industry expenditure emission factor ≈ 0.3 kgCO2e/HKD
Scope 3(Category 1)= 500,000 × 0.3 = 150,000 kgCO2e = 150 tCO2e
Data Collection Practices
What Data Do You Need to Collect?
- Scope 1：Fuel consumption records(invoices, fuel card records), refrigerant charging records
- Scope 2：Electricity bills(kWh), water bills(if relevant emissions)
- Scope 3：procurement records, travel reports, Employee commutingsurveys, waste disposal records
Common Emission Factor Databases
- Hong Kong Environmental Protection Department — Provides Hong Kong local grid emission factors
- DEFRA (UK Department for Environment, Food & Rural Affairs) — Most widely used emission factor database globally, free
- EPA (US Environmental Protection Agency) — Applicable to US market
- GHG Protocol — Calculation guides and cross-industry factors
Five Most Common Calculation Errors
- Double counting:Calculating the same type of emissions in both Scope 1 and Scope 2. For example, fuel from owned generators should only be calculated in Scope 1.
- Unit confusion:Kilograms vs. tons, CO2 vs. CO2e (CO2 equivalent includes all greenhouse gases). Reports typically use tCO2e.
- Using incorrect emission factors:Using US grid factors to calculate Hong Kong electricity consumption. Must use local factors.
- Missing refrigerants:Air conditioning refrigerant leaks have high GWP (global warming potential) and are easily overlooked.
- Only calculating easy Scope 3 categories：Only treatingBusiness travelas complete Scope 3. Should cover at least the most important 3-5 Category.
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Frequently Asked Questions (FAQ)
What are Scope 1 2 3 carbon emissions?
Scope 1 is direct emissions (emission sources owned or controlled by the company, such as company fleet fuel, boilers). Scope 2 is indirect emissions from purchased energy (mainly electricity and heating)；Scope 3 is other indirect emissions in the value chain (supply chain, Employee commuting, product use, etc.). The three scopes together represent the company's complete carbon footprint.
What tools are used for carbon accounting?
Common tools include GHG Protocol standards, ISO 14064 standards, emission factor databases (such as DEFRA, EPA, Hong Kong Environmental Protection Department). Companies can use Excel or professional carbon accounting software (such as Sphera, Persefoni) to calculate. Beginners can start with Excel, and use professional tools after mastering the calculation logic.
What is Hong Kong's grid emission factor?
Hong Kong's grid emission factor is approximately 0.71 kgCO2e/kWh (average). Due to different generation fuel mixes, CLP and HEC have different emission factors. CLP has lower emission factors due to more nuclear and natural gas; HEC primarily uses coal and natural gas, resulting in higher emission factors. It is recommended to check the latest officially released data.
Is Scope 3 mandatory to calculate?
Currently, HKEX does not require calculation of all Scope 3 categories, but encourages disclosure of major categories. The trend is gradually tightening requirements. Best practice is to first identify the most impactful 3-5 Scope 3 categories (usually procurement and product use), and prioritize calculating and disclosing them.