How circular strategies can be used to decarbonize Scope 3 GHG emissions

Circular economy strategies offer potential benefits and opportunities to decarbonize scope 3 GHG emissions.

In brief

• As companies accelerate their decarbonization journeys, Scope 3 emissions often present a challenge.
• Although Scope 3 is often the largest portion of a company’s carbon footprint, Scope 3 decarbonization levers are more difficult to identify and implement.
• Circular economy (CE) has emerged as an opportunity for the activation of meaningful decarbonization levers across the value chain.

Scope 3 emissions are a category of greenhouse gas (GHG) emissions originating from business activities from assets not directly owned or controlled by the organization. Also referred to as value chain emissions, Scope 3 emissions include supply chain, transportation and product usage or disposal and are usually the largest and most significant source of GHG emissions for the majority of businesses. Many businesses find themselves in a “Scope 3 dilemma,” in which Scope 3 emissions are simultaneously the largest contributors to a company’s footprint, accounting for 75% of companies’ emissions on average, according to the CDP,¹ but also the toughest to measure and reduce due to a shortage of reliable data and lack of operational control over value chain activities.

Circular strategies for decreasing Scope 3 category 1 emissions:

For companies using spend-based or average-data calculation methods, Scope 3 category 1 emissions can be reduced via the strategy below:

• Circular procurement, an extension of sustainable procurement, is a strategy for both private and public sectors, that seeks to close energy and material loops in supply chains while simultaneously minimizing and avoiding waste and other negative environmental impacts.4 Circular procurement exists on three levels: system level, supplier level and product level. Companies can adopt circular procurement practices by prioritizing the selection of suppliers and products/ services that demonstrate circularity, such as suppliers that use circular design principles, offer take-back schemes, remanufacture goods, or incorporate recycled or bio-based materials into their product portfolio. By creating request for proposal (RFP) criteria or incorporating circularity-related metrics into supplier scorecards and other performance management mechanisms, companies can shift their spend toward suppliers with better circularity key performance indicators (KPIs), such as product lifespans, utilization rates and percentage of recycled or bio-based content or feedstock.

For companies using the hybrid or supplier-specific calculation methods, supplier engagement is a key strategy that can be leveraged, with the aim of capturing the supplier-specific emissions reductions.

• Supplier engagement is widely recognized as a critical activity for garnering enough scale and momentum to drive meaningful change across the value chain, with a ripple effect spreading across industries. Companies that are creating supplier engagement strategies have an opportunity to leverage circular strategies through supplier education and capacity building and collaboration. These strategies can enable companies to avoid emissions from the production of new products and reduce the carbon intensity of manufacturing processes — both of which can be quantitatively measured as a decrease in the suppliers’ Scope 1 and 2 emissions, and thus reflected as a decrease in the buyer’s Scope 3 emissions

Education and capacity building: 

Circularity can be folded in to enhance existing circular supplier engagement strategies through modules focused on implementation of circular design principles, such as design for disassembly, modularity, repairability, flexibility or biodegradability; and enabling reuse, remanufacturing, refurbishment or regeneration. By building suppliers’ capacity for designing with material efficiency in mind, companies and their suppliers can minimize the waste resulting from overspecification through encouraging or requiring suppliers to create products with longer lifespans and maximizing their utilization once purchased.

Collaboration:

As circularity becomes increasingly scalable across sectors, companies have the opportunity to partner directly with key strategic suppliers to amplify impact. Examples of this include collaborating or investing in circular material R&D, joining industry forums and partnerships and providing financial support to help scale new circular technologies.

Category 11: Use of sold products

The GHG Protocol² defines category 11 as “emissions from the use of goods and services sold by the reporting company (in the reporting year), which includes Scope 1 and 2 emissions of end users.” Category 11 emissions can be delineated between direct use-phase and indirect use-phase emissions, where direct use-phase is required to be reported and indirect use-phase should be reported when emissions are considered significant. Indirect use-phase emissions result from products that indirectly consume energy during use; however, a majority of category 11 emissions come from direct use-phase products, which directly consume energy and/or contain or form greenhouse gases during use.² Therefore, improving product efficiency, using renewable forms of energy and designing for modularity are circular strategies to reduce emissions within category 11.

Circular strategies for decreasing Scope 3 category 11 emissions:

Make products more efficient:

• Making products more efficient includes substituting materials for lighter-weight options, making products easier to process and improving product energy efficiency.
  
• “Lightweighting” improves fuel efficiency through using lighter components in a product, such as replacing traditionally specified metals with plastic or other light weight metals including aluminum. This circular strategy is particularly utilized in the automobile industry to decrease fuel use, thereby decreasing emissions associated with operational energy use.
• Products can be designed to be more easily processed through reducing the complexity of mixed materials in a product and making the material inputs purer. Products that are easily processed help to reduce emissions associated with the product use phase.
• Energy efficiency is possibly the clearest form of GHG emissions reduction achieved by using less energy to perform the same product function. The most widely used circular strategy to reduce emissions in the electrical and electronic equipment sector is designing products to be more energy-efficient.

Use alternate/renewable forms of energy to fuel products:

This circular economy strategy focuses on supporting the transition to clean energy. Decarbonization of energy sources and electrification directly reduce emissions related to energy use by a product. Electrification of passenger vehicles has increased over the last few years with a projected 20 million electric vehicles (EVs) by 2030.⁵ EVs reduce emissions substantially compared to internal combustion counterparts, especially when the electricity is sourced from renewable energy methods, such as wind or solar.

Enhance modular design of products:

Modular design includes making products easier to repair and remanufacture so that the total product lifecycle is extended. By designing a product so that certain pieces and parts can be easily removed, disassembled and swapped out, the product stays in use longer. Additionally, modular design allows for products to be customizable, which leads to an evergreen product that is adaptable to changing trends and regulations. Companies have taken advantage of modular design as a circular strategy to decrease product energy consumption through part upgrades in the consumer electronics sector.

Category 12: End-of-life treatment of sold products

The GHG Protocol² defines category 12 emissions as “emissions from the waste disposal and treatment of products sold by the reporting company (in the reporting year) at the end of their life.” When determining which circular economy strategies to implement to decrease GHG emissions within this category, companies should be aware of the three available levers within the category 12 calculation.

The first two relate to the mass of sold products, which includes both the packaging and product itself. The third relates to the “proportion of this waste being treated by different methods (e.g., percent landfilled, incinerated, recycled).”² Therefore, to reduce category 12 emissions, the mass of packaging used or the mass of the product itself must be reduced or the proportion of waste that is recycled must be increased since the emission factor for recycled waste is zero.

Circular strategies for decreasing Scope 3 category 12 emissions:

Two viable circular economy strategies for reducing category 12 emissions are reuse and recycling.

Reuse:

Companies are starting to experiment with reusable packaging versus single use packaging, which decreases the mass of packaging material in route to landfill or incineration. One way this can be accomplished is through the use of standardized containers⁶ to ship final goods to customers. This strategy also pairs well with product-as-a-service business models, whereby the same packaging is used to ship product to customers and for customers to return the product after use.

Recycling:

The reusable packaging strategy also assists with the second proposed strategy, recycling, whereby used goods are collected at the end of their life and used as source material for new products. The automotive industry has already implemented recycling strategies, with original equipment manufacturers (OEMs) having deployed used-car take-back programs and collaborating with third parties to recycle lithium-ion batteries from electric vehicles.⁶ Recycling is an effective strategy for emissions reduction as it redirects goods from a landfill or incineration end-of-life to the recycling bucket in the category 12 emissions calculation.⁶

Conclusion

Circular strategies offer multiple practical and effective decarbonization levers across Scope 3 category 1 (purchased goods and services), category 11 (use of sold products) and category 12 (end-of-life treatment of sold products). As pressure on companies to decarbonize increases, circular strategies such as reuse, remanufacture, supplier engagement and enhanced modular design are tangible, actionable steps companies can take to escape the “Scope 3 dilemma.”

Danny Brennan, Lindsey Zweber, Alice Romanov and Kristin Bianca of EY’s Climate Change and Sustainability Services contributed to this article.

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