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

TAKEAWAYS:
● 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 has emerged as an opportunity for the activation of meaningful decarbonization levers across the value chain.  

Scope 3 greenhouse gas emissions originate from assets that businesses use that are not directly owned or controlled by the organization. Also known as value chain emissions, they emerge from corporate supply chains, transportation, and product usage or disposal. For many businesses, Scope 3 emissions represent the largest source of GHG emissions, averaging 75% of total emissions, according to CDP, a global non-profit that runs an independent environmental disclosure system for companies, capital markets, cities, states and regions. However, measuring and reducing these emissions pose significant challenges for organizations due to unreliable data and limited operational control over activities across their extended value chains.

Despite these hurdles, the pressure for companies to accurately calculate, disclose and reduce Scope 3 emissions has intensified. Key drivers include recent regulations such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), the International Sustainability Standards Board (ISSB) and actions being taken in California and elsewhere. Companies are increasingly focused on submitting science-based reduction targets and credible climate transition plans, which has led to greater attention on Scope 3 emissions.

The Greenhouse Gas Protocol defines 15 categories of Scope 3 emissions; this article focuses on categories 1 (purchased goods and services), 11 (use of sold products) and 12 (end-of-life treatment of sold products), highlighting opportunities for GHG reduction through circular economy initiatives.

The Circular Economy’s Potential

The circular economy is a transformative approach that reimagines business interactions to create long-term value while promoting economic growth and ecological impacts. Circular strategies have significant decarbonization potential, with some models estimating a 56% reduction in emissions compared to traditional practices. Additionally, it is estimated that the circular economy could unlock $4.5 trillion in economic opportunities by 2030. However, its potential remains largely untapped, particularly concerning Scope 3 emissions.

Category 1: Purchased goods and services

Category 1 emissions encompass all upstream emissions from the production of products purchased by a company. A major challenge in managing these emissions is obtaining reliable supplier-specific data.

For companies using spend-based or average-data methodologies, the primary decarbonization lever is reducing spending with high-emitting suppliers. Those with access to supplier-specific data can engage suppliers directly to reflect emissions reductions across the value chain.

Circular strategies for decreasing Scope 3 Category 1 emissions:

1. Circular procurement: This strategy seeks to close energy and material loops in supply chains while minimizing waste.  Companies can prioritize suppliers that demonstrate circularity, such as those using circular design principles or offering take-back schemes. By incorporating circularity metrics in supplier evaluations, companies can shift spending toward suppliers with better circular performance.
2. Supplier engagement: Engaging suppliers is crucial for driving meaningful change across the value chain. Companies can enhance supplier capacity through education on circular design principles and collaboration on circular material R&D. This approach can help reduce emissions from new product production and lower the carbon intensity of manufacturing processes.

Category 11: Use of sold products

Category 11 emissions arise from the use of goods and services sold by a company, including Scope 1 and 2 emissions of end users. These emissions can be divided into direct and indirect use-phase emissions, with the majority stemming from direct use.

Circular strategies for Category 11 emissions:

1. Enhancing product efficiency: Improving product efficiency can be achieved through lightweighting, simplifying materials, and enhancing energy efficiency. For example, using lighter materials in automobiles improves fuel efficiency and reduces emissions.
2. Utilizing renewable energy: Supporting the transition to clean energy sources, such as electrification of vehicles, can significantly reduce emissions. Electric vehicles (EVs) produce lower emissions, especially when powered by renewable energy. Electrification of passenger vehicles has increased over the last few years with a projected 20 million EVs by 2030.
3. Modular design: Designing products for easy repair and remanufacture extends their lifecycle. Modular design allows for upgrades and customization, which can reduce energy consumption over time.

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

Category 12 emissions result from the disposal and treatment of sold products at the end of their life. To reduce these emissions, companies can focus on two main levers: reducing the mass of sold products and increasing the proportion of waste that is recycled.

Circular strategies for Category 12 emissions:

1. Reuse: Companies are exploring reusable packaging to decrease the mass of materials sent to landfills. Standardized containers can facilitate this strategy, aligning with product-as-a-service models.
2. Recycling: Implementing recycling strategies can redirect waste from landfills to recycling streams. The automotive industry, for example, has established take-back programs for used cars and collaborates on recycling lithium-ion batteries.

Looking ahead to a low-carbon economy

Circular strategies provide effective decarbonization levers across Scope 3 categories 1, 11 and 12. As pressure mounts for companies to decarbonize, strategies such as reuse, remanufacture, supplier engagement and enhanced modular design offer actionable steps to navigate the “Scope 3 dilemma.” By leveraging these strategies, businesses can contribute to a low-carbon economy while unlocking new opportunities for growth.  M

The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.

About the author:

Mark Weick is Managing Director, Climate Change and Sustainability Services, at Ernst & Young LLP