GHG accounting: Scopes 1, 2 and 3

Carbon accounting is the measurement and reporting of the greenhouse gases (GHGs) a company is responsible for. It used to be a sustainability team's job. It is now becoming a finance job, because carbon is turning into a real cost through carbon markets, customer requirements and lender rules.

India now has a working compliance carbon market. Under the Carbon Credit Trading Scheme (CCTS), large plants in energy-intensive sectors have legally binding emission intensity targets. A plant that misses its target has to buy credits, and a plant that beats it earns credits it can sell. Emissions data now feeds directly into profit and loss.

The global standard for corporate carbon accounting is the GHG Protocol, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It splits emissions into three "scopes" according to how directly the company controls them. All gases are converted into one unit: tonnes of carbon dioxide equivalent (tCO2e).

Scope 1: direct emissions

From sources the company owns or controls:

• Burning fuel in its own boilers, furnaces, kilns and vehicles
• Process emissions from chemical reactions (for example, making clinker for cement releases CO2)
• Fugitive emissions such as refrigerant leaks and methane leaks from pipelines

Scope 2: purchased energy

From the electricity, steam, heat or cooling the company buys. Two methods:

• Location-based: uses the average emission factor of the local grid
• Market-based: uses the emission factors of the specific energy the company has contracted, including renewable energy certificates (RECs) and power purchase agreements

Scope 3: the rest of the value chain

Fifteen categories, split into upstream and downstream.

Upstream:

1. Purchased goods and services
2. Capital goods
3. Fuel and energy-related activities (not in Scope 1 or 2)
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets

Downstream: 9. Downstream transportation and distribution 10. Processing of sold products 11. Use of sold products 12. End-of-life treatment of sold products 13. Downstream leased assets 14. Franchises 15. Investments

For many businesses, such as consumer goods, automobiles and banks (through the loans they make, called financed emissions), Scope 3 is the largest part of the footprint. It is also the hardest to measure.

Metrics to use

• Absolute emissions: total tCO2e. Useful for tracking one company over time.
• Revenue intensity: tCO2e per ₹ crore of revenue. Useful across sectors, but moves with prices and inflation.
• Physical intensity: tCO2e per tonne of product (cement, steel, aluminium). The best measure for comparing plants and companies in the same industry.

India's carbon market

• PAT scheme: the Bureau of Energy Efficiency's Perform, Achieve and Trade scheme set energy efficiency targets for large industrial units, with tradable energy saving certificates (ESCerts).
• CCTS: the Carbon Credit Trading Scheme, notified in 2023, now replaces PAT for the covered sectors. Final targets for aluminium, cement, chlor-alkali, and pulp and paper were notified in October 2025, followed by petroleum refining, petrochemicals and textiles in January 2026. Covered entities have binding targets for 2025-26 and 2026-27, using FY 2023-24 as the baseline. Iron and steel and fertiliser targets were still pending at that point.
• The design: CCTS is an intensity-based baseline-and-credit system covering direct emissions and electricity-related emissions. It sets a limit on emissions per unit of output, not a cap on total emissions.
• The registry: the Grid Controller of India maintains it, and Carbon Credit Certificates trade on India's power exchanges.