The importance of Scope 3 emissions in the automotive sector

By Alwyn Hopkins, EY UK and Ireland sustainability leader for advanced manufacturing and mobility

Scope 3 Greenhouse Gas (GHG) emissions are those that originate outside of an organisation’s own operations, occurring in the supply and value chains and right across product lifecycles.

In total, the GHG Protocol defines 15 different categories of scope 3 emissions, all of which are becoming increasingly important to decarbonisation objectives for businesses as they often dominate total GHG impact.

Three of those categories present a particular opportunity for meaningful action from automotive firms to decarbonise their operations:

• Category 1: Purchased goods and services,
• Category 11: Use of sold products,
• Category 12: End-of-life treatment of sold products.

Procuring more sustainable goods and services can make a significant contribution towards companies reducing their scope 3 emissions, which will also have a positive impact on bottom-line.

For example, the new EU Carbon Border Adjustment Mechanism (CBAM) will, from 2026, put a substantive carbon price on embodied emissions in many purchased products.

Policy regimes like this will mean lower costs for purchases with better emissions credentials, provided businesses get the compliance right.

This relies on companies being honest with themselves and analysing what products they are currently buying, who they’re buying them from, and the associated carbon footprint.

Furthermore, companies need to consider how they are affecting internal policies when they manoeuvre that procurement. Specifically, what exactly are they buying? For example, are they buying virgin steel, or steel that has been recycled?

There is an important interplay here. In theory, purchasing recycled products should be more favourable from the ’Category 1’ perspective, which provides an incentive to invest in infrastructure in this space.

In addition, investment in circularity can also help decarbonise the end-of-life treatment of sold products, particularly vehicles sold by automotive companies, thus reducing the impacts of material decomposition and disposal (Scope 3 ’Category 12’ emissions).

The case for circularity investment will likely be further amplified as authorities start to bring in additional regulatory incentives to use materials from end-of-life vehicles in the production of new vehicles, such as via the EU end-of-life vehicles regulation.

Therefore, a robust and effective end-of-life strategy will not only mean positive decarbonisation results for a company’s reporting, but also a reduced exposure to future carbon pricing – while improving prospects for compliance with new end-of-life and product composition regulation that is coming into play.

One high-profile Original Equipment Manufacturer (OEM) has led by example in this area by setting up a dedicated business unit for reclaiming materials from end-of-life vehicles, with other manufacturers now exploring similar possibilities.

To deliver more circular products, OEMs could also look to go beyond investment in end-of-life vehicle infrastructure and consider the design of the vehicles they’re putting on the market – leading to modular setups and standardisation across vehicles.

Indeed, careful design decisions can also support with the delivery of priorities such as vehicle electrification, thus helping to decarbonise the use of an OEM’s sold products (“Scope 3 Category 11” emissions).

Sold products will also often go to customers such as fleet operators, for example, who are starting to look for vehicles that have a lower carbon footprint, both in their production/manufacture and their operation.

Therefore, OEMs supporting with the electrification agenda are not only reducing their scope 3 emissions through the vehicles they’re selling but are also helping their customers to decarbonise their scope one emissions too: supporting the economy-wide net zero transition.

A key point that underpins all of these considerations is measurement. If you can’t measure your carbon footprint effectively - then how are you holding yourself as a business accountable?

For example, in the scope 3 emissions calculation for purchased products and services, many businesses currently use a ’spend-based’ approach, meaning they are calculating their footprint based on benchmarks and procurement data.

However, if they start changing their operations around procurement, they need to find ways to understand the actual impacts of their decisions and reflect this in their GHG accounting.

A shift towards methods which use specific data rather than averages (e.g. supplier-specific data for Scope 3 Category 1 emissions) could be key to understanding and capitalising on decarbonisation in the supply chain.