The difference between Scope 1 and Scope 2 emissions

Scope 1 emissions are the greenhouse gases your business produces directly — from equipment you own and operate. Scope 2 emissions are the gases produced when you buy electricity, steam, or heating and cooling from an outside supplier. The distinction matters because it changes what you measure, who is responsible for reducing it, and which actions your business can actually control.

Think of Scope 1 as the tailpipe: if your company owns a delivery truck, the exhaust from that truck is Scope 1. If your warehouse has a natural gas furnace, the combustion in that furnace is Scope 1. If you own a generator on-site, the fuel it burns is Scope 1. These are emissions that happen on your property or from equipment you operate.

Scope 2 is what happens upstream. When you flip a light switch, you are not burning coal or natural gas yourself — a power plant does that on your behalf. The emissions from that power plant are Scope 2. The same applies to steam piped in from a district heating system, or chilled water from a central cooling plant. You caused the emissions by consuming the energy, but you did not produce them directly.

Key Takeaways

  • Scope 1 covers direct emissions from equipment and fuel your business owns or operates on-site, such as company vehicles, furnaces, and generators.
  • Scope 2 covers indirect emissions from purchased electricity, steam, and heating or cooling, which are produced by your energy supplier.
  • Scope 1 emissions are typically easier to reduce because your business controls the source, while Scope 2 reductions often depend on your supplier's energy mix.
  • Both scopes must be measured and reported if your business is subject to emissions disclosure rules or carbon accounting standards.
  • The power grid's carbon intensity varies by region, so the same amount of electricity produces different Scope 2 emissions depending on where you are located.

What counts as Scope 1 emissions

Scope 1 includes any fuel burned in equipment your company owns. This covers company vehicles (cars, trucks, vans), forklifts, generators, boilers, furnaces, and air compressors. It also includes refrigerant leaks from air conditioning or refrigeration systems you maintain, and methane or other gases released from waste you produce on-site.

The key test is ownership and direct operation. If your business leases a vehicle but operates it, the emissions count as Scope 1. If you hire a contractor to operate equipment on your site, those emissions still belong to you — you are responsible for them in your Scope 1 total. If you own a building but lease space to a tenant who operates their own furnace, that tenant's furnace is their Scope 1, not yours.

Scope 1 is usually the smallest of the three scopes (Scope 3 is the third, covering supply chains and customer use). For many service businesses with few vehicles and rented office space, Scope 1 may be negligible. For manufacturing, construction, or logistics companies, it is often the largest source.

What counts as Scope 2 emissions

Scope 2 is limited to three purchased utilities: electricity, steam, and heating or cooling. It does not include natural gas piped to your building — that is Scope 1, because you burn it directly. It does not include water or waste disposal. Only the three energy utilities count.

The emissions are calculated by multiplying the amount of energy you purchased by the emissions factor for your region. An emissions factor is a number that represents how many pounds of carbon dioxide (or equivalent) are produced per unit of electricity generated in your area. If your region's power grid relies heavily on coal, the factor is high. If it relies on wind and nuclear, the factor is low. The same kilowatt-hour of electricity produces different Scope 2 emissions in California than in West Virginia.

Scope 2 is usually the largest source of emissions for office buildings, retail stores, and data centers — any business that uses significant electricity but does not operate heavy equipment. It is also the scope where your business has the least direct control, because you cannot change how your utility generates power. You can only reduce consumption or switch to a supplier with a lower-carbon energy mix.

How to measure Scope 1 and Scope 2

Measuring Scope 1 requires fuel purchase records. Collect invoices or receipts for gasoline, diesel, natural gas, propane, and any other fuel your business buys. If you operate a fleet, your fuel cards or maintenance records show consumption. For refrigerant leaks or other non-combustion sources, you may need to work with a technician to estimate the amount released.

Measuring Scope 2 requires utility bills. Gather twelve months of electricity bills, and any steam or heating bills if applicable. The bills show kilowatt-hours (kWh) or therms consumed. You then multiply by the emissions factor for your region, which is published by your utility, your state environmental agency, or national databases like the EPA's eGRID tool. Some utilities now print the emissions factor directly on the bill.

Both measurements should cover a full calendar year or fiscal year to account for seasonal variation. If you are just starting, one year of data is a baseline; tracking year-over-year changes shows whether your reductions are working.

Why the distinction matters for reducing emissions

Scope 1 reductions are usually within your control. You can replace a gas furnace with an electric heat pump, switch a delivery truck to an electric or hybrid model, or maintain equipment to reduce leaks. These are capital investments, but the outcome is direct and measurable.

Scope 2 reductions are partly outside your control. You can reduce consumption by upgrading insulation, installing LED lighting, or improving HVAC efficiency — these work. But you cannot change how your utility generates power. Some businesses buy renewable energy credits (RECs) to offset Scope 2, though this does not reduce actual emissions; it funds renewable projects elsewhere. A more direct approach is to switch to a utility that offers renewable energy plans, or to install on-site solar or wind.

Understanding this distinction helps you set realistic targets. If you commit to a 50% emissions reduction, you need a plan for both scopes. Scope 1 reductions may require equipment replacement over several years. Scope 2 reductions may depend on your utility's transition to cleaner energy, which is outside your timeline.

Scope 1 and Scope 2 in reporting and compliance

If your business is required to report emissions — under state law, investor disclosure rules, or corporate sustainability commitments — you will report Scope 1 and Scope 2 separately. Regulators and investors want to see both because they tell different stories. A company with high Scope 1 but low Scope 2 has a different emissions profile and different reduction opportunities than a company with the opposite mix.

Some disclosure frameworks, like the Greenhouse Gas Protocol (the standard used by most large companies), require Scope 1 and Scope 2 to be reported together as a baseline, with Scope 3 (supply chain and customer emissions) reported separately. Others, like the SEC's proposed climate disclosure rules, focus on Scope 1 and 2 for now, with Scope 3 required only if it is material to the business.

If you are not currently required to report, understanding the two scopes still helps you set internal targets and track progress. Many businesses report voluntarily to investors, customers, or employees, even without a legal requirement.

Common mistakes when calculating Scope 1 and Scope 2

The most common mistake is double-counting. If you own a building and lease space to a tenant, do not count the tenant's utilities in your Scope 2. The tenant is responsible for their own consumption. Conversely, if you lease a building, count the utilities you pay for, even if you do not own the building.

Another mistake is using the wrong emissions factor. Scope 2 factors change year to year as the power grid becomes cleaner. Using a factor from five years ago will understate your current emissions. Check your utility's website or the EPA's eGRID database for the most recent factor for your region.

A third mistake is forgetting non-fuel Scope 1 sources. Many businesses focus on vehicles and furnaces but overlook refrigerant leaks, on-site waste decomposition, or process emissions (such as CO2 used in manufacturing). A full inventory catches these smaller sources.

Frequently Asked Questions

Is natural gas piped to my building Scope 1 or Scope 2?

Natural gas is Scope 1. You burn it directly in a furnace, water heater, or stove. Scope 2 covers only electricity, steam, and heating or cooling purchased from an outside supplier. If you buy steam from a district heating system instead of burning gas on-site, that is Scope 2.

Does Scope 2 include water and wastewater bills?

No. Water and wastewater are not part of Scope 2. Only electricity, steam, and heating or cooling count. Water consumption may be tracked separately for sustainability reporting, but it is not part of greenhouse gas emissions accounting.

How do I know which emissions factor to use for Scope 2?

Your electricity utility usually publishes the factor on its website or on your bill. If not, the EPA's eGRID tool lets you enter your zip code and shows the factor for your region. Factors are updated annually, so check for the current year. Some utilities offer different factors for renewable versus standard electricity plans.

Can I reduce Scope 2 emissions by buying renewable energy credits?

Renewable energy credits (RECs) do not reduce your actual Scope 2 emissions — they fund renewable projects elsewhere. For accounting purposes, some frameworks allow you to report a lower Scope 2 number if you purchase RECs matching your consumption, but this is a financial offset, not a physical reduction. Installing solar on-site or switching to a utility with renewable energy does reduce actual emissions.

What if my business operates in multiple states or countries?

Calculate Scope 1 and 2 for each location separately, then sum them for your total. Use the emissions factor for each region where you operate. A facility in California will have a lower Scope 2 factor than one in a coal-heavy state, even if electricity consumption is identical.