Scope 3 emissions: What they mean for federal agencies and government contractors

In the ongoing battle to combat climate change, U.S. federal agencies are re-evaluating opportunities to reduce greenhouse gas (GHG) emissions across their operations. Executive Order 14057 and the accompanying Federal Sustainability Plan outline an ambitious goal of achieving net-zero emissions across federal operations by 2050 including a 65 percent reduction by 2030.

However, the latest Six Assessment Synthesis Report from the United Nations Framework Convention on Climate Change (UNFCCC) warns that the pace and scale of climate action are insufficient to tackle climate change.

If the government is to meet its net-zero goal, federal agencies need to move more aggressively and quickly. They must undertake focused efforts across all aspects of their operations including the federal supply chain.

Measuring greenhouse gas emissions

Globally, companies, organizations, cities and countries measure their GHG emissions using the Greenhouse Gas Protocol, the de facto international standard for GHG accounting. The Protocol recognizes the importance of accounting for all sources of the GHG emissions depending on their origin. As such, the protocol categorizes emissions into three buckets, defined as:

• Scope 1: Direct emissions that come from an organization’s own operations.
• Scope 2: Indirect emissions that result from purchased electricity, fueling, heating or cooling to support the organization’s operations.
• Scope 3: Indirect emissions originating within the organization's value chain, supply chain or both—emissions associated with its suppliers' operations, for example.

Scope 3 emissions can be very challenging to measure and manage, and often go un-estimated and unabated.

The Greenhouse Gas Protocol defines 15 separate categories of Scope 3 emissions. In most cases, only some of the categories apply to a given operation. Some categories, such as business travel and employee commuting, are easier to measure and manage than others, such as emission impacts of investment activities.

Addressing Scope 3 emissions in government operations

Federal agencies report on their energy, electricity, water, and fuel usage to the Department of Energy’s Federal Energy Management Program (FEMP). The Office of Management and Budget (OMB) publishes these results annually via Scorecards for Efficient Federal Operations/Management.

However, Scope 3 emissions have not been part of the FEMP reporting. Recently, though, the government has begun focusing on Scope 3 emissions within its supply chain. In coordination with the Council on Environmental Quality and OMB, the General Services Administration (GSA) is now working to develop tools to establish appropriate baselines and assist agencies in setting Scope 3 targets.

As agencies wait for these tools, they can begin to determine which Scope 3 categories are material for their administrative operations (and mission).

Most of the discussion of Scope 3 emissions that I have observed centers on purchased goods and services. While these emissions are likely the largest source of government Scope 3 emissions, there are other material Scope 3 categories, such as business travel and employee commuting, which are likely significant for many agencies.

For example, consider the amount of international business travel conducted by agencies such as the Department of State.

Interestingly, the Federal Sustainability Plan does not highlight these activities, even though agencies have the power to reduce these emissions. For example, an agency can mandate its personnel book economical cabin classes or direct flights for international travel. Remote or hybrid work arrangements and incentivizing employees to use public transportation can also reduce Scope 3 emissions.

Reducing Scope 3 emissions in the government supply chain

Entities that do business with the government also need to focus on Scope 3 emissions. In late 2022, the Department of Defense, GSA and the National Aeronautics and Space Administration (NASA) proposed the Disclosure of Greenhouse Gas Emissions and Climate-Related Financial Risk rule.

This revision to the Federal Acquisition Regulation (FAR) would require “major federal suppliers” (defined as those with more than $50 million in annual federal obligations) to publicly disclose GHG emissions and climate-related financial risks and adopt science-based targets.

This revision includes disclosure of relevant Scope 3 emissions. While some commenters on the proposed rule consider this requirement onerous for government contractors, one must consider the size of the potential impact. The U.S. Treasury indicates that government spending represents 25 percent of the U.S. Gross Domestic Product. In fact, GSA estimates that Scope 3 GHG emissions from federal contracts are significantly larger than the government’s combined Scope 1 and Scope 2 emissions, which were about 67 MMT CO2e in 2021.

Frankly, given their significance, not taking action on Scope 3 emissions in the government supply chain would be a significant lost opportunity. The government clearly recognizes not only the importance of the challenge but also its ability to use its buying power to affect positive change.

Will the proposed rule lead to improvement?

To achieve measurable reductions in Scope 3 GHG emissions within its own operations and from its significant suppliers, the federal government needs to:

1. Provide additional clarity around relevance of Scope 3 categories for itself and its suppliers.
2. Hold its suppliers accountable not just for reporting GHG emissions and climate-related risks, but also for actually reaching their net-zero and interim targets.
3. Require that agencies and their suppliers apply science-based targets for determining necessary emission reductions, and accurately measure and report progress against these targets.

Under the proposed rule, federal suppliers would self-select the Scope 3 emissions categories that are relevant to their operations. Unfortunately, this self-determination of materiality could lead to under-reporting without knowledgeable and effective oversight.

While the move to require contractors to disclose their GHG emissions data is worthwhile, the proposed rule focuses primarily on contractors reporting emissions, disclosing climate-related risks and establishing science-based targets. As such, it does not go far enough.

Disclosure alone will not lead to changes in business operations, and the proposed rule does not include any mechanism to monitor contractors’ emissions and hold them accountable for achieving their emission reduction targets.

Some information on supplier emission reduction progress will be publicly available from corporate investor relations communications (e.g., annual company ESG reports), but the proposed rule only requires reporting to a respected but unregulated third party (i.e., the CDP) who, in turn, grades submissions.

The industry average reported by the CDP is currently a C grade, which likely indicates that even for the subset of companies that report, most are falling short of achieving the levels of progress necessary to address climate change.

In order to truly achieve the objective of net-zero federal operations by 2050, the government will need to drive meaningful operational change internally and from its suppliers, requiring those entities doing business with the government to reduce, permanently, their environmental impact. Businesses will only make these changes if their clients—in this case, the federal government—insist on reductions, measured against science-based targets.

Learn more about CGI Federal’s sustainability services or reach out to me directly for help in developing strategies for your agency to address its sustainability challenges including Scope 3 emissions.