Scope 3 Category 8 Overview: Leased Assets

Scope 3 Category 8 Overview: Leased Assets

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SCOPE 3 CATEGORY 8


Scope 3 emissions, particularly under Category 8, concentrate on greenhouse gas (GHG) emissions coming from leased assets, both from the standpoint of lessees and lessors. Understanding how to accurately categorize these emissions based on the kind of lease—finance (capital) or operating lease—is critical for effective GHG reporting and control. 


The Greenhouse Gas Protocol outlines specific guidelines for categorizing emissions from leased assets within Scope 3, Category 8. These guidelines distinguish between two types of leases.


Category 8: Leased Assets


Types of leases:

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1.Finance (Capital) Lease: Under this lease form, the lessee is considered to have control of the asset and bears both the rewards and hazards associated with ownership. Thus, emissions from these leases are often classified as Scope 1 if they are direct emissions from owned or controlled sources, or Scope 2 if they are indirect emissions from the generation of purchased power utilized by the leased facility.

2.Operating Lease: The lessee does not bear the risks and rewards of ownership, the emissions are often classed as Scope 3 rather than direct emissions (Scope 1). The classification can differ depending on the organizational boundaries chosen—equity share, financial control, or operational control. If the equity share or financial control approach is adopted, all connected emissions are classified as Scope 3. However, if the operational control technique is used, emissions can be classified as Scope 1 or Scope 2, depending on whether they are direct or indirect.


Example

  1. A corporation that leases vehicles on an operating lease and employs the operational control approach would classify direct vehicle emissions (e.g., fuel burning) as Scope 1 and indirect emissions (e.g., electricity used to charge electric vehicles) as Scope 2. However, if they employed a financial control strategy, both types of emissions would be classified as Scope 3.


Proper classification of leased assets in Scope 3 reporting is critical to ensuring accuracy in GHG inventories, which allows companies to properly track their environmental impact and develop emission reduction strategies.


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