Scope 1 vs Scope 2 vs Scope 3: What Australian Companies Actually Need to Measure

We get the same question every week from companies preparing for their first ASRS or NGER report: "Where do our emissions actually come from?" Not in a theoretical sense. In a practical, what-do-I-need-to-measure-and-what-can-I-ignore sense.

The three-scope framework from the GHG Protocol has been around since 2001. But most explanations you'll find online are written for a global audience, full of generic examples that don't help an Australian company figure out whether its diesel generators are Scope 1, its electricity is Scope 2, or its contractor fleet is Scope 3. And that distinction matters enormously — because getting the scope wrong doesn't just mean a bad carbon footprint number. Under AASB S2, your Scope 1 and 2 figures carry full legal liability from day one. Scope 3 gets a one-year deferral.

So here's the Australian-specific breakdown. No textbook definitions. Just what each scope means for your reporting obligations, what emission factors you'll use, and where to focus your effort.

Scope 1: The Stuff You Burn

Scope 1 covers direct emissions from sources your company owns or controls. The shorthand is simple: if fuel is being combusted on your premises or in your vehicles, the emissions are almost certainly Scope 1.

For most Australian businesses, Scope 1 falls into four buckets.

Stationary combustion is the big one. Gas boilers heating your building. Diesel backup generators at a remote site. Natural gas furnaces in a manufacturing plant. The NGA Factors 2025 workbook gives a combined emission factor of 51.53 kg CO2-e per GJ for natural gas distributed in a pipeline — that's CO2, methane, and nitrous oxide combined. For a commercial building burning 500 GJ of natural gas per year, that's about 25.8 tonnes of CO2-e. Not a huge number for one building, but across a portfolio of 40 sites it adds up fast.

Transport is the second bucket. Company-owned vehicles — utes, delivery trucks, forklifts running on diesel or LPG. If your company owns or leases the vehicle and puts fuel in it, those emissions are Scope 1. A single diesel truck doing 50,000 km per year generates roughly 35–40 tonnes of CO2-e, depending on fuel efficiency. A fleet of 20? That's your single biggest Scope 1 source.

Here's where people get confused: employee cars used for commuting aren't Scope 1. They're Scope 3 (category 7 — employee commuting). But a novated lease vehicle that your company has operational control over? That's potentially Scope 1 under the NGER operational control test. The boundary isn't about who drives the car. It's about who controls the operating and environmental policies for it.

Fugitive emissions are the third bucket, and they're the easiest to forget. Refrigerant leaks from your air conditioning units. R-410A has a global warming potential of 2,088 — meaning one kilogram of leaked R-410A is equivalent to over two tonnes of CO2. A single commercial HVAC system losing 5% of its charge annually can contribute 10+ tonnes CO2-e without anyone noticing. For mining companies, fugitive emissions from coal seams and gas extraction dwarf everything else. But even an office-based company with a dozen split systems has fugitive emissions it should be tracking.

Industrial process emissions are the fourth bucket, relevant mainly to manufacturers. Cement production releases CO2 from the calcination of limestone — nothing to do with burning fuel. Aluminium smelting produces perfluorocarbons. These are Scope 1 because the chemical process itself releases greenhouse gases, not the energy used to power it.

If you're an office-based company with no fleet vehicles and gas heating, your Scope 1 might be surprisingly small — just the gas boiler and some refrigerant leakage. But if you're in construction, mining, transport, or manufacturing, Scope 1 is often where most of your directly controllable emissions sit.

Scope 2: The Electricity You Buy

Scope 2 covers indirect emissions from purchased electricity, steam, heating, or cooling. In practice, for 95% of Australian businesses, Scope 2 means one thing: electricity from the grid.

We wrote an entire walkthrough on calculating Scope 2 from electricity bills, so we won't repeat the full method here. But the key thing that trips people up — especially people new to scope 1 2 3 emissions tracking in Australia — is that your Scope 2 number depends heavily on which state you're operating in.

The NGA Factors 2025 gives these location-based Scope 2 emission factors (in kg CO2-e per kWh):

State	Emission Factor
Victoria	0.78
Queensland	0.67
NSW & ACT	0.64
WA (SWIS)	0.50
South Australia	0.22
Tasmania	0.20

That's a nearly 4x difference between Victoria and Tasmania. A warehouse consuming 200,000 kWh per year in Melbourne generates 156 tonnes CO2-e. The same warehouse in Hobart? 40 tonnes. Same building, same consumption, completely different emissions number. This is why using the national average factor (0.62) across all your sites — which we see people do all the time — is flat out wrong for any company operating in multiple states.

Under NGER, Scope 2 is mandatory to report. Under AASB S2 paragraph 29(a)(v), location-based Scope 2 is required, and market-based is voluntary supplementary disclosure. If you've got a power purchase agreement or you're buying GreenPower certificates, you can report a market-based figure alongside the location-based one. But you can't use market-based as a substitute.

One common trap: solar panels on your roof generating electricity you use on-site aren't Scope 2. They're not any scope — self-generated renewable energy consumed on-site simply doesn't appear in your GHG inventory. But the moment that electricity crosses a meter from the grid, it's Scope 2. Diesel generators on-site are Scope 1, not Scope 2, because you're burning the fuel directly.

Scope 3: Everything Else (and It's Most of Your Footprint)

Here's where it gets uncomfortable. Scope 3 covers all indirect emissions in your value chain that aren't electricity — both upstream (your suppliers) and downstream (your customers). The GHG Protocol defines 15 categories. And for most companies, Scope 3 represents somewhere between 70% and 90% of total emissions.

We'll be honest: Scope 3 is the scope we're still figuring out along with everyone else. The data quality is wildly inconsistent. Some categories are reasonably measurable. Others require estimates built on estimates. But AASB S2 is making it mandatory from your second reporting year, so ignoring it isn't an option. Our Scope 3 guide goes deeper on the mandatory requirements.

Rather than listing all 15 categories (the GHG Protocol Corporate Value Chain Standard has that covered), here are the ones that actually matter for typical Australian businesses.

Purchased goods and services (Category 1) is usually the single largest category and the hardest to measure. It includes the emissions generated to produce everything your company buys — from raw materials to office supplies to cloud computing services. A construction company buying steel, concrete, and timber is looking at massive Category 1 emissions. The problem is you're relying on your suppliers to tell you their emissions, and most of them don't know either. We're not sure the industry has a reliable approach for this across 500+ suppliers yet — most companies start with spend-based estimates (dollars spent multiplied by industry-average emission factors) and refine from there.

Business travel (Category 6) is one of the easier categories to measure. Flight bookings have distance data. Airlines publish emission factors. A return Sydney–Melbourne flight on economy is roughly 0.26 tonnes CO2-e per passenger. A Sydney–London return? About 4.5 tonnes. For a company with 200 employees doing regular domestic travel, business travel alone can hit 200–400 tonnes per year.

Employee commuting (Category 7) requires survey data or assumptions about how your staff get to work. A workforce of 300 people, mostly driving, in a city like Sydney or Melbourne, might generate 500–1,000 tonnes CO2-e annually. It's not nothing, but the data collection is genuinely painful — we've seen companies send out staff surveys and get 20% response rates.

Waste generated in operations (Category 5) is measurable if you've got waste contractor data. A company sending 200 tonnes of general waste to landfill per year generates roughly 200–300 tonnes CO2-e depending on waste composition — organic waste in landfill produces methane, which is 28 times more potent than CO2 over 100 years.

Upstream transportation (Category 4) matters for companies with physical supply chains. If a supplier is shipping materials to your site and you're paying for the freight, those transport emissions are your Scope 3.

Investments (Category 15) is the sleeper category. If your company holds equity investments, the proportional share of those investees' emissions is your Scope 3. For financial institutions, Category 15 dwarfs everything else — it can be 99% of their total footprint. Even a non-financial company with a managed investment portfolio has Category 15 exposure.

What's Mandatory, What's Not

This is where the regulatory picture splits in two, and it's worth understanding both paths clearly.

Under NGER, if your corporate group exceeds 50 kt CO2-e or 200 TJ of energy, you must report Scope 1 and Scope 2 every year by 31 October. Scope 3 is not reportable under NGER. Full stop. You can read more about whether your company hits the NGER thresholds here.

Under ASRS (AASB S2), the picture is broader. Group 1 entities (reporting from January 2025) must disclose Scope 1 and Scope 2 from year one, with Scope 3 mandatory from their second reporting period — which means Group 1 companies are already deep into Scope 3 preparation right now. Group 2 entities (reporting from July 2026) get the same structure: Scope 1 and 2 first, Scope 3 from year two. Group 3 (from July 2027) follows the same pattern.

The liability angle matters too. Scope 1 and 2 emissions carry full liability from the start — directors can face penalties up to $15 million or 10% of annual turnover for material misstatement. Scope 3 has modified liability protections for the first three years (until 31 December 2027), where only ASIC can bring action and it's limited to injunctions. But those protections expire. And when they do, your Scope 3 numbers need to be defensible too.

One technical wrinkle: NGER uses AR5 global warming potential values from the IPCC, while AASB S2 requires AR6 values. The differences are small for CO2 (it's still 1) but matter for methane (AR5: 28, AR6: 27.9) and some refrigerants. If you're reporting under both frameworks, you may need to run your inventory twice with different GWP tables. It's annoying, but it's real.

Where to Actually Start

If you're new to all of this — maybe you're a finance manager who just got handed the sustainability brief, or a new hire building the reporting function from scratch — here's our honest take on prioritisation.

Get Scope 2 right first. It's the most measurable scope for most companies. You have utility bills with kWh consumption. You have published emission factors from the NGA Factors workbook that are updated annually by DCCEEW. The calculation is a multiplication. The main risk is using the wrong factor for the wrong state, which we've seen happen more times than we'd like. If you need help with the maths, our Scope 2 calculation guide walks through it step by step.

Then tackle Scope 1. Gather your natural gas invoices, fuel card records for company vehicles, and get your facilities team to check the refrigerant logs. Most companies undercount fugitive emissions because nobody's tracking top-ups on split system air conditioners. If your maintenance contractor is topping up refrigerant twice a year, you've got a leak that's probably Scope 1. You just didn't know it.

Finally, start scoping (pun intended) your Scope 3. Don't try to measure all 15 categories at once. Identify the 3–4 that are likely material for your business — purchased goods and services is almost always one of them — and start building data collection processes. Spend-based estimates are acceptable for your first reporting year. The goal is to improve data quality over time, not to be perfect from the start. AASB S2 acknowledges this explicitly.

And one last thing. The scope boundaries aren't always obvious. A contractor's diesel excavator on your construction site — is that Scope 1 or Scope 3? It depends on the operational control test. If you direct their operations, health and safety, and environmental policies, the Clean Energy Regulator may consider those your Scope 1 emissions under NGER. If they operate independently under their own policies, it's your Scope 3. We've seen auditors and companies argue about these boundaries for weeks. Get it documented early. Write down why you drew the boundary where you did.

That's the kind of thing that keeps an auditor happy and keeps you out of trouble with the Clean Energy Regulator.

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