AI Scope 3 Emissions - Concept Note

Net Zero - It’s a phrase that has rapidly evolved from a lofty aspiration to a serious, tangible commitment for companies worldwide. No longer just a marketing ploy, achieving net zero has become a strategic imperative, driven by regulatory pressure, investor demands, and a stark awareness of climate change's profound impact. Businesses are finally putting their money where their mouth is, working towards a truly decarbonized economy.

This critical shift, however, highlights a fundamental problem that remains largely unsolved: the standardized and accurate reporting of Scope 3 Carbon Emissions. These are the indirect emissions that occur across a company's entire value chain, and while they are often the largest part of a company's footprint, they are also the most difficult to measure.

This is an exploration of that problem, the immense opportunity it presents, and a potential solution I've conceptualized. Here’s the structure we'll follow:

Deconstructing Carbon: A quick primer on Scope 1, 2, and 3 emissions.
The Core Problem: Why attributing value chain emissions is so hard.
A Proposed Solution: A sector-by-sector software approach.
The Real Prize: Why the winner in reporting could dominate the carbon credit market.
Concluding Thoughts: Why this idea remains, for now, on the drawing board.

Understanding Scope 1, 2, and 3 Carbon Emissions

To grasp the challenge, we first need to understand the categories defined by the widely adopted GHG Protocol. Let's break this down.

Scope 1 (Direct Emissions): These are emissions from sources the company owns or controls. Think of fuel burned in company vehicles or emissions from its manufacturing processes. They are the most straightforward to measure.
Scope 2 (Indirect Emissions from Energy): These are emissions from the generation of purchased electricity, steam, or heating. While the emission happens at the power plant, it's a direct result of the company's energy use.
Scope 3 (All Other Indirect Emissions): This is the big one. Scope 3 is the "dark matter" of a company's carbon footprint—it’s often the largest component, but the hardest to see. It covers all other indirect emissions in the value chain, from sources not owned or controlled by the company.

The GHG Protocol splits Scope 3 into 15 categories, including everything from purchased goods and business travel (upstream) to the consumer's use and disposal of the company's products (downstream). For any credible net-zero strategy, tackling Scope 3 isn't optional; it's the main event.

The Problem - Attributing Value Chain Emissions

While the critical requirement for Scope 3 reporting is clear, the business world currently grapples with a significant hurdle: there are no universally accepted solutions for attributing emissions from suppliers and consumers to a company’s specific emission levels. Even major international bodies like the World Bank and the United Nations are yet to establish a standardized format for attributing supplier emissions, let alone those of consumers.

This lack of standardization creates a fragmented landscape where companies are often compelled to develop their own internal solutions.

Supplier-Side Problem

To address the supplier-side issue, businesses have started coming up with their own frameworks for attributing supplier emissions. These frameworks often involve varied approaches to gather data, given the complexities of collecting primary information from a diverse supplier base. Therefore, there's a need for software that allows companies to develop customized frameworks to solve their specific reporting needs.

Consumer-Side Challenge

Due to the inherent complexities of measuring and attributing consumer emissions, there has been no significant advancement in methods to accurately measure them. Companies are now willing to explore and try out technology solutions in pursuit of a breakthrough that can at least provide a credible estimate of the emissions attributable to them.

Some initial, nuance-free, first-principles approaches might include:

Estimating the total emissions from a consumer plant and attributing a portion in the ratio of the amount paid to the company to the total cost of goods sold by the consumer.
Estimating the emissions from the process in the consumer plant where a company's goods are used as raw material and attributing some extent of those emissions to the company.

These areas—supplier and consumer reporting—represent two of the most important unsolved issues in a world moving towards stricter carbon emission reporting and the introduction of carbon credits.

The Solution - An Automated, Standardized Software Solution

My thesis is that we can tackle this problem with an automated and credible software solution, built by approaching the problem sector by sector. My background in chemical engineering makes me believe the chemical or steel sectors are the perfect place to start.

The plan of action would be a multi-year deep dive:

Find a Partner: Identify a major producer in the chemical or steel sector in India that has voluntarily committed to Net Zero. Leverage my alma mater network to convince one firm to collaborate on a pilot project.
Execute a Deep Dive: Dedicate 1-3 years to intensively understanding the partner's entire value chain. This means mapping everything from raw material sourcing and production processes to the final use and disposal of their products by consumers.
Build the Software: With this deep domain expertise, develop a sophisticated software platform. While the supplier-side reporting can be solved with advanced data frameworks, the consumer side will require innovative modeling to derive credible estimates from first-principles (e.g., attributing emissions based on material usage in a consumer's known industrial processes).
Scale: If the pilot is successful, the vision is to scale the software to serve the entire sector before expanding to the next logical industry.

Market Opportunity & Future Potential

While a number of start-ups are trying their hand at carbon reporting, there is no clear winner in the market. Established enterprise software providers like SAP are not the obvious solution because this challenge extends beyond mere data entry; it requires innovation in reporting methodologies and attribution.

The future of carbon accounting demands a certain level of integration across the entire value chain, with friction in the reporting and credit process needing to decrease significantly. This presents a unique opportunity - the market leader in the emissions reporting space could become the de facto voice in carbon credit certification. This position could then allow them to play a significant role in becoming the interface for the carbon credits exchange market. Given that the carbon credit market is designed to be international, this presents a substantial international growth opportunity.

My vision is to be at the forefront of this crucial evolution, providing a solution that can help businesses navigate the complexities of Scope 3 emissions and accelerate the transition to a Net Zero economy.

Why I didn’t build this?

It is a fair question to ask - if the opportunity is this significant, why not build it? I have analyzed this from multiple angles, and the logic for pursuing it is compelling. The climate-tech sector is critical, the market gap is clear, and my technical background provides a credible foundation.

But the brilliance of an idea is only one part of the equation. The other, more critical part, is the brutal reality of its execution. Unlike a lean software startup that can iterate quickly and find product-market fit within 18-24 months, this venture operates on a completely different paradigm. I believe the path is defined by three almost insurmountable initial hurdles:

The Decade-Long Bet: The foundational phase alone—gaining a partner, completing a multi-year deep dive, and building a V1 product—would require at least three years with minimal to no revenue. Successfully scaling it would be a decade-long commitment, demanding a specific kind of "patient capital" that is exceedingly rare.
The Challenge of Access: The entire model hinges on convincing industrial incumbents to share their most sensitive operational data. This is not a technical challenge of building APIs; it is a human and political challenge of navigating corporate inertia, risk aversion, and deep-seated secrecy.
The Labyrinth of Regulation: The winner in this space will not only have to comply with existing rules but will also have to actively shape future standards. This means engaging with regulators, industry bodies, and international committees—a slow, resource-intensive process that is fundamentally at odds with the "move fast" startup ethos.