Understanding Product-Level Emissions as an Enabler for Supply Chain Decarbonization

For most companies and organizations, Scope 3 emissions tend to be the biggest source of emissions in the overall corporate greenhouse gas (GHG) emissions footprint. Scope 3 emissions are indirect emissions resulting from an organization’s upstream and downstream value chain activities. Supply chain emissions expose organizations to regulatory, shareholder, and customer-related risks. There is a growing number of climate-related regulations organizations need to comply with, such as the European Union’s Corporate Sustainability Reporting Directive, the now-final US Securities and Exchange Commission ruling, and new regulations in California, mandating a higher level of accuracy, transparency, and accountability through mandatory disclosure requirements. Also, investors increasingly demand transparency related to GHG emissions, followed by similar expectations from consumers and customers. Often organizations only have limited data available to represent their supply chain activities and convert them into accurate emissions profiles, and in turn rely on assumptions and lower levels of data quality, as defined by the GHG Protocol,¹ the most widely used standard for corporate GHG accounting. However, setting achievable, ambitious climate targets and deploying the relevant abatement strategies requires reporting organizations to be able to more accurately account for their Scope 3 emissions. 

The GHG Protocol’s Scope 3 Category 1—Purchased Goods and Services, typically one of the most significant Scope 3 categories for organizations, as shown by the Carbon Disclosure Project (CDP),² requires a particular focus on accurately quantifying Scope 3 related emissions from the materials and services an organization is acquiring. Today, GHG emissions from purchased goods and services are often only estimated due to limited primary (or actual) data being available. Reporting organizations revert to using spend-based activity data and emission factors to calculate their respective emissions. This spend-based approach does not take into account the distinct emission profiles (i.e., the product carbon footprint) of different material and product types, and could lead to either over- or underestimating emissions.

A first step in improving the accuracy of Scope 3 Category 1 emission calculations is a shift from the spend-based approach to a physical activity-based approach, which uses the actual volumetric or weight-based physical quantities of materials and products purchased for each product category. Emissions are then calculated by multiplying physical activity data with secondary or industry-average emission factors, extracted for instance from Life Cycle Assessment (LCA) databases and studies. This approach allows for correlating the emitting activity to an emission factor representative of the actual material or product, instead of simply using a monetary-based value. Emission factors are representative values that relate the quantity of GHG emitted to a proxy measure of activity at an emissions source.¹

At the highest level of data quality and accuracy, suppliers will quantify the actual Product Carbon Footprint (PCF) of their products and share the data for use as supplier-specific emission factors in their customer’s Scope 3 footprint calculations. When selling a product or service, a supplier would not only provide user- or warranty-related information, but also the embodied carbon of the product or service. This last step in the data quality hierarchy comes with challenges, but ultimately can provide the pathway to the most accurate emissions accounting and includes approaches for accurately capturing emissions data for each value-added step in the supply chain.

An Example of the Product Emissions Accounting Data Hierarchy in Action 

A manufacturing company purchases a polymer-based raw material to be used in its own operations to manufacture plastic components. At the lowest data quality level, the company estimates emissions for the purchased polymer under Scope 3 Category 1 by multiplying the total spend for the material with a spend-based emission factor for a generic plastic. This approach does not take into account the specific type or chemistry of the polymer, the origin of where the material was manufactured, nor any specific processes and material/energy inputs and outputs. The company now improves the accuracy of their emissions calculation by using the actual quantity of purchased polymer, e.g., in kilograms (kg), and multiplying with a secondary emission factor for the same (or, less preferably, a proxy) polymer (in kg CO2e/kg “polymer”). Depending on data availability, the emission factor could represent a global average or reflect the actual country of origin where the company procures the polymer. The emission factor should also have a reasonable alignment with the actual upstream processes used to produce the procured polymer raw material. At the highest accuracy level, the company knows the exact quantity of polymer purchased from Supplier A and Supplier B and multiplies each quantity by the verified PCF calculated and provided by Supplier A and Supplier B, respectively. 

Understanding the Difference Between Corporate GHG Accounting, LCA, and PCF

Corporate GHG accounting involves the characterization of an organization’s GHG emissions footprint at an organizational level and includes the direct (Scope 1) and indirect emissions (Scope 2 and Scope 3) across an organization’s own operations, as well as its supply chain. The most commonly used GHG corporate accounting framework is the GHG Protocol.¹ Several of the regulations referred to above require this type of corporate GHG emission accounting. 

LCA is a standardized methodology based on the International Organization for Standardization (ISO) standards ISO 14040 and 14044 to assess the environmental impacts of a product or service across its entire lifecycle, from raw material extraction to end-of-life treatment. It considers not only GHG emissions but also many other potential impact categories, such as ozone depletion, acidification, eutrophication, etc. The methodology can also be applied to projects and even organizational assessments.

PCF focuses on the GHG emissions a product generates from cradle-to-gate, which includes the upstream stages of its lifecycle from raw material extraction and preprocessing, to production, and finally distribution and storage. This type of information can be an input in a corporate Scope 3 GHG inventory, as referred to above under corporate GHG accounting and used as an emission factor for Category 1 Purchased Goods and Services emission calculations. In PCF, product is defined as any good (tangible product) or service (intangible product). LCA methodologies are typically providing the underlying bases for PCF calculations, while various frameworks, methodologies, and standards provide more detailed guidance for PCFs:

• Product Category Rules (PCRs) that can provide guidelines for conducting PCFs (and LCAs) specific to certain products and generating ISO-compliant Environmental Product Declarations (EPDs).
• Cross-sectoral standards such as the Product Life Cycle Accounting and Reporting Standard³ by the GHG Protocol, and the more recent Partnership for Carbon Transparency (PACT) Pathfinder Framework⁴ hosted by the World Business Council for Sustainable Development (WBCSD).
• Sector-specific standards through industry initiatives such as the PCF Guideline by Together for Sustainability⁵ for the chemical industry, or NGO-driven frameworks such as the Rocky Mountain Institute’s (RMI) product-level carbon accounting guidelines⁶ for various sectors.
• Regulatory initiatives such as the EU Product Environmental Footprint methods.⁷
• Standards such as the ISO 14067 Greenhouse Gases Carbon footprints of products.⁸

How to Conduct a PCF Calculation

Driven by WBCSD, the PACT Pathfinder Framework provides a sector-agnostic, general approach to calculating cradle-to-gate PCFs while building and expanding on existing frameworks and standards. Similar to the GHG Protocol for corporate emission accounting, its aim is to establish the accounting, verification, and data exchange principles to enable auditable, comparable, and consistent product-level emissions data. Other, more industry-specific PCF frameworks are further aiming at streamlining calculation methods depending on product and sector characteristics and aligning with sector relevant decarbonization strategies.

Summarizing the PACT Pathfinder Framework’s main guidelines to generate cradle-to-gate PCFs:

• If available/applicable, PCRs and sector-specific rules are to be prioritized over the PACT framework.
• The system boundary includes all upstream stages of the product lifecycle (i.e., cradle-to-gate), up to the reporting organization’s gate, excluding downstream emissions from product use and end of life.
• All GHGs are to be accounted for based on their respective Global Warming Potential and the result of the PCF shall be expressed in kg CO2e per unit product.
• Unless materially significant, manufacturing of production equipment, buildings and other capital goods, business travel, employee commuting, R&D activities, etc., are not included in the PCF.
• Any transportation (well-to-wheel) and storage (energy by storage unit) related emissions within the cradle-to-gate boundary are to be included in the PCF.
• Emissions released through the treatment of waste generated during production are also to be included in the PCF.
• Biogenic emissions and removals will need to be included from 2025 onward.
• Exclusions and allocations:
  • If the share of emissions for an activity is below 1%, the emissions from this activity can be excluded following a sensitivity analysis.
  • If a process generates more than one product, allocations may need to be applied.
• Data quality considerations:
  • Activity data needs to be organization-specific.
  • Proxy data can be used to bridge minor data gaps while primary data are preferred.
  • The framework defines two metrics to track, report, and refine data reliability: (i) indicating the share of primary data used in the PCF calculation, and (ii) generating a data quality assessment matrix with data quality ratings.
  • Verification through an independent third-party could become mandatory starting in 2025 to ensure limited assurance as the minimum degree of confidence. 

Taking into account these guidelines and principles, the cradle-to-gate PCF calculation is a step-by-step process:

1. Define the unit of analysis or declared unit which refers to a physical quantity of the product (e.g., 1 kg of product) and serves as the basis for data collection and PCF results (expressed as kg CO2e per declared unit).
2. Identify all attributable processes (i.e., any process steps, material inputs, energy usage, etc., that are part of the cradle-to-gate stages of the product) and collect primary activity data (e.g., purchased product components or raw materials, energy consumption data, other direct emissions). If not available, collect secondary data.
3. Collect primary emission factors if available or leverage secondary emission factor databases. If available, cradle-to-gate PCFs can be used as primary emission factors for any upstream activity data.
4. Calculate emissions associated with each activity data by multiplying the activity data with the corresponding emission factor.
5. Add up all emissions.
6. If applicable, such as in cases where coproducts are generated through the same manufacturing process: allocate emissions using physical and/or economic allocation methods by partitioning emissions among multiple outputs to calculate the PCF for the product in question.
7. Share the PCF with your supply chain.

Beyond PCF Calculations—Sharing PCF Data Across the Supply Chain

Creating Transparency, Procurement Choices and Opportunities for Supply Chain Decarbonization

• Operational risks: Product-level impact accounting supports (eco)innovation to help make informed, science-based decision-making related to value creation by anticipating possible threats to revenues that may be displaced by a more favorable product or process based on environmental concerns.
• Regulatory/litigation and reputational risks: When making non-science-based environmental claims about their products, companies can be accused of greenwashing.
• Compliance and stakeholder requirements: Accurate corporate and product-level emissions reporting feed into both mandatory and voluntary disclosures.
  
   

1. Ensure the organization has in-house or third-party resources and experience available to implement product-level GHG accounting related processes in alignment with accounting frameworks such as PACT.
2. Think about how an organization can expand the assessment from one single product to a whole product portfolio.
3. Ensure validation of PCFs through third-party verification.
4. Leverage PCF data for eco-innovation and process improvements.
5. Share and collaborate on PCF data with their customers to effectively improve Scope 3 emissions accounting. We recommend to not only do this once ahead of disclosure requirements, but as a continued effort to have time to innovate together in this evolving space.