Scope 3 calculation methods: Everything you need to know
The GHG Protocol outlines four recommended Scope 3 calculation methods. This article walks you through each of them, their advantages and disadvantages, and offers guidance on how you can increase your calculation accuracy over time.
What are the Scope 3 calculation methods?
The four methods outlined by the GHG Protocol can be used to calculate emissions for Scope 3 Category 1 (purchased good and services) and Category 2 (capital good). They are as follows:
Spend-based method — A combination of primary activity data on the amount spent on purchased products and secondary emission factors for purchased products per monetary value.
Average data (physical unit) method — A combination of primary activity data on the mass or quantity of purchased products and secondary emission factors for purchased products per unit.
Hybrid method — A combination of supplier-specific activity and emissions data and secondary data to fill gaps.
Supplier-specific method — A combination of primary activity data on the mass or quantity of purchased products from specific suppliers and primary product and supplier-specific emission factors per unit.
An important distinction between accuracy and specificity
Before we dissect these methodologies, we need to understand an important concept. When determining which method to use, the GHG Protocol states that preference should be given to methods that are more specific and accurate, particularly for more material purchases.
More specific assessments help you identify, implement and monitor emissions reduction measures that are specific to you and your supply chain.
More accurate assessments help ensure that your emissions data is correct and without errors, while also enabling you to more confidently and closely track the effects of the emissions reduction measures that you implement.
The spend-based method is generally the least specific and accurate of the four calculation methods. The supplier-specific and hybrid methods are generally the most specific, followed by the average data method; while the supplier-specific and average data methods are typically the most accurate, followed by the hybrid method.
This is an important distinction as you choose which calculation method is most appropriate and feasible to use. We’ll explore this concept more in the next section.
Which calculation method is right for your company?
Many factors will decide which of the scope 3 calculation methods are best suited to your company. Here we break down each method’s advantages and disadvantages:
Spend-based emission factors are typically very high level, representing the average emissions per dollar spent on products from a certain industry. The majority of companies that have achieved Scope 3 Cat. 1 and 2 benchmarks have done so using the spend-based method.
It’s popular because the data is comparatively easy to source and can be pulled directly from accounting software, which almost every company has. It also provides assessments that are complete and consistent – if not highly accurate or specific – so you can scale this approach without too much difficulty across your operations and supply chain and begin identifying carbon hotspots.
The ability to identify, analyse, and monitor emissions reduction efforts related to purchased products is inhibited when the spend-based method is employed. This is because the main way to reduce emissions when a spend-based method is used is to reduce spending (“buy less”); an option that is often simply not viable or not aligned with wider business goals.
The other three methods enable customers, to varying extents, to adopt and monitor reduction efforts based on the principle of “buy smart, not less”; i.e. purchase lower-emission products or use lower-emission suppliers. The other approaches are often much more practicable for businesses and add extra possibilities to their emissions reduction toolbox.
Average (physical unit) data method
The average data method seeks to plug some of the gaps in the spend approach. For example, with the spend-based approach, a laptop is just a laptop. It reflects the emissions of the electrical manufacturing industry overall. But the average data method allows us to measure the difference between a MacBook and a Chromebook, for example.
This is particularly important when you want to account for more sustainable options. If you buy a laptop that has been refurbished with second hand parts instead of a brand new laptop, of course the associated emissions should be lower. Spend-based wouldn’t reflect this, but the average data method would because it calculates emissions at a product level.
Emissions factors are also more accurate with physical units because we can use data from lifecycle assessment studies. Lifecycle assessment is an ISO standardised methodology widely recognised as being the most established standard for environmentally assessing products. With these more accurate inputs, you get more accurate outputs.
The issue with the average data method is that many companies don’t store information on the physical quantity of the goods that they buy. This means there often needs to be an overhaul in the way they track this information before they can even get started with this approach.
While this approach allows for more accurate emission factors, it doesn’t really matter if the company can only tell you they purchased 1000 metal rods, for example. If you don’t know what those rods are made of, you get none of the benefits in accuracy. This is one downside compared to the spend-based approach: the majority of companies don’t have the descriptive information available to scale this methodology across their operations.
This approach goes a step further than the previous two and incorporates emissions data from suppliers and allocates it to their products. This is typically limited to their Scope 1 and 2 emissions data at this stage because they’re the easiest to calculate and collect from external bodies.
The main advantage of the hybrid approach is that it is generally very specific (although not necessarily more accurate – as we mentioned earlier). By incorporating primary data from your suppliers, you can see results that are more reflective of your real carbon footprint than other methods. The hybrid approach is most useful when the supplier produces only one or very few products that are all quite similar, or where the intention for using the emission factor is to replace a generalised spend-based emission factor.
The downside of this approach is that it can lead to misleading, inaccurate results. For example, let’s say a company produces two equally weighted plastic products, one made with 100% recycled granulate and one with 100% virgin granulate. We have this company’s Scope 1 and 2 data so we allocate that to all of their products.
The company sells two times as much recycled product than virgin product, so 66% of the company’s total emissions are allocated to the recycled product. The resulting “hybrid method” emission factor shows that the recycled product is two times worse performing than the virgin product.
Logically, this is nonsensical: the recycled product should have significantly lower emissions than the virgin product, based on the embodied emissions of the raw materials. But the hybrid method can obscure this fact.
While the hybrid method is generally very specific, it can be even less accurate than the average data method, for which emission factors are produced for specific products following ISO standards. This is why using it with the right suppliers is key.
The supplier-specific method is highly accurate and obviously highly specific to a company’s supply chain. It is the pinnacle of the calculation hierarchy and is only used by the most advanced companies in this space.
While there are companies capable of doing the supplier-specific method, there aren’t many at this stage yet. This is largely because you don’t just collect data points from your suppliers, you also need to do product footprinting – which consultants charge a lot of money to do. This creates a high barrier to entry for most companies and makes this approach very hard to scale in the short term.
Case study: Ikea
Since it’s relatively rare, taking a look at advanced companies that are capable of the supplier-specific method can reveal why they’ve been so successful.
Ikea is a good example of this. Their sustainability team has been around for 15/20 years and they’re considered a frontrunner in carbon accounting and lifecycle assessment.
Ikea collects GHG data from not just their Tier 1 suppliers, but also their Tier 2 suppliers. For Tier 1, they even help them set reduction targets.
Their success at this approach is down to their supplier engagement strategy. They recognise that data collection is not the sole goal of this relationship. They also help their suppliers establish and monitor their own sustainability initiatives. This creates a relationship that is more effective at making emissions reductions because it goes beyond a one way request for data.
Learn more about Ikea’s sustainability initiatives.
How do you improve data accuracy in your calculations over time?
Many companies want to jump head first into the supplier-specific method, but that just isn’t possible straight off the bat. It can take months, even years, to establish the relationships and processes needed to collect the right data from your suppliers.
The central challenge is that a sustainability team needs to balance carbon accounting with supply chain engagement. Carbon accounting is typically so time-consuming that the majority of sustainability teams don’t have the capacity to effectively engage their suppliers.
A software solution like Emitwise can help automate many parts of carbon accounting using the data you currently have available, allowing you to spend more time on supply chain engagement. This will give you a complete baseline that you can input supplier-specific data to over time in order to move up the calculation hierarchy.
Ultimately, waiting to engage with suppliers is a mistake. No matter which methodology you use now, you should be reaching out and working with your Tier 1 suppliers as soon as possible. This will lay the groundwork for you to progress towards supplier-specific calculations, and ultimately more accurate carbon accounting.