As climate regulations increase, more businesses face an imperative to accurately measure and report their carbon emissions. The critical and most perplexing choice in carbon accounting is selecting the right emission factor.
This choice directly affects not only the accuracy of emissions data but also the reliability of sustainability efforts. The first challenge for companies lies in sourcing up-to-date and reliable emission factors, a task complicated by varying calculation methodologies and data sources worldwide. Unit-based methods should be prioritised over spend-based, but as this can often take a lot more effort and time, when is it best to use spend-based? And when does the precision of the unit-based method matter most?
Emission factors (EFs) act as coefficients, representing the rate at which specific activities release greenhouse gases (GHGs) into the atmosphere. For example, the emission factor for burning a liter of diesel might state that each liter burned emits 2.707 kg of CO₂e per litre. By multiplying these factors with activity data—like fuel consumed or goods produced—companies calculate the emissions associated with their operations. According to the Greenhouse Gas Management Institute, emission factors are essential inputs for carbon accounting, with unit-based factors providing more precise measurements by relating emissions to specific activities or materials.
While emission factors might appear as minor coefficients, their impact can be anything but. A seemingly small variation in the emission factor, when multiplied across an organization’s wide range of activities, can result in significant discrepancies in the final carbon count. For medium-sized companies spending substantial sums on carbon-intensive activities, these differences can lead to considerable inconsistencies in emissions reporting, ultimately affecting the company’s ability to meet sustainability goals.
Unit-based emission factors are specific and granular, calculated by physical units, such as tons of raw material, litres of fuel, or hours of machinery use. By focusing on the precise units involved in each process, this method allows for detailed tracking of emissions at a source level.
Spend-based emission factors, on the other hand, calculate emissions based on the financial spend associated with various activities. These factors are generally derived from industry averages, offering a more approximate estimate by focusing on dollars spent rather than the actual units of activity. However, PwC highlights that spend-based modeling relies on industry-average emission factors and may not reflect the actual emissions footprint of a company, potentially leading to inaccuracies in ESG reporting.
The primary distinction is granularity. Unit-based emission factors provide a more direct measurement, while spend-based factors, relying on financial proxies, often generalize emissions across activities. This difference in specificity is critical in understanding the real environmental footprint of a business.
Unit-based factors calculate emissions by specific physical metrics. For instance, emissions for a steel plant could be measured per ton of steel produced, offering insights into emissions efficiency at a granular level. This approach is often more adaptable to different business sizes and types.
Imagine a clothing company purchasing cotton for its line of apparel. Using a spend-based emission factor, the company estimates emissions based on the dollar amount spent on cotton, without looking at specific farming or processing practices. However, the emissions tied to each dollar of cotton spent can vary widely depending on where the cotton is sourced, due to regional differences in farming practices, water usage, and energy sources.
If the clothing manufacturer uses a standard spend-based emission factor without accounting for these geographical differences, it may underestimate or overestimate the true emissions associated with its cotton sourcing. By considering these specific contexts, the company could achieve a more accurate carbon footprint for its supply chain.
In agriculture, emissions might be tracked per acre of land; in transport, per vehicle mile. Each industry benefits from the tailored approach of unit-based factors, providing a clearer picture of emissions and opportunities for reduction specific to each activity type. A study published in the journal Atmospheric Chemistry and Physics demonstrated how unit-based emission inventories improved accuracy in air quality modeling, reinforcing the benefits of specificity.
Spend-based emission factors use financial expenditure as a proxy, often developed by industry-wide averages. For example, the emissions factor for hotel stays might generalize the emissions per dollar spent on lodging, offering a less tailored calculation.
One significant drawback is that spend-based factors lack flexibility and granularity. They may overlook regional variations in carbon intensity or the emissions profile of specific suppliers, leading to broad estimates rather than precise measurements.
Because spend-based factors generalize emissions, they fail to account for unique operational variations within a company. For example, your organisation’s efforts to choose more sustainable suppliers will not be reflected in your carbon accounting.
Reliable emissions data strengthens ESG goals, allowing businesses to track progress against established benchmarks. When reporting is precise, organisations can confidently pursue carbon reduction with measurable impact.
With global regulatory bodies beginning to scrunitise emissions claims, inaccuracies could lead to penalties, investor skepticism, or reputational damage. Effective carbon accounting helps ensure that sustainability commitments are authentic and credible.
Flawed emissions data distorts progress, making it difficult to establish meaningful reduction targets. Accuracy here not only strengthens internal initiatives but builds external trust with stakeholders.
Unit-based methods allow companies to report with precision, tailored to specific industry needs. This approach ensures that reported figures more closely represent real emissions.
Unit-based tracking pinpoints exact emissions from each source, be it fuel, electricity, or raw materials, enabling companies to identify areas for immediate improvement.
Unit-based factors allow for consistency, as they focus on physical quantities rather than fluctuating expenditures, which can distort data over time.
Many international bodies recommend unit-based emission tracking for its accuracy. This method aligns with the reporting requirements of frameworks like the Greenhouse Gas Protocol, ISO standards, and TCFD guidelines.
Regulations increasingly demand granular data, which unit-based factors deliver. This approach offers businesses a streamlined path to compliance.
Verified reductions, critical for carbon offset credits, rely on reliable emissions data. Unit-based factors provide the precision needed to confirm these reductions.
Unit-based factors integrate seamlessly with real-time tracking tools, enabling businesses to monitor emissions as activities occur.
Collecting live data improves responsiveness, allowing businesses to make adjustments on-the-fly to reduce emissions.
Real-time insights empower companies to manage emissions proactively, rather than retroactively, significantly enhancing sustainability strategies.
By using unit-based data, companies can track emissions from supplier to end-user, enabling full transparency and more efficient supply chain management.
Supplier-specific emission tracking encourages accountability and fosters sustainable practices throughout the supply chain.
Accurate data allows businesses to target and reach net-zero goals with clarity, tracking each reduction with certainty.
Unit-based factors provide the reliable data needed to monitor reductions and guide effective decarbonisation strategies.
To combat climate change effectively, companies need precise data, which unit-based factors provide, laying a foundation for future resilience.
Spend-based emission factors offer companies a relatively simple way to begin estimating emissions, especially when data availability or tracking capabilities are limited. They provide a practical baseline that can highlight high-impact areas within a supply chain. By starting with spend-based measurements, companies can identify emission hotspots and prioritize areas for improvement, creating a foundation to build upon as they transition to more precise, activity- or unit-based tracking.
Transitioning involves establishing baseline data, sourcing accurate emission factors, and adopting relevant tracking tools.
With the right carbon accounting software, companies can process complex data efficiently, extracting granular insights that enable the application of unit-based emission factors. Advanced tools can automate data collection and analysis, making it feasible to apply unit-based factors across even the most detailed activities within an organization’s operations and supply chain. While the extent of this granularity can vary by industry and data availability, many companies find that comprehensive software solutions allow them to fully integrate unit-based tracking into their sustainability strategy, significantly enhancing precision and accuracy.
Technological advancements make unit-based tracking easier and more accessible, driving adoption. Government policies increasingly mandate precise data, accelerating the shift towards unit-based factors.
With the stakes higher than ever, businesses must embrace unit-based factors for accurate, actionable data. The shift to unit-based tracking strengthens sustainability goals and ensures that reported reductions are real, verifiable, and aligned with global standards.
Using software can significantly increase the ease of using unit-based emission factors.