6.5 Allocating Emissions
6.5.1 Overview and Need for Allocation
Scope 3 Standard, Chapter 8, “Allocating Emissions,” Pages 87–88
8.1 Overview of Allocation
When companies use primary data from suppliers or other
value chain partners to calculate scope 3 emissions . .
. , companies may need to allocate emissions. Likewise,
companies may need to allocate emissions when providing
primary data to customers that are accounting for their
scope 3 emissions.
Allocation is the process of partitioning GHG emissions
from a single facility or other system (e.g., activity,
vehicle, production line, business unit, etc.) among its
various outputs . . . .
When Allocation Is Needed
Allocation is necessary when:
-
a single facility or other system produces multiple outputs; and
-
emissions are only quantified for the entire facility or system as a whole. . . .
When Allocation Is Not Needed
When using primary data, allocation is not necessary if:
-
a facility or other system produces only one output; or
-
emissions from producing each output are separately quantified.
Allocation is not typically necessary when using
secondary data to calculate scope 3 emissions, since the
activity data and emission factors are typically in
reference to a single product (e.g., calculating
emissions from third-party transportation by multiplying
weight-distance traveled by an emission factor).
8.2 Avoid or Minimize Allocation if Possible
When using primary data to calculate scope 3 emissions,
companies should avoid or minimize allocation if
possible. Allocation adds uncertainty to the emissions
estimates and may be especially inaccurate when an
activity or facility produces a wide variety of products
that differ significantly in their GHG contribution. . .
.
Companies should avoid or minimize allocation by
collecting more detailed data through one of the
following approaches:
-
Obtaining product-level GHG data from value chain partners following the GHG Protocol Product Standard
-
Separately sub-metering energy use and other activity data (e.g., at the production line level)
-
Using engineering models to separately estimate emissions related to each product produced.
[Footnotes omitted]
In accordance with the Scope 3 Standard, a company may need to allocate Scope 3
emissions from a single facility or other system among the system’s various
outputs (e.g., product, waste) when the company:
-
Calculates Scope 3 emissions on the basis of primary data it received from its suppliers or other value chain partners.
-
Provides primary data to customers that are accounting for their Scope 3 emissions by using the supplier allocation approach (see Section 6.5.2.3 for discussion of that approach).
For example, if a manufacturing company has a single facility
that produces multiple outputs, and the primary data received from a supplier
were used to calculate emissions for the facility as a whole, the company would
need to allocate the emissions among the various outputs the facility produces.
The allocation of emissions among a facility’s outputs is illustrated in the
graphic below, which is reproduced from Figure 8.1 of the Scope 3 Standard.
Scope 3 Standard, Chapter 8, “Allocating Emissions,” Page
88 (Page 87 in E-Reader Version)
8.1 Overview of Allocation . . .
Figure 8.1 The Need for Allocation
Allocation would not be applicable when:
-
The facility produces only one output.
-
The Scope 3 emissions from producing each output are independently quantified.
-
The company uses secondary data to calculate Scope 3 emissions. This is because the data and emission factors in such a case are typically related to a single output (e.g., when a package delivery company calculates Scope 3 emissions from a third-party outsourced delivery contractor by multiplying weight and distance traveled by an emission factor).
Since allocating Scope 3 emissions among various outputs adds uncertainty to the
emission estimates, the Scope 3 Standard encourages companies to avoid or at
least minimize the need for such allocation by doing one of the following:
-
“Obtaining product-level GHG data from value chain partners.”
-
“Separately sub-metering energy use and other activity data.”
-
“Using engineering models to separately estimate emissions related to each product produced.”
6.5.2 Allocation Methods
6.5.2.1 Overview
Scope 3 Standard, Chapter 8, “Allocating Emissions,”
Pages 88–90 (Pages 88–91 in E-Reader Version)
8.3 Allocation Methods
If avoiding allocation is not possible, companies
should first determine total facility or system
emissions, then determine the most appropriate
method and factor for allocating emissions. (See
table 8.1 [see Section
6.5.2.4] for a list of allocation
methods and factors.)
As a general rule, companies should follow the
decision tree in figure 8.2 [adapted version
included below] when deciding if allocation is
needed and selecting an allocation method. However,
the most appropriate allocation method for a given
activity depends on individual circumstances (see
section 8.4 [see Section
6.5.2.4] for examples). Companies
should select the allocation approach that:
-
best reflects the causal relationship between the production of the outputs and the resulting emissions;
-
results in the most accurate and credible emissions estimates;
-
best supports effective decision-making and GHG reduction activities; and
-
otherwise adheres to the principles of relevance, accuracy, completeness, consistency and transparency.
Different allocation methods may yield significantly
different results. Companies that have a choice
between multiple methods for a given activity should
evaluate each method to determine the range of
possible results before selecting a single method
(e.g., conduct a sensitivity analysis).
Companies may use a combination of different
allocation methods and factors to estimate emissions
from the various activities in the scope 3
inventory. However, for each individual facility or
system, a single, consistent allocation factor
should be used to allocate emissions throughout the
facility or system. The sum of the allocated
emissions for each output of a system should equal
100 percent of emissions from the system. The use of
multiple allocation methods for a single system can
result in over-counting or under-counting of total
emissions from the system. . . .
Companies are required to report a description of the
allocation methods used to calculate scope 3
emissions (see chapter 11 [Section 6.7]). Where
applicable, companies should disclose the range of
results obtained through sensitivity analysis.
No Allocation for Waste Generated in Production
(e.g., Within Category 1, Category 2, and Category
10)
Waste is an output of a system that has no market
value. While companies generate revenue through the
sale of co-products, companies receive no revenue
from waste and may instead pay to dispose of it.
Waste may be generated from production processes
included in category 1 (Purchased goods and
services), category 2 (Capital goods), or category
10 (Processing of sold products). If a facility
produces waste during production, no emissions from
the facility should be allocated to the waste. All
emissions from the facility should instead be
allocated among the facility’s other outputs. If
waste becomes useful and marketable for use in
another system, it is no longer considered waste and
should be treated like other types of outputs.
The preceding guidance does not apply to category 5
(Waste generated in operations) or category 12
(End-of-life treatment of sold products). Companies
should account for all emissions related to waste
within category 5 and category 12.
To determine whether and, if
so, how to allocate Scope 3 emissions, companies are generally advised to
perform the steps outlined in the decision tree below, which is adapted from
Figure 8.2 of the Scope 3 Standard.
Since the most appropriate allocation method ultimately depends on a
company’s specific facts and circumstances, companies may sometimes need to
choose an allocation method that deviates from the results of the steps
outlined in the decision tree above. As the Scope 3 Standard observes, it is
important for companies to select an allocation approach that:
-
“[B]est reflects the causal relationship between the production of the outputs and the resulting emissions.”
-
“[R]esults in the most accurate and credible emissions estimates.”
-
“[B]est supports effective decision-making and GHG reduction activities.”
-
“[O]therwise adheres to the principles of relevance, accuracy, completeness, consistency and transparency.”
Each allocation method may yield significantly different emission results for
companies. For companies that can choose from among multiple allocation
methods for a given activity, the Scope 3 Standard recommends calculating
emissions under each method to determine the range of possible outcomes
before selecting a single method. That is, the Scope 3 Standard encourages
such companies to perform sensitivity analyses to determine how their
emission calculations would change if one allocation method were selected
over another. It also recommends that companies disclose in their GHG
reports the range of results obtained from any sensitivity analysis
performed. In addition, it requires companies to disclose in their GHG
reports a description of each allocation method they used to calculate Scope
3 emissions.
Although the Scope 3 Standard allows companies to use a combination of
allocation methods to calculate emissions related to the various activities
in their Scope 3 inventory, it recommends using a single and consistent
allocation method to allocate emissions throughout an individual facility.
This is because the sum of all emissions allocated among a facility’s
outputs are supposed to equal 100 percent of the emissions from the
facility, and the use of multiple allocation methods for a single facility
could result in the overcounting or undercounting of total emissions from
the facility.
Under the Scope 3 Standard,
companies would calculate emissions from a facility by using the following
formula:
In the above formula, the reporting company’s purchases from the facility and
the total facility production would be measured in the same units (e.g.,
mass, volume, market value, number of products). Further, it is important to
note that this formula would be used under both the supplier allocation
approach and the reporting company allocation approach, which are discussed
in Section 6.5.2.3.
6.5.2.2 Waste Generated in Production
Under the Scope 3 Standard, companies are advised against
allocating any Scope 3 emissions from a facility to waste generated from
production processes in Category 1 (purchased goods and services), Category
2 (capital goods), or Category 10 (processing of sold products). Instead,
allocation to the facility’s other outputs is recommended. However,
companies would allocate Scope 3 emissions to outputs that were formerly
waste but are now useful and marketable.
Notwithstanding the above, companies would allocate Scope 3 emissions to
waste in Category 5 (waste generated in operations) and Category 12
(end-of-life treatment of sold products).
6.5.2.3 Allocation of Emissions From Suppliers
Scope 3 Standard, Chapter 8,
“Allocating Emissions,” Page 90 (Page 91 in E-Reader
Version)
8.3 Allocation Methods . .
.
Box 8.2 Two
Approaches to Allocating GHG Emissions From
Suppliers
Companies may use two basic approaches for collecting
and allocating GHG emissions from suppliers:
-
Supplier allocation: Individual suppliers report pre-allocated emissions data to the reporting company and disclose the allocation metric used
-
Reporting company allocation: The reporting company allocates supplier emissions by obtaining two types of data from individual suppliers: 1) total supplier GHG emissions data (e.g., at the facility or business unit level), and 2) the reporting company’s share of the supplier’s total production, based on either physical factors (e.g., units of production, mass, volume, or other metrics) or economic factors (e.g., revenue, spend)
Reporting company allocation is likely to ensure more
consistency in methodologies for the reporting
company, while the supplier allocation approach may
be more practical by avoiding the need for suppliers
to report confidential business information.
As noted in the excerpt above, reporting companies may apply either the
supplier allocation approach or the reporting company allocation approach to
allocate GHG emissions from their suppliers. Under the supplier allocation
approach, reporting companies use allocation metrics of their suppliers’
choosing. This approach enables suppliers to furnish emission calculation
data to their customers without divulging information they regard as
confidential. Under the reporting company allocation approach, by contrast,
reporting companies independently choose the allocation method (physical
allocation or economic allocation, depending on the specific facts and
circumstances) and obtain the data they need to apply their selected method.
By allowing reporting companies to choose their own allocation method
instead of requiring them to use suppliers’ disparate allocation methods,
the reporting company allocation approach tends to result in more consistent
application of allocation methods.
6.5.2.4 Physical Allocation
Scope 3 Standard, Chapter 8,
“Allocating Emissions,” Pages 92–94 (Pages 93–95 in
E-Reader Version)
8.4 Examples of Allocating
Emissions . . .
Using Physical Allocation
Physical allocation is expected to yield more
representative emissions estimates in several
situations, outlined below.
Manufacturing
In certain cases, manufacturing facilities may
produce multiple products, each of which requires
similar energy and material inputs to produce, but
which differ significantly in market value (e.g.,
due to higher brand value of one product than
another). While the market value of the products
differs, the physical quantity of emissions
resulting from the production of each product is
similar.
In such a case, physical factors are more closely
correlated with emissions and better approximate
actual emissions associated with producing each
product. Companies should select the physical factor
that most closely correlates to emissions, which may
include units of production, mass, volume, energy,
or other metrics. Companies should consider multiple
physical factors when selecting the factor that is
most appropriate.
Transportation
Allocating emissions from the transportation of cargo
(or freight) occurs when:
-
a single vehicle (e.g., ship, aircraft, train, or truck) transports multiple products;
-
activity data (e.g., fuel use) is collected at the vehicle level; and
-
a company chooses to estimate emissions by allocating total vehicle emissions to one or more of the products shipped.
Companies should allocate emissions using physical
allocation, since physical factors are expected to
best reflect the causal relationship between the
transportation of products and the resulting
emissions. Companies should allocate using either
weight, volume, or a combination of weight and
volume, depending on whether the capacity of the
vehicle is limited by weight, volume, or a
combination of the two. The limiting factor depends
on the mode of transportation (road, rail, air, or
marine transport). For example, ocean-going vessels
tend to be limited by volume, while trucks tend to
be limited by weight.
Companies may also calculate emissions without
allocating emissions by using secondary data (e.g.,
industry-average emission factors based on metric
ton-km traveled).
Commercial Buildings (e.g., Leases Assets,
Franchises)
Commercial buildings include retail facilities,
warehouses, distribution centers, and owned or
leased office buildings. Allocating emissions from
commercial buildings occurs when:
-
activity data is collected at the facility/building level; and
-
a company chooses to estimate emissions for a subset of products by allocating total facility emissions to one or more products located at the facility.
Companies should allocate emissions using physical
allocation, since physical factors are expected to
best reflect the causal relationship between the
storage of products and the resulting emissions.
Companies should allocate using either volume or
area, depending on whether the capacity of the
facility is limited by volume or area, and which is
most closely correlated with energy use and
emissions.
For example, to allocate emissions from a retail
facility, a company may divide total facility
emissions by the relative volume (e.g., quantity of
shelf space) occupied by a given product within a
retail facility.
Companies should obtain more accurate estimates by
first separating total facility energy use and total
quantity of products sold between refrigerated
storage and nonrefrigerated storage. Where the same
product is stacked on pallets or shelves, companies
may divide emissions per unit of volume or floor
space by the total number of products occupying that
area to determine emissions per unit of product.
Companies may also calculate emissions from retail
and warehousing without allocating emissions by
using secondary data (e.g., industry average
emission factors expressed in units of emissions per
volume or floor space).
Physical allocation refers to the allocation of emissions on the basis of an
underlying physical relationship between the multiple inputs and outputs and
the quantity of emissions generated. When using this allocation method, the
reporting company selects the physical allocation factor that is most
closely related to the emissions. The table below, which is reproduced from
a portion of the Scope 3 Standard’s Table 8.1, lists types of physical
allocation factors and highlights formulas containing examples of such
factors.
Scope 3 Standard, Chapter 8, “Allocating Emissions,”
Page 91 (Page 90 in E-Reader Version)
Table 8.1 Allocation Methods and Factors
Physical Allocation: Allocating the Emissions
of an Activity Based on an Underlying Physical
Relationship Between the Multiple Inputs/Outputs
and the Quantity of Emissions Generated
. . .
To better understand how the
table above can be used, suppose that a reporting company is allocating
Scope 3 emissions in Category 3 (fuel- and energy-related activities) by
using actual energy data (i.e., primary data) received from a supplier. In
such a case, the reporting company can use the energy factor listed in the
table (i.e., energy content of heat and electricity co-products) to allocate
emissions generated at the supplier’s facility to the purchased products as
follows:
Application of the physical allocation method is further illustrated in the
example below.
Example 6-7
Company A, a clothing retailer, collects primary data
for upstream purchased goods and services from a
representative sample of its suppliers. These
suppliers include fabric mills (which make fabric
from cotton fiber) and garment manufacturers (which
assemble and finish final products). Company A
determines that Scope 3 emissions must be allocated
to the purchased products because both types of
suppliers provide aggregated data at the facility
level on total material and energy use, facility
production amount, and waste streams for their full
annual productions.
Company A allocates emissions from
fabric mills by using product mass, since mass is
one of the main measurable factors of material and
energy inputs during the milling process and best
reflects the underlying relationship between
production and emissions. It performs the allocation
as follows:
Company A allocates emissions
associated with the garment manufacturers by using
the number of products produced at a facility, since
assembly and finishing are similar across a variety
of products and emissions per product are expected
to be similar. It performs the allocation as
follows:
Emissions per product for A can be reasonably
calculated by dividing total facility emissions by
facility output, since both types of suppliers
produce relatively similar outputs (i.e., apparel
products). Emissions per product are multiplied by
the total number of units purchased by A (per
facility) to determine total Scope 3 emissions
attributable to A.
Compared with emission estimates calculated under the economic allocation
method (which is discussed in Section
6.5.2.5), those calculated under the physical allocation
method are likely to be more precise in certain scenarios, such as those in
which:
-
A manufacturing facility’s products of the same type (e.g., cars) are produced by means of similar energy and material inputs but differ significantly in market value (e.g., because one product is a high-end brand while another is an economy brand). In this scenario, production of the separate products generates similar levels of emissions even though the products have different market values.
-
A single vehicle transports multiple products, activity data are collected at the vehicle level, and a company estimates emissions by allocating total vehicle emissions to one or more of the products shipped. In this type of scenario, companies are encouraged to allocate emissions on the basis of weight, volume, or both, depending on the form of transportation. For example, goods conveyed by ship tend to be measured by volume, whereas goods conveyed by truck tend to be measured by weight.
-
A company is allocating emissions from a commercial facility (e.g., a retail store, warehouse, distribution center, or owned or leased office building), activity data are collected at the facility level, and, as stated in the Scope 3 Standard, the “company chooses to estimate emissions for a subset of products by allocating total facility emissions to one or more products located at the facility.” In this type of scenario, a company is encouraged to allocate emissions on the basis of volume or area, depending on how the facility’s capacity is measured. For example, the Scope 3 Standard permits a company to allocate emissions from a retail store by dividing “total facility emissions by the relative volume (e.g., quantity of shelf space) occupied by a given product within [that] facility.”
6.5.2.5 Economic Allocation
Scope 3 Standard, Chapter 8,
“Allocating Emissions,” Page 95 (Page 97 in E-Reader
Version)
8.4 Examples of Allocating
Emissions . . .
Using Economic Allocation
Economic allocation is expected to yield more
representative emissions estimates in certain
situations, such as:
-
when a physical relationship cannot be established;
-
when a co-product would not be produced by the common facility or system without the market demand for the primary product and/or other valuable co-products (e.g., by-catch from lobster harvesting);
-
when a co-product was previously a waste output that acquires value in the marketplace as a replacement for another product (e.g., fly ash in cement production);
-
investments, where emissions should be allocated to the reporting company based on the reporting company’s proportional share of equity or debt in the investee (see section 5.5, category 15); and
-
other situations where economic allocation best reflects the causal relationship between the production of the outputs and the resulting emissions.
In situations other than those outlined above,
companies should use economic allocation with
caution, since economic allocation may yield
misleading GHG estimates, especially when:
-
prices change significantly or frequently over time;
-
companies pay different prices for the same product (due to different negotiated prices); or
-
prices are not well-correlated with underlying physical properties and GHG emissions (e.g., for luxury goods, products with high brand value, and products whose price reflects high research and development, marketing, or other costs, apart from production).
Economic allocation refers
to the allocation of emissions on the basis of the market value of each
output. The formula used to allocate Scope 3 emissions under this method is
as follows:
Application of the economic allocation method is further illustrated in the
example below.
Example 6-8
A lobster fishing company catches a product (i.e.,
lobsters for consumer purchase) and co-product
(i.e., crabs that may also be inadvertently caught).
Since the co-product would not be kept by the
lobster fishing company without a market demand for
the primary product and/or other valuable
co-products, the economic allocation method would
yield more precise emission calculations than the
physical allocation method. Therefore, a reporting
company that purchases the lobster fishing company’s
product, co-product, or both would use the economic
allocation method to allocate Scope 3 emissions from
the lobster fishing company’s facility as follows:
The Scope 3 Standard indicates that compared with emission estimates
calculated under the physical allocation method, those calculated under the
economic allocation method are likely to be more precise when “economic
allocation best reflects the causal relationship between the production of
the outputs and the resulting emissions.” However, the Scope 3 Standard
warns that estimates calculated under the economic allocation method may be
misleading in certain cases, particularly when (1) “prices change
significantly or frequently over time,” (2) “companies pay different prices
for the same product (due to different negotiated prices),” and (3) “prices
are not well-correlated with underlying physical properties and GHG
emissions.”
6.5.2.6 Allocation Guidance by Scope 3 Category
According to the Scope 3 Standard, “[t]he most appropriate allocation method
for a given activity is the one that best reflects the underlying
relationship between the production of the product and the resulting
emissions.” Accordingly, a reporting company is encouraged to create a
consistent emission allocation policy for each Scope 3 category reflected in
its value chain. The table below, which is adapted from Table 8.2 of the
Scope 3 Standard, provides guidance for companies on choosing an allocation
method for each Scope 3 category.
Table 6-8 Allocation
Guidance by Scope 3 Category
|
Scope 3 Category
|
Examples of Primary Data Requiring Allocation
|
Allocation Guidance
|
|---|---|---|
|
1. Purchased goods and services
|
Site-specific energy use or emission data from
suppliers
|
Physical or economic allocation
|
|
2. Capital goods
|
Site-specific energy use or emission data from
capital goods suppliers
|
Physical or economic allocation
|
|
3. Fuel- and energy-related activities
|
|
Physical allocation (energy)
|
|
4. Upstream transportation and distribution
|
Activity-specific energy use or emission data from
third-party transportation and distribution
suppliers
|
|
|
5. Waste generated in operations
|
Site-specific emission data from waste management
companies
|
Physical or economic allocation
|
|
6. Business travel
|
Activity-specific emission data from transportation
suppliers (e.g., airlines)
|
Physical allocation for shared vehicles (e.g., area
occupied)
|
|
7. Employee commuting
|
Specific distance traveled and mode of transport
collected from employees
|
Physical allocation for shared vehicles (e.g., area
occupied)
|
|
8. Upstream leased assets
|
Site-specific energy use data collected by utility
bills or meters
|
Physical allocation for shared facilities (e.g., area
or volume)
|
|
9. Downstream transportation and distribution
|
Activity-specific energy use or emission data from
third party transportation and distribution
partners
|
|
|
10. Processing of sold products
|
Site-specific energy use or emission data from
downstream value chain partners
|
Physical or economic allocation
|
|
11. Use of sold products
|
Specific data collected from consumers
|
Physical allocation when applicable
|
|
12. End-of-life treatment of sold products
|
Specific data collected from waste management
providers on emission rates or energy use
|
Physical allocation when applicable
|
|
13. Downstream leased assets
|
Site-specific energy use data collected by utility
bills or meters
|
Physical allocation for shared facilities (e.g.,
volume or area)
|
|
14. Franchises
|
Site-specific energy use data collected by utility
bills or meters
|
Physical allocation for shared facilities (e.g.,
volume or area)
|
|
15. Investments
|
Site-specific energy use or emission data
|
Economic allocation based on the company’s
proportional share of equity or debt in the
investee
|
The example below illustrates the selection of allocation methods for
particular activities in a value chain.
Example 6-9
Company A is a chicken production company that
produces a product (i.e., chickens for consumer
purchase) and co-product (i.e., chicken by-product).
Company B is a transportation company that
transports the chicken by-product to Company C,
which is a pet food manufacturing company that uses
the chicken by-product from A in its production
process.
The following three activities are in the value
chains of A and C:
-
Activity 1 — Production of co-products by A.
-
Activity 2 — Transportation of co-products by B (paid for by B).
-
Activity 3 — Consumption of co-products by C.
The table below reflects (1) A’s and C’s respective
conclusions about which scopes are represented by
the above activities and (2) the best allocation
method for each activity.
|
Activity
|
Company A Reporting/Allocation
|
Company C Reporting/Allocation
|
|---|---|---|
|
1
|
|
|
|
2
|
|
|
|
3
|
|
|
See Table 6-8
for additional guidance on the allocation of
emissions by Scope 3 category.