Summary: This is an extract of Chapter 8. This chapter provides guidance on allocating emissions to calculate scope 3 emissions, including:
- Overview of allocation (section 8.1)
- How to avoid or minimize allocation, if possible (section 8.2)
- Allocation methods (section 8.3)
- Examples of allocating emissions (section 8.4)
8.1 Overview of allocation
When companies use primary data from suppliers or other value chain partners to calculate scope 3 emissions (see section 7.4), 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 (see figure 8.1).
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.
In such a case, emissions from the shared facility or other system need to be allocated to (or divided between) the various outputs (see figure 8.1).
For example, a single production facility may produce many different products and co-products, while activity data (used to calculate GHG emissions) is collected for the plant as a whole. In this case, the facility’s energy use and emissions need to be allocated to its various outputs.
Similarly, a company may purchase components from a supplier that manufactures a wide variety of products for many different customers. In this case, the supplier’s activity data or emissions data need to be allocated among the various products so its customers know the emissions attributable to the specific products they buy, based on the fraction of total supplier production that is related to the customer’s purchases.
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.
For example, a supplier may manufacture twenty different types of products and only supply one type of product to the reporting company. Allocating the scope 1 and scope 2 emissions of the supplier would be inaccurate if the type of good supplied to the reporting company has a lower or higher emissions intensity than the average emissions intensity of the twenty products manufactured by the supplier. Therefore, allocation should be used only when more accurate data is not available.
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 2
- Separately sub-metering energy use and other activity data (e.g., at the production line level)3
- Using engineering models to separately estimate emissions related to each product produced4
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 for a list of allocation methods and factors.)
As a general rule, companies should follow the decision tree in figure 8.2 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 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
Companies are required to report a description of the allocation methods used to calculate scope 3 emissions (see chapter 11). 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 coproducts, 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.
Figure [8.2] Decision tree for selecting an allocation approach
Table [8.1]: Allocation methods and factors.
8.4 Examples of allocating emissions
This section provides examples and guidance for determining the most appropriate allocation method to use for various situations. The most appropriate method for a given activity is the one that best reflects the causal relationship between the production of the product and the resulting emissions, and depends on individual circumstances. Companies should establish a consistent policy for allocating emissions for various activities in the value chain. Table 8.2 provides guidance on choosing allocation methods for each scope 3 category.
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., leased 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 non- refrigerated 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).
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).
