Why switching to a better supply-chain model can cause emissions estimates to spike
U.S. companies that rely on a widely used but crude method for calculating Scope 3 inventories should prepare to see double-digit increases in supply-chain emissions estimates when switching to a more sophisticated version of the process, according to a recent study.
Difficulties in obtaining primary data from suppliers often prompt companies to employ spend-based models, which use emissions factors to convert the amount spent on a product into an audit-friendly estimate of the emissions associated with that purchase.
The factors vary widely depending on the model, however. Many models contain emission factors based on a single country. A single-region model based on U.S. data, for example, effectively assumes that everything in a company’s supply chain was manufactured in the U.S. And because goods manufactured outside North America often result in higher emissions, Scope 3 estimates can leap when regional differences are taken in account.
“We’re putting a false ‘made in the U.S. sticker’ on every product and hiding the real story,” said Yohanna Maldonado, an author on the study and head of climate data at Watershed, a carbon accounting firm.
Global data
To increase accuracy, companies can switch to multiregional models that account for local emission intensities. Working with researchers at Stanford University, the WWF and CDP, Maldonado and her Watershed colleagues found that the total upstream emissions of around 5,400 companies that reported revenues to CDP in 2023 jumped by 2 billion tons of carbon dioxide when a multi-region was used. Their study was published last month in Nature Communications.
How this headline figure applies to individual companies is challenging to determine, in part because few companies disclose details of the models they use. But the problem appears to be widespread: Three-quarters of companies that did disclose details said they used a single-region approach.
Companies that import significant quantities of steel, fertilizer and other emission-intensive products are likely to see the biggest jump when moving to a multi-regional model. Maldonado said increases of 20 to 40 percent are typical among the Watershed clients that have made the switch.
In addition to the misleading Scope 3 numbers, single-region models also hamper companies’ ability to identify potential emission reductions, noted Maldonado. She cited the example of aluminum sourced either from Brazil, where widespread hydropower lowers emissions intensities; or China, where coal-powered electricity is more common.
Free multi-regional model
Ease of access explains the continued widespread use of single-region models, said Maldonado. Until last year, the Environmental Protection Agency maintained a free-to-use model based on U.S. data, and the U.K.’s Department for Energy Security and Net Zero continues to offers an equivalent.
That will change later this year when Cornerstone, a collaboration between Stanford, environmental consultancy ERG and Watershed, makes its multi-regional model available for free. The model will incorporate the former EPA data and a multi-region model that Watershed acquired in 2023 when it purchased VitalMetrics, a sustainability software provider and consultancy.
Companies considering switching models should ideally do so before they set targets, advised Maldonado. Those with targets will probably need to restate historical Scope 3 data using the new method, she noted.
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