The Spend-Based Method: A Backstop for Calculating Your Carbon Footprint

In recent years, the importance of understanding and managing carbon footprints has grown significantly. Both companies and individuals are increasingly focused on reducing their environmental impact by measuring and mitigating their carbon emissions. One of the methods used for this purpose is the spend-based method, a relatively simple approach that estimates carbon emissions based on the financial expenditure of goods and services. However, while the spend-based method can be a useful tool for certain aspects of carbon accounting, it should primarily serve as a backstop for calculating emissions and should not be applied to Scope 1 and 2 activities.

Understanding the Spend-Based Method

The spend-based method estimates carbon emissions by analysing the amount of money spent on various goods and services and applying average emissions factors associated with those purchases. This method is particularly useful when detailed data on emissions is unavailable, as it provides a rough estimate based on economic activity. The simplicity of the spend-based method makes it accessible for organisations that lack the resources to conduct more detailed analyses. However, this approach is also less accurate because it relies on generalised emissions factors that may not accurately reflect the specific circumstances of the purchases made.

Scope 1 and 2 Emissions: Direct and Indirect Emissions That Require Precision

To understand why the spend-based method should not be used for Scope 1 and 2 emissions, it is crucial to distinguish between different types of carbon emissions:

1. Scope 1 Emissions: These are direct emissions from owned or controlled sources, such as emissions from company vehicles or on-site fuel combustion. For more on Scope 1 emissions, see the Greenhouse Gas Protocol's guide.

2. Scope 2 Emissions: These are indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company. You can learn more about Scope 2 emissions from the Carbon Trust's Scope 2 Guidance.

Both Scope 1 and 2 emissions are typically well-defined and can be measured with a high degree of accuracy. For instance, fuel consumption can be directly measured and converted into emissions using well-established conversion factors. Similarly, electricity usage can be quantified using utility bills, and the associated emissions can be calculated based on the energy mix of the electricity provider. Because these emissions are directly attributable to an organisation's operations, they require precise and reliable measurement methods.

The Limitations of the Spend-Based Method for Scope 1 and 2

Using the spend-based method for Scope 1 and 2 emissions is inherently problematic for several reasons:

1. Lack of Granularity: The spend-based method does not provide the granularity needed to accurately capture direct emissions. For example, it cannot differentiate between the emissions associated with various types of fuels or specific energy sources.

2. Generalised Emission Factors: The emissions factors used in the spend-based method are often broad averages that do not account for specific operational details. This can lead to significant inaccuracies when calculating emissions for activities that vary widely in their carbon intensity.

3. Inability to Reflect Operational Changes: Changes in operational efficiency, fuel type, or energy sourcing can substantially impact Scope 1 and 2 emissions. The spend-based method does not capture these nuances, making it unsuitable for organisations aiming to track and reduce their direct carbon footprint accurately.

The Appropriate Use of the Spend-Based Method

While the spend-based method is not suitable for Scope 1 and 2 emissions, it does have its place in carbon accounting, particularly for Scope 3 emissions, which encompass a wide range of indirect emissions resulting from the value chain activities of an organisation.

Scope 3 emissions include categories such as purchased goods and services, business travel, employee commuting, waste disposal, and more. Because these emissions often arise from third-party activities, obtaining detailed emissions data can be challenging. In such cases, the spend-based method can serve as a useful backstop for estimating emissions associated with purchased goods and services, especially when more precise data is unavailable. For more on Scope 3 emissions, refer to the GHG Protocol's Scope 3 Guidance.

Best Practices for Carbon Footprint Calculation

To ensure a comprehensive and accurate carbon footprint calculation, organisations should prioritise direct measurement and data collection for Scope 1 and 2 emissions. This involves using precise methods like fuel consumption tracking, metering electricity use, and working closely with suppliers to obtain specific emissions data.

For Scope 3 emissions, where direct measurement is often not feasible, the spend-based method can be used as a starting point. However, organisations should strive to refine their estimates over time by improving data quality, using supplier-specific emissions factors, and engaging with stakeholders throughout the value chain.

Conclusion

The spend-based method has a role in carbon accounting, particularly for estimating Scope 3 emissions related to purchased goods and services. However, it should not be used for Scope 1 and 2 emissions, where precision is critical for accurate carbon management. By understanding the limitations and appropriate applications of the spend-based method, organisations can ensure they are effectively managing their carbon footprint and making meaningful progress towards their sustainability goals. Having a carbon reporting software in place is the best way to accurately calculate your carbon footprint.