This is the first in a series of blog posts covering spend-based emissions calculations, exploring the best approaches for assessing carbon footprint with spend data. Check out other posts in this series covering an interview with one of the lead developers of EXIOBASE, a step-by-step guide on making spend-based calculations, a deep dive into when to use spend- and activity-based methods, and more.
The spend-based method calculates emissions by multiplying the amount spent on a product or service by an emission factor for that product category. Experts build these emission factors from environmentally-extended input-output (EEIO) models. Basic input-output (IO) models map the flow of money between sectors and regions; 'environmentally-extended' models link this economic activity to environmental impacts, including greenhouse gas emissions.
EXIOBASE is one of the most widely-used EEIO models. EXIOBASE 3 covers 44 countries plus five “Rest‑of‑World” regions, together representing around 95% of global GDP, with a time‑series spanning from 1995 through 2020 (and now‑casts to 2022 or beyond). It distinguishes 163 industry sectors and 200 product categories, which are the basis for EXIOBASE emission factors. To learn more about EXIOBASE and its latest updates, read our interview with one of its lead developers, Richard Wood, here.
There are many other global spend-based or hybrid (spend- and activity-based) emission factor datasets such as CEDA and Small World Consulting, plus many region-specific datasets e.g. BEIS/DEFRA for the UK, EPA for the US, OpenIO-Canada for Canada, and Market Economics for New Zealand. It’s best practice to avoid mixing these datasets within regions as their methodologies, and hence the results you will get, differ.
Spend-based emissions estimates are usually at the bottom of the hierarchy of emission estimation methods but they are useful. Spend-based methods are useful when:
The spend-based method is not suitable for scopes 1 and 2 where activity-based data is available.
In scope 3, it’s not suitable for high-impact categories where activity-based data is available. For example, when it comes to fuel use, electricity consumption, business travel, or freight, you likely have activity data you could use in calculations that would be more accurate, as the data covers the emissions-producing activity itself. These also tend to be high-impact emissions categories, so it’s important to try and assess emissions with maximum granularity and accuracy. Using spend data for these areas might seem like a simpler alternative, but it can misrepresent carbon footprint.
Input-output models rely on economic averages based on predefined sectors and product categories. They don’t reflect supplier-specific details or variations. For example, you could buy notepads from two different manufacturers in Germany, one who sources the paper locally and one who uses paper imported from China. As both products were produced in Germany, and the products are seemingly similar, you would use the same spend category and therefore the emissions per euro spent would be the same. However, one of these products is clearly more polluting than the other.
The spend-based method relies on money spent as an indication of carbon footprint. This means that if your supplier gives you a discount, for example, your emissions estimate will go down, even though your actual footprint hasn’t changed.
Basic prices and purchaser prices are economic terms used to describe different stages of a product’s pricing, especially in the context of input-output models. The basic price is the amount received by the producer of a good or service, without taxes such as VAT, and excludes transport and trade margins. You may also hear it referred to as the price “at the factory gate”, i.e. what the producer gets for making the product.
The purchaser price is the final amount paid by the buyer. It includes all taxes, transport costs, retail markups, and trade margins. This reflects the cost to the buyer, not just the cost of producing the product.
If you buy your product or service directly from industry producers, your spend is likely already in basic prices, but if you buy from retail or a wholesaler, the spend amount will be in purchaser prices.
EXIOBASE uses basic prices, so if your company’s spend data is in purchaser prices, you will need to adjust to avoid overestimating emissions. For more information, we will soon publish a guide on how to calculate spend-based emissions.
EXIOBASE provides factors in kg CO2e per euro spent. This means you need to convert the currency of your spend to euros for use in EXIOBASE calculations. We suggest using exchange rates from Eurostat to do so.
You generally shouldn’t use a spend-based emission factor from one region to estimate emissions in another. While it may be acceptable for rough screening, it’s not reliable for accurate analysis or formal reporting.
Many spend-based datasets are limited to just one or two countries, making it challenging to get accurate results unless all your purchases are from the same region. For better geographic coverage, use a dataset like EXIOBASE, which provides emission factors for multiple regions globally.
When using the spend-based method, it’s recommended to apply a “region of last value added” logic. This means you should pick an emission factor for the region where the product or service was last manufactured or transformed, rather than the region where it was purchased or the currency it was paid in.
For example, if you bought a product in France but it was manufactured in Türkiye, you should ideally use a spend-based emission factor for Türkiye, since that’s where the majority of emissions associated with production occurred. This approach more accurately reflects carbon intensity because different countries have different energy mixes and industrial processes.
Currency alone doesn’t provide meaningful emissions context. At the same time, basing your factor selection solely on the purchasing location can misrepresent emissions if the item was imported. The goal is to link your spend to the region where emissions actually took place.
If you want to follow EXIOBASE guidance by the book, it might be worthwhile exploring Climatiq’s Procurement feature, which performs currency conversions and basic price adjustments for you. To find fitting emission factors for purchased goods and services, our AI-powered search engine, Autopilot, automatically matches text input to the most fitting factors.
For in-depth step-by-step guidance on how to perform spend-based calculations, keep an eye out for our guide on using EXIOBASE, which we will publish next in this series.
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