American companies relying on simplistic methods to calculate their Scope 3 emissions might face a rude awakening. A recent study reveals that switching to more sophisticated models could significantly increase these estimates, highlighting the need for a more nuanced approach.
Many businesses use expenditure-based models due to the difficulty of obtaining primary data. These models estimate emissions based on the amount spent on a product. The catch? Emission factors differ across models, often based on a single country’s data. For instance, a U.S.-based model assumes the entire supply chain is American. However, goods manufactured outside North America often generate higher emissions, causing Scope 3 estimates to soar when regional differences are considered.
The Pitfalls of Simplistic Models
Yohanna Maldonado, a contributor to the study, explains that these models essentially slap a fictitious “made in the U.S.” label on every product, obscuring the truth. To achieve greater accuracy, companies can turn to multi-regional models that account for local emission intensities. Maldonado and her colleagues found that total upstream emissions for nearly 5,400 companies surged by 2 billion tons of CO2 in 2023 when using a multi-regional model.
Opportunities and Challenges
While multi-regional models offer a more accurate picture of emissions, few companies are ready to embrace this approach. Most firms that disclose their methods use a single-region model, drawn by its ease of access. Until last year, the U.S. Environmental Protection Agency provided a free model based on American data. However, the landscape might shift with the introduction of Cornerstone, a new collaborative tool.
Companies importing high-emission products, like steel or fertilizers, are likely to see the most significant increases when adopting a multi-regional model. Increases of 20 to 40% are typical among Watershed clients who have made the transition. Yet, these models can also uncover opportunities for emission reductions by identifying greener supply sources, such as Brazilian aluminum over Chinese.