Embedded emissions of leased, rented or 2nd hand purchased goods

General
1

While making a new carbon footprint analysis, I once more reflected on the amount of embedded emissions that need to be included, or not at all, when using the control approach of the GHG-protocol.

It concerns a couple of different scenarios for a company:

  • The purchase of a 2nd hand car
  • The purchase of a new car
  • The leasing of a car
  • The rental of a coffee machine

The emissions of the usage are in all four cases included for the year of the analysis in scope 1 and 2, but my question concerns the embedded emissions of scope 3.

In my perception, you always need or try to account for emissions as close as possible to when they enter the atmosphere. So, in a carbon footprint analysis for 2023 for example, you will account for the emissions of the car used in that year in terms of electricity or fossil fuels, depending on the type of car. That’s pretty straightforward.

According to the GHG-protocol, when you purchase something new, you also need to account for the total embedded emissions of that good or asset. Whether or not it considers an asset with an amortisation period, you have to include the total of the embedded emissions (resulting from production) in the year of the analysis. Again, for new products that’s pretty self-evident.

When you purchase a 2nd hand product, in my perception, the embedded emissions have already be accounted for, and are also not the result of your purchase because no ‘new product’ needs to be manufactured (so, in fact there are no emissions resulting from production to be accounted for in the year of the analysis).

In that perception, when you start leasing a new car, all embedded emissions of that car need to be accounted for in that year of the analysis (because the car was produced, specifically for the lease of that company). However, in the second year of leasing for that car (or when you start leasing a 2nd hand car) no embedded emissions need to be accounted for this car, because the full impact was included in the first year.

When you rent, the same story actually applies. The impact would only need to be accounted for in the year you start renting a new product. But, it’s of course unfair to let the company that rent’s the product the first year, carry the full impact of production (or not?).

In all scenarios, the embedded emissions of the production are currently also accounted for by the producing company, but of course the company that rents or leases also ‘makes use’ of these products.

Or is the above stated wrong and do all these emissions need to be accounted for with a weight for the year of the analysis in relation to the expected lifespan of that product (what you basically do when you amortise an asset)? Or when you rent, account for one month for example of the lifespan of the product (to distribute the emissions more evenly among the users)?

In all scenarios, the company always has the chance to choose for 2nd hand or refurbished options to buy, rent or lease. In this way of thinking, this would always result in lower emission for their carbon footprint analysis. As a consequence, companies would also be motivated to do so.

As you can read, I have a lot of thoughts on this topic and was wondering what currently is the most representative way, while still being in line with the GHG-protocol, of accounting for these emissions?

Thanks in advance for any answers or thinking along!

Ferre, sustainability consultant

2

Taking into account embedded emissions for cars is tricky. The motor manufactuers themselves can’t agree on a singular methodology for built emissions.

Acedemic papers suggest spreading the emissions for the lifetime of the vehicle based on size and type using milage as the guide.

Therefore in year one it would only be milage/embedded emissions.

This also helps in the second hand market with the new owner taking on the remaining emissions and so on…

Lease is also another factor with the asset owner taking on some of the emissions under PCAF.

As forthe coffee machine, maybe ciunt the number of cups served per year per machine :grinning:

More clarity is definitely needed on the issue…we can all agree on that.

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3

It’s great questions, for leased assets, we use the minimum boundaries outlined by the GHG Protocol, which primarily focus on Scope 1 and 2 emissions…
Regarding capital goods, it’s established that for Scope 3 emissions, companies should not depreciate, discount, or amortise the emissions from the production of capital goods over time. Instead, companies should account for the total cradle-to-gate emissions of purchased capital goods in the year of acquisition.

When it comes to second-hand goods as used cars , and while we haven’t discovered a definitive answer within the standards we operate under—ISO, GHG Protocol, or SECR—our best practice approach is as follows:
The second-hand goods represent a sustainable choice as they extend the life of products and diminish the demand for new production. For that in our accounting, we don’t include the production emissions for second hand products that has been used for a full year with another company; rather, we account for any refurbishment required to bring it to working order.
Hope this gives you our thoughts, and we’d love to discuss this further.

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4

Regarding capital goods, GHG protocol state clearly: companies should not depreciate, discount, or amortise the emissions from the production of capital goods over time. Instead, companies should account for the total cradle-to-gate emissions of purchased capital goods in the year of acquisition.

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5

Hi Kato,

Thanks a lot for sharing your approach. I think it’s a very pragmatic one and I agree as it should be more attractive for companies to make responsible purchases. This will only be motivated when the impact is also reflected in the carbon footprint analysis.

What about your approach for the emissions resulting from the production of renting goods/ products? For example when you rent a coffee machine all year long or when you rent a tent for example only a couple times a year. Do you include emissions for the usage of these goods/ products? The level on which you can do this of course depends on the availability of data…

6

Hi Ferre
When it comes to leased assets, we always report on the emissions from their use, following the GHG Protocol’s minimum boundaries, which Scope 1 and 2 emissions.
However, we don’t include the production emissions of the leased assets (coffee machine or tent), regardless of the length of the rental or frequency.
Electric equipment operating within the company’s premises are covered by the total fuel/electricity usage, only if they are on-site or in shared sites need to be looked at separately .
Additionally, we account for the emissions from rental services (installation, service, maintenance, parts) under Purchased Goods and Services, and their transportation under upstream transportation.

7

Okay, so to refine the rental services a little bit more:

  • If you have a set, monthly amount that you pay throughout the year for renting a coffee machine (let’s say €100/ month), you would not calculate emissions for this amount to reflect emissions from production (these emissions are considered full responsibility of the rental company)?

Only if a certain service, maintenance or repair takes place (concerning the rented product), you would calculate the emissions resulting from this, divided as good as possible over:

  • Transportation: the distance travelled to the company on the invoice
  • Purchased services: for example ‘Repair and installation of machinery and equipment’ for the amount on the invoice
  • Purchased goods: a certain part that was replaced in the coffee machine for example ‘plastics and rubber’ for the amount on the invoice

If you rent a tent for example only once, you would only calculate emission for:

  • Transportation: distance travelled for company
  • Service: the installation of the tent, for example ‘repair and installation of machinery and equipment’? for the amount on the invoice?

Thanks again for sharing approaches!

8

Hi Kato,

Just to be sure: when you rent an office in the year of the analysis, you include scope 1 and 2 emissions of course, but you don’t calculate emissions for the equivalent of the rental amount that you pay on a monthly basis (because this monthly amount does not represent carbon emissions). Right?

Only if certain maintenance or repairs take place (the rental money will eventually be used for this by the owner), you only account for those emissions specifically.

Thanks!

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