As the global focus on sustainability intensifies, product-level carbon footprint reporting is becoming increasingly important. The emergence of Product Carbon Footprint (PCF) legislation in markets worldwide has significant implications for energy-intensive industrial operations.
A PCF measures the total greenhouse gas emissions (CO2e) associated with a product’s entire lifecycle, from raw material extraction to end-of-life disposal. This comprehensive approach allows for a thorough assessment of a product’s environmental impact.
While most mandatory sustainability reporting is currently at the corporate level, legislation and taxes will increasingly require companies to report down to the product level.
Notable examples of this shift are the EU Batteries Regulation, employing the Product Environmental Footprint (PEF) method, and the EU Carbon Border Adjustment Mechanism (CBAM), which focuses on Embedded Emissions.
This legislation and others share the goal of reducing environmental impact. However, their PCF calculation methods differ significantly regarding the boundaries of what is included, the lifecycle stages considered, and the impact categories assessed.
Understanding and applying these variations is crucial for ensuring compliance with the relevant legislation affecting industrial organisations.
PCF and the EU Batteries Regulation
As batteries increasingly power transport, renewable energy and mobile devices, ensuring low-carbon production is crucial. The EU Batteries Regulation, effective August 2023, replaces the 2006 Batteries Directive. Spanning the entire lifecycle of battery production, it aims to reduce environmental impact, protect human health and promote sustainable battery production, collection and recycling in line with EU climate goals.
The Regulation mandates manufacturers to calculate and declare the carbon footprint of their batteries using a standardised method (Article 7). This applies to:
- Electric Vehicle (EV) batteries
- Rechargeable Industrial batteries (>2kWh)
- Light Means of Transport (LMT) batteries
Key PCF requirements:
- Standardised calculation method: It follows the Product Environmental Footprint (PEF) method and relevant Product Environmental Footprint Category Rules (PEFCRs).
- Battery Passport: Publicly disclose carbon footprint declaration, lifecycle stage breakdown, performance class and link to the carbon footprint study.
- Lifecycle reporting: Calculate and report the carbon footprint for production and end-of-life stages, excluding the battery’s use phase and certain manufacturing processes .
- Company-specific data: Use company-specific activity data and product environmental-compliant secondary datasets.
- Implementation timeline: February 2025 (EV battery carbon footprint declaration), February 2027 (Battery Passport mandatory adoption).
PCF and the EU Carbon Border Adjustment Mechanism (EU CBAM)
A crucial component of the EU’s climate policy, EU CBAM addresses carbon leakage by requiring reporting and payment for carbon-intensive products’ emissions entering the EU. This mechanism supports the EU’s ambitious climate neutrality goals by 2050.
Key requirements of the EU CBAM:
- Requires EU importers to report direct and indirect emissions (Scopes 1, 2 and select Scope 3) for specified carbon-intensive products.
- Initially, it applies to sectors at a higher risk of carbon leakage including electricity, hydrogen, cement, fertilisers, aluminium, and iron and steel, with more to be added.
- Reporting obligations began on 1 October 2023, with payments starting in 2026.
The CBAM’s calculation methodology focuses on emissions from production sites, covering Scope 1 and 2 emissions, including fuel combustion, process emissions and electricity consumption. Emissions from raw materials, classified as precursors, are also accounted for.
By standardising emissions calculation and reporting, CBAM supports the development of comprehensive PCF assessments, aligning with existing frameworks like Product Environmental Footprint (PEF) and promoting transparency throughout the supply chain.
PCF and the UK Carbon Border Adjustment Mechanism (UK CBAM)
The UK CBAM – scheduled for implementation by 2027 – aims to address carbon leakage and support decarbonisation to support the UK’s broader climate goals.
While it aligns with the EU CBAM, the UK CBAM differs in its sector-specific application and calculation methodology, reflecting unique aspects of the UK’s economy and emissions trading framework.
Key requirements of the UK CBAM:
- Apply a carbon price to emissions-intensive industrial goods imported from aluminium, cement, ceramics, fertiliser, glass, hydrogen iron, and steel sectors.
- Liability will be determined based on the intensity of greenhouse gas emissions in the imported goods and the carbon price gap between the country of origin and the UK’s carbon price (as if produced domestically).
- Cover Scope 1, Scope 2 and select precursor product emissions embodied in imported products, consistent with the UK Emissions Trading Scheme.
The UK CBAM supports comprehensive PCF assessments by standardising emissions calculation and reporting, encouraging transparency throughout the supply chain and promoting low-carbon production and trade practices.
PCF and the Australian Carbon Border Adjustment Mechanism (AU CBAM)
As part of the Safeguard Mechanism reforms, the Australian government is evaluating the feasibility of a local CBAM to address carbon leakage risks. They announced a review in March 2023, with a report expected to be released in 2024.
The proposed AU CBAM would aim to level the playing field for domestic producers by applying a ‘carbon tariff’ on imports from countries with less stringent climate policies.
PCF and Scope 3
Scope 3 reporting is gradually being mandated by several jurisdictions and various frameworks such as the EU CSRD, the Climate Corporate Data Accountability Act (California SB 253) and some legislation modelled from the ISSB standards such as the recent introduction of the Australian Sustainability Reporting Standards (ASRS).
Scope 3 emissions are typically calculated at a corporate level, where PCFs are emissions at the product level. However, with Scope 3 emissions accounting for a majority of emissions in energy-intensive industries, markets and legislators are demanding end-to-end transparency across the supply chain, increasingly down to a product level.
Scope 3 requires granular disclosures of indirect emissions upstream and downstream. Scope 3 categories do correlate to data that is to be captured in a PCF, such as purchased goods and services, transportation and distribution, use of sold products and product end of life treatment.
Navigating the rising importance of PCF legislation
As PCF legislation continues to evolve globally, industrial organisations must stay informed and prepared. These regulations not only aim to reduce environmental impact but also promote transparency and fair competition in the global market.
By understanding and adapting to these emerging requirements, companies can ensure compliance, mitigate risks and gain a competitive edge in an increasingly carbon-conscious world.
To learn how Sustainability Tracker (ST) can help you meet your PCF reporting obligations and minimise emissions, energy, water and waste across your supply chain, contact our expert team on +61 2 7229 5662 or info@industrialsustainabilitysolutions.com
