Deep-Dive: Allocation Methods in Product Carbon Footprinting

What is allocation, and why is it necessary?

A Product Carbon Footprint (PCF) measures the greenhouse gas (GHG) emissions across the life cycle of a product. This involves going step-by-step along all processes involved in the production of the product, and measuring all the emissions that occur at each process (including emissions from the onsite use and offsite production of fuels, electricity and materials).

This calculation is straightforward when each process only creates one single output product. But sometimes a single process can create more than one product. This could include:

A valuable product(s) and a waste product(s)

• For example, a gold mine produces gold ore + tailings

A valuable product(s) and a low-value by-product(s)

• A steel mill produces steel slab + slag
• A nickel smelter produces nickel matte + sulphuric acid
• A corn farm produces maize + chicken feed

Multiple valuable products

• An oil refinery produces diesel + naphtha
• A gold refinery produces platinum + gold + copper

In these cases, the emissions that arise from the process need to be allocated between the different outputs.

But how should the emissions be allocated? Should each product be assigned an equal proportion of emissions? Should the emissions be allocated based on certain inherent characteristics of the products (their mass or their volume)? Should the allocation be based on the relative value of each product?

Welcome to the world of allocation in carbon accounting.

What are the rules around emissions allocation?

The Greenhouse Gas Protocol Product Standard sets out the requirements and guidelines for businesses to follow when making decisions about how to allocate emissions between products.

Allocation rule #1

"Companies shall allocate emissions and removals to accurately reflect the contributions of the studied product and co-product(s) to the total emissions and removals of the common process."
‍_{(Greenhouse Gas Protocol Product Standard)}

In other words: don't assign any emissions to waste products. Non-waste products get allocated 100% of the emissions.

Allocation rule #2

"Companies shall avoid allocation wherever possible by using process subdivision, redefining the functional unit, or using system expansion."
_{(Greenhouse Gas Protocol Product Standard)}

In other words: can you undertake one of the following options instead?

Process subdivision

Can you divide your process into sub-processes, so that each sub-process produces only one product?

For example:

• Measure material and energy inputs by batch rather than by month, to assign inputs to a single production run of a single product, rather than to a monthly average of all products on the production line.
• Collect data for an on-site sulphuric acid plant separately from the data of the plant as a whole.

Redefining the functional unit

Can you redefine your product under analysis to include the co-product?

Examples:

• My unit of analysis was 1 kilogram (kg) of gold, but is now 1 kg of gold + 0.34 grams (g) of platinum;
• My functional unit was a beverage can, but is now the beverage itself, plus the packaging. That way, I can have a transport leg where both the beverage and the packaging get transported together, cooled together, etc.

System expansion

‍Sometimes, your production of the co-product means that you have avoided the need for that co-product to be produced by another facility elsewhere. 

System expansion gives an 'emissions credit' for this avoided production.

For example:

• The annual global demand for sulphuric acid is 200 million tonnes, with an average emissions factor of 100 kg CO₂e/t (carbon dioxide equivalent per tonne);
• If your process produces 50,000 tonnes of sulphuric acid (H₂SO₄) as a co-product, then that 50,000 tonnes does not need to be produced by another facility;
• As such, 5,000 tonnes CO₂e of emissions (50,000 tonnes H₂SO₄ x 100 kg CO₂e/tonne =  5,000 tonnes CO₂e) could be subtracted from the emissions occurring in your process (i.e. the 'emissions credit' is 5,000 tonnes CO₂e).
• The remaining emissions would be those relating to your main product only.

In summary, if you can avoid allocation by subdividing your process, changing the definition of your product, or subtracting emissions from avoided production, you should.

Allocation rule #3

"If allocation is unavoidable, companies shall allocate emissions and removals based on the underlying physical relationships between the studied product and co-product(s). When physical relationships alone cannot be established or used as the basis for allocation, companies shall select either economic allocation or another allocation method that reflects other relationships between the studied product and co-product."
‍_{(Greenhouse Gas Protocol Product Standard)}

If it is not possible to avoid allocation, you should first allocate based on the inherent physical characteristics of the product (i.e. mass, volume).

Where this doesn't make sense, then you should undertake economic allocation (or another allocation method), explained below.

How do other product carbon footprinting standards treat allocation?

Besides the Greenhouse Gas Protocol, other common 'rule books' for product carbon footprinting include:

• The ISO 14040/44 standards on Life Cycle Assessment;
• The ISO 14067 standard on Product Carbon Footprinting;
• The EN 15804 standard for Environmental Product Declarations;

The ISO 14040/44 and EN 15804 standards follow the same allocation rules as the Greenhouse Gas Protocol Product Standard. The ISO 14067 standard, however, does not allow the use of system expansion as a method for avoiding allocation.

Methods of emissions allocation (mass versus economic)

Mass allocation

Physical allocation is where you allocate emissions based on a physical relationship between the co-products. The most common example is mass allocation, although volume, metal content or other physical relationships are also possible.

In mass allocation, the relative mass of each product determines the proportion of total emissions assigned to each product.

For example:

A gold mine produced 15 tonnes of gold and 50,000 tonnes of copper, and calculates its emissions at 300,000 tCO₂e in 2023.

Using mass allocation:

• 15 ÷ (15 + 50,000) = 0.03% of emissions would be allocated to the gold (90 tCO₂e)
• 50,000 ÷ (15 + 50,000) = 99.97% of emissions would be allocated to the copper (299,910 tCO₂e)

On a per tonne basis, the gold and the copper would each have an emissions intensity of 6.0 tCO₂e/t.

Note: The data used in this example is not based on any study, and is for illustrative purposes only.

Economic allocation

Economic allocation, as the name implies, involves the allocation of emissions based on the economic value of the co-products. The relative value of each product determines the proportion of total emissions assigned to each product.

For example: 

Gold is worth $65,000,000 per tonne. Copper is worth $5,000 per tonne. A gold mine produced 15 tonnes of gold and 50,000 tonnes of copper, and calculates its emissions at 300,000 tCO₂e in 2023.

Using economic allocation:

• (65,000,000 x 15) ÷ ((65,000,000 x 15) + (5,000 x 50,000)) =  80% of emissions would be allocated to the gold (238,776 tCO₂)
• (5,000 x 50,000) ÷ ((65,000,000 x 15) + (5,000 x 50,000)) = 20% of emissions would be allocated to the copper (61,224 tCO₂)

On a per tonne basis: 

• The gold has an emissions intensity of 79,592 t CO₂e/t
• The copper has an emissions intensity of 1.22 t CO₂e/t

What are the benefits of economic allocation?

If allocation can't be avoided, then when co-products have widely disparate economic values, economic allocation is usually the best allocation option. This is because it represents the best allocation of why emissions occur.

Our gold-copper mine example is useful in illustrating this point. To recap the example:

• Gold is worth $65,000,000 per tonne. Copper is worth $5,000 per tonne. A gold refinery produced 15 tonnes of gold and 50,000 tonnes of copper, and calculates its emissions at 300,000 tCO₂e in 2023.

In this example, gold represents 0.03% of the mass, but 80% of the revenue of the mine. If the mine no longer produced copper, the mine would lose 20% of its revenue, but may decide to continue operating (and continue emitting 300,000 tCO₂e every year).

However, if the mine were to stop producing gold, it would lose 80% of its revenue, and would probably decide to close (and therefore the 300,000 tCO₂e would no longer be emitted).

Therefore, economic allocation is the best approximator of assigning emissions between the two co-products.

Hierarchy of allocation decisions

As you can see, different allocation methods are appropriate in different situations. ​​In instances where allocation is necessary in product carbon footprintig, CarbonChain follows the following decision-making hierarchy:

1. First, ensure no emissions are allocated to waste products (co-products with no economic value);
2. Identify opportunities to avoid allocation;
3. If allocation is not avoidable, apply physical allocation, and choose the applicable physical allocation method (i.e. mass, metal content, volume or energy);
4. If physical allocation is not applicable, choose a different allocation method (e.g. economic);
5. Use the same allocation method across similar products and processes (unless product category rules demand otherwise);
6. Provide choice justification in the product carbon footprint report.

How to use economic allocation?

Metal producers, processors, distributors and traders use CarbonChan for accurate carbon accounting across all key reporting needs — so they can satisfy regulatory and stakeholder demands and gain a competitive edge.

CarbonChain uses economic allocation according to the following best practice:

Time period

Using economic allocation means that as relative prices change over time, the emissions assigned to each of the co-products will change too, even when the total emissions of the underlying process remain constant.

In the world of metal commodities, prices can change significantly year-on-year (and even day-on-day).

In order to counteract this, CarbonChain's platform uses average prices over a ten-year period in its economic allocation calculations for metals. However, the total emissions from the process, and the total production volumes of the process, are still calculated using annual data.

Application

CarbonChain uses economic allocation for all metal production routes that produce multiple metallic products, where the metals are distinct. 

For example:

• A refinery that produces nickel and cobalt (two base metals);
• A refinery that produces copper and gold (a base metal and a precious metal);
• A mine that produces copper concentrate (containing a range of metals), and nickel concentrate (containing a range of metals).

When two products contain the same metal, economic allocation is not required; for example, a site may produce both nickel sulphate and mixed sulphide precipitate (which is a nickel-containing product). In this case, CarbonChain would allocate based on the relative nickel contents of the two products.