In the intricate world of sustainability reporting, double counting is a recurring challenge that compromises the accuracy of emissions data. For companies striving to comply with frameworks like the GHG Protocol, understanding how to allocate emissions correctly is essential. This blog explores how Incoterms—the international rules defining responsibilities in global trade—can serve as a guide for precise emissions reporting, especially within Scope 3.4 and Scope 3.9 categories.
What is Double Counting in Emission Reporting?
Double counting occurs when multiple entities within a value chain report the same emissions under the same category. For instance, if both a supplier and a buyer report emissions from the same transportation activity, it leads to inflated totals. Double counting distorts the actual carbon footprint, undermining the credibility of sustainability reports and creating challenges for regulatory compliance.
Why Incoterms Are Key to Preventing Double Counting
Incoterms (International Commercial Terms) are a standardized set of rules established by the International Chamber of Commerce. They clarify which party—buyer or seller—is responsible for costs, risks, and responsibilities in transporting goods.
While Incoterms were not explicitly designed for emission reporting, they provide a practical framework for deciding who should account for emissions during transportation. Understanding the interplay between Incoterms and emission scopes ensures emissions are reported accurately and avoids duplication.
How Incoterms Influence Scope 3 Emission Reporting
The responsibility for transportation costs, as defined by Incoterms, determines which party should report emissions:
Scope 3.4 (Upstream Transportation and Distribution): Applies when the reporting company pays for transportation.
Scope 3.9 (Downstream Transportation and Distribution): Applies when the customer or retailer pays for transportation.
Mapping Incoterms to Scope 3 Categories
Here’s how common Incoterms align with Scope 3 emissions:
1. EXW (Ex Works)
The buyer assumes responsibility for picking up goods from the seller's location and pays for all transportation costs.
Emission Reporting: Falls under Scope 3.4 for the buyer.
2. CIF (Cost, Insurance, and Freight)
The seller pays for the transportation to the destination port.
Emission Reporting: Falls under Scope 3.1 (Purchased Goods) for the buyer since the seller assumes transport costs.
3. DAP (Delivered at Place)
The seller bears transportation costs to the buyer’s location.
Emission Reporting: Falls under Scope 3.1 for the buyer.
4. FOB (Free on Board)
The seller pays for transportation to the port of origin, while the buyer pays from the port onwards.
Emission Reporting: Divided—Scope 3.1 covers emissions up to the port for the buyer, and Scope 3.4 applies to emissions from the port onwards.
Practical Steps to Avoid Double Counting
1. Define Freight Responsibilities Clearly
Specify in contracts who will bear transportation costs and how emissions will be allocated.
2. Consolidate Data from Logistics Providers
Gather detailed emissions data from third-party logistics (3PL) providers, segmented by transportation legs.
3. Use Technology for Seamless Allocation
Automated platforms simplify emissions allocation based on Incoterms and cost structures.
4. Train Your Teams on Incoterms and Emissions
Educate teams on the implications of Incoterms for emission scopes to improve internal consistency.
Benefits of Leveraging Incoterms in Emission Reporting
1. Accuracy in Reporting
Using Incoterms ensures emissions are correctly assigned to the responsible party, preventing errors.
2. Enhanced Transparency
Clear reporting builds trust with stakeholders, regulators, and customers.
3. Simplified Compliance
Aligning emission reporting with Incoterms makes it easier to comply with CSRD, the GHG Protocol, and other frameworks.
Watch our recent Webinar: "Clearing the Confusion Around 3.4 / 3.9 Reporting".
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