Carbon accounting has become a crucial tool for investors and regulators in the drive to decarbonize, limit the rise in global temperatures, and stay as close as possible to the 1.5 degC target set by the Paris Agreement. Regulatory bodies are steadily increasing the stringency of carbon accounting requirements, lowering the allowable emissions thresholds at both corporate and product levels. 

In this landscape, a detailed understanding of corporate carbon accounting and product carbon footprint (PCF) is vital. But to accurately assess the value of PCFs  as tools for decarbonization, we must examine the key differences between corporate and product carbon accounting, along with the evolving regulatory landscape driving the adoption of PCFs.

Corporate carbon accounting vs. product carbon accounting

While related, corporate carbon accounting and product carbon accounting serve different purposes and are governed by distinct frameworks. 

Corporate carbon accounting refers to the process of measuring, reporting, and managing a company's overall greenhouse gas (GHG) emissions. It is governed by guidelines such as ISO 14064 and the GHG Protocol Corporate Accounting and Reporting Standard. These frameworks require companies to account for GHG emissions across three scopes:

• Scope 1: Direct emissions from owned or controlled sources (e.g., fuel combustion).
• Scope 2: Indirect emissions from the generation of purchased electricity, heat, or steam.
• Scope 3: All other indirect emissions across the value chain, including emissions generated upstream of the company’s operations (e.g., those related to purchased products) or generated downstream their operations (e.g., those related to using the company’s products).

Corporate carbon accounting enables companies to demonstrate their commitment to reducing emissions, meet regulatory requirements, and provide transparency to stakeholders. However, it does not provide granular insights into the emissions associated with individual products, which is where product carbon accounting comes in.

Product carbon accounting is what produces the PCF and is guided by guidelines such as ISO 14067 and the GHG Protocol Product Life Cycle Accounting and Reporting Standard. It seeks to quantify the GHG emissions associated with the entire life cycle of a specific product—from cradle to grave or, in some cases, from cradle to gate (from raw material extraction to the point of sale).

In other words, it provides a granular understanding of the emissions generated during a product’s full production cycle, including not just raw material extraction and development but also processing, transportation, use, and disposal. This enables companies to assess the environmental impact of individual products and then identify opportunities for emission reductions at the product level.

What’s a life cycle assessment?

A life cycle assessment (LCA) is a comprehensive method for evaluating the environmental impacts of a product throughout its entire life cycle, from raw material extraction (cradle) to disposal or recycling (grave).

LCAs have been in use for decades, with the predecessors of modern LCAs—known as resource and environmental profile analyses (REPA) or ecobalances—developed in the 1960s through collaborations between universities and industry. The LCA methodology is guided by international standards such as ISO 14040 (first published in 1997) and ISO 14044 (released in 2006), as well as the GHG Protocol Product Standard introduced in 2011.

Conducting an LCA can be a complex and resource-intensive process. It requires detailed data on every stage of a product’s life cycle, including raw material sourcing, manufacturing processes, transportation, usage, and end-of-life disposal. For many industries, especially those with long and intricate supply chains, gathering this data can present a significant challenge.

To ease the burden, emerging guidelines—initially developed through industry consortiums—have recognized the complexity and opted to focus on cradle-to-gate  assessments. These assessments measure the carbon footprint of a product from raw material extraction up to the point when the product leaves the factory gate. 

While this approach simplifies the LCA process by excluding emissions from the use and disposal phases (thereby introducing a certain bias into the decision-making process), it’s a first step toward a methodological assessment, which can provide insights into the environmental impacts of the production phase.

Product carbon footprint guidelines for the petrochemicals industry

One industry that’s already made notable progress in developing PCF guidelines is the petrochemicals industry. Why are they needed? Because the standards mentioned earlier allow for various interpretations during calculations, thereby leading to potential discrepancies in results across different practitioners. 

The Together for Sustainability (TfS) initiative, led and supported by industry giants such as BASF, seeks to standardize PCF computations within the petrochemicals industry. It provides a comprehensive set of guidelines tailored to the specific characteristics of petrochemical production and limits variability in LCA practices so that product carbon footprints are consistent and comparable across companies.

Building on this foundation, the Partnership for Carbon Transparency initiative from the World Business Council for Sustainable Development also aims to establish industry-agnostic guidelines for PCF calculations.

The value and benefits of product carbon footprints

While corporate carbon accounting provides a picture of a company’s overall emissions and enables strategic decisions, PCFs offer a more actionable view of emissions at the process and product level. This specificity is valuable for several reasons.

Regulatory compliance—Regulations including California and Canada’s Low Carbon Fuel Standards and the EU’s Carbon Border Adjustment Mechanism are driving the need for product-level carbon data. Without accurate PCF data, companies may face financial penalties or lose access to key markets.

Supply chain management—Understanding the carbon intensity of individual products not only supports Scope 3 reporting but also enables companies to target emission hotspots in their supply chains and work with suppliers to reduce them. 

Product differentiation—In an increasingly competitive market, companies that can demonstrate low-carbon products have a distinct advantage. Consumers and businesses alike are prioritizing sustainability, and products with lower carbon footprints can be sold at a premium or secure a larger market share in green markets (i.e., those filled with consumers searching for products with lower carbon footprints) .

Decarbonization at the process level—PCFs enable companies to target specific processes within their operations for decarbonization. By identifying the most carbon-intensive stages of production, companies can invest in cleaner tech and processes, resulting in more efficient and sustainable operations overall.

The increasing regulatory drive to focus on product carbon footprint

The growing importance of PCFs is partially driven by corporate sustainability goals, as companies aim to link their purchases to the specific carbon intensity of their suppliers' products, and thus to their PCFs. However, this increasing significance is also influenced by a regulatory environment in flux. Several jurisdictions have already introduced policies that require or incentivize companies to measure and reduce the carbon intensity of their products. In the energy sector, examples include the following:

United States

• California Low Carbon Fuel Standard (LCFS), 2010: This mandates that fuel providers reduce the carbon intensity of their fuels to meet state targets. Credits or deficits are generated based on a fuel's PCF compared with a target carbon intensity. This creates a financial incentive for fuel producers to lower their carbon emissions, in which PCF computation plays a central role.
• Inflation Reduction Act (IRA), 2022: The IRA offers substantial tax credits for renewable fuels, with higher rewards for producers of fuels with lower carbon intensity. These incentives encourage companies to invest in low-carbon tech and products, further promoting the use of PCF measurements.

Canada

• Low Carbon Fuel Standard, 2022: Similarly to California's LCFS, Canada's Low Carbon Fuel Standard creates a market for carbon credits based on the PCF of fuels. Companies generating fuels with lower carbon footprints than the regulatory targets can earn credits, while those exceeding the limits generate debits, providing a financial mechanism to minimize emissions.

European Union

• Carbon Border Adjustment Mechanism (CBAM), 2026: CBAM is designed to prevent carbon leakage by imposing taxes on the carbon content of imported goods, particularly commodities such as steel, cement, and aluminum. By 2026, companies importing goods into the EU will need to provide detailed product carbon footprint data to demonstrate the carbon intensity of their products. This regulation is set to transform global supply chains as companies strive to lower their product emissions to avoid import taxes.

These few regulatory examples represent a wider global trend toward more requirements for companies to assess and report the carbon intensity of their products. This shift not only reflects a growing commitment of countries to decarbonization but also opens opportunities for companies to differentiate their products based on environmental performance.

Scope 3 reporting and supply chain emissions

In addition to regulatory requirements, companies are increasingly focusing on PCFs as part of their Scope 3 emissions reporting. Scope 3 emissions, which account for the majority of most companies' total emissions, include those generated up- and downstream of company activities in the value chain. And with financial markets and investors increasingly demanding transparency around Scope 3 emissions, pressure on companies is growing to measure and manage these emissions effectively. 

In response, many companies are now comparing the PCFs of their suppliers to identify lower-carbon alternatives. By selecting suppliers with lower product emissions, companies can reduce their upstream Scope 3 emissions and make progress towards their sustainability goals.

The twin pressures of regulatory requirements and customer demand mean that lower PCFs are becoming a critical differentiator for companies. They enable them to stand out in the market, meet growing demand for sustainable products, and gain a competitive edge.

The role of product carbon footprints today

Carbon accounting, both at corporate and product levels, is now a crucial tool for companies to meet growing regulatory demands, improve supply chain sustainability, and reduce their overall carbon footprint. While corporate carbon accounting offers a broad view of a company's emissions across its value chain, PCFs provide more detailed insights into the lifecycle emissions of individual products. 

As regulations such as California’s LCFS and the EU's CBAM increase the focus on product-level emissions, the value of PCFs is rising, helping companies comply with regulations, minimize supply chain emissions, differentiate their products, and drive decarbonization efforts at a granular level. Ultimately, a product carbon footprint  is a tool that fosters innovation, enhances competitiveness, and gets us closer to our global climate goals, creating a more sustainable future for all.