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Examples of allocating emissions
1. Physical Allocation:
- Sometimes, when a factory makes different products, they might use similar amounts of energy and materials to make them. However, these products might have different values in the market.
- Even though the market value of the products is different, the actual pollution created by making each product might be similar.
- In such cases, it makes sense to use physical factors (like units produced, weight, volume, energy, etc.) to measure emissions. These physical factors closely match the pollution created by each product.
2. Transportation:
- If a single vehicle (like a truck, train, or ship) transports multiple products, and you have data on how much fuel the vehicle uses, you can estimate emissions by dividing them among the products.
- In this case, it’s also a good idea to use physical factors (like weight or volume) to measure emissions. The choice depends on what limits the vehicle’s capacity, such as weight for trucks and volume for ships.
3. Commercial Buildings:
- If a company wants to figure out how much pollution comes from a commercial building (like a store or warehouse) and how it relates to specific products, it should use physical allocation.
- It can use factors like volume or area, depending on what best represents how energy use and emissions relate to the storage of products.
4. Using Economic Allocation:
- Economic allocation is a method you use when it’s hard to establish a direct physical connection between a product and its emissions.
- This method works well in certain situations:
- When there’s no clear physical link.
- When a co-product wouldn’t be produced without demand for the main product or other valuable by-products.
- When a co-product was previously considered waste but now has value (like using fly ash in cement production).
- For investments, where emissions should be assigned to a company based on its share of equity or debt in another company.
- In situations other than these, you should be cautious about using economic allocation. It can lead to inaccurate estimates, especially when prices change a lot or are unrelated to the physical properties and emissions of the product (like luxury items or products with high branding or research costs).
