There are multiple different types of carbon accounting having different boundaries and goals such as corporate carbon accounting and product carbon accounting. In all instances, organisations are looking to measure and account for the total emissions produced by a given set of activities or products.

The EU CBAM is a form of product-level carbon accounting where we are interested in accounting for the emissions associated with the production of a product.

We are therefore looking to perform carbon accounting in line with a product carbon footprint (PCF) methodology.

The leading, comprehensive framework for calculating a product carbon footprint is the Greenhouse Gas (GHG) Protocol's Product Standard.

Product carbon accounting considers the emissions of a product across its life cycle, . Generally these are considered to be calculated “cradle-to-gate”, “cradle-to-customer” or “cradle-to-grave”.

When we calculate a product carbon footprint, we arrive at an intensity metric: tonnes of CO2e per tonne of product, with a unit of tCO2e/t. In the EU's CBAM regulation, this intensity figure is called the "Specific Embedded Emissions Intensity" and is provided on a total basis and split between direct and indirect emissions.

Direct emissions include combustion and process emissions during production, but also emissions produced during the production of heat consumed during production, in case the installation receives heat from adjacent installations or from a district heating network.

Indirect emissions include emissions related to the electricity consumed during production. Note that if you produce electricity on-site, the fuels consumed in the electricity production count as direct emissions of the production site. But electricity production is considered a separate production process, i.e. those direct emissions are not attributed to direct attributed emissions of any goods produced in this installation.

When we measure a GHG Protocol Aligned Product Carbon Footprint we factor all associated emissions with the production of a good. This means when we define our system boundary, we factor in all emissions that take place during the production of the good. Under EU CBAM, the system boundary is greatly reduced, with the logic that this will simplify the measurement process and burden on CBAM goods producers who are required to measure the carbon footprint of the goods they produce. This is illustrated in the below diagrams where we look at the Steel, Aluminium and Fertiliser CBAM system boundaries:

Critically for aluminium, bauxite mining and alumina refining are not in the scope of the EU CBAM's system boundary.

For steel products, iron ore mining is not in the scope of the EU CBAM system boundary, nor are other alloys bar FeCr, FeMn and FeNi.

For fertilisers, raw material extraction is not included in the scope of EU CBAM system boundary, nor are the associated emissions of transportation and application.

The European Commissions have outlined that during the transitional phase of the CBAM regulation, the scope of the measurement of CBAM is different to what will be implemented in the definitive period (i.e. from 2026).

For example, for aluminium and steel, importers and installations need to report on both the direct and indirect embedded emissions of the products that they import however, during the definitive period, only direct emissions must be reported, subject to review.

We suspect that this review will ensure the incorporation of indirect emissions due to the electricity-heavy production processes associated with aluminium and iron/steel production.

The European Commission have acknowledged that there will be changes to the CBAM's system boundary and the methodologies to calculate the specific embedded emissions of CBAM goods as we progress through the "learning" period that is the transitional period.

As transparency and awareness increases within industries on the importance of understanding the full system boundary of a product's carbon footprint then organisations with Net Zero and other decarbonisation targets will want to understand the full scope of the emissions footprint of the products that they are purchasing.

Outside of CBAM, there are a number of other regulatory and market drivers that will result in companies needing to provide full-scope product carbon footprints such as mandatory Scope 3 reporting under the EU's CSRD regulation, other emissions trading systems being established outside the EU, as well as further developments in other Carbon Border Adjustment Mechanisms such as in the UK, Taiwan, Australia, Canada and the USA.

By performing a full-scope GHG Protocol Aligned Product Carbon Footprint, you can ensure that you are prepared for all carbon-related reporting requirements that your stakeholders may have.