When calculating your organisation's carbon footprint — particularly Scope 3 emissions — you will encounter two primary methodologies: spend-based and activity-based accounting. Understanding the differences is critical for choosing the right approach and producing meaningful results.
Spend-based accounting
The spend-based method estimates emissions by multiplying the financial value of goods or services purchased by an emission factor expressed in kg CO₂e per dollar spent. For example, if your organisation spent $100,000 on office furniture and the relevant emission factor is 0.5 kg CO₂e per dollar, the estimated emissions would be 50 tonnes CO₂e.
Advantages
- Broad coverage — financial data is readily available from existing accounting systems, making it possible to estimate emissions across all procurement categories quickly
- Low data burden — no need to collect physical activity data from suppliers
- Good starting point — provides a reasonable baseline for organisations beginning their emissions reporting journey
Limitations
- Lower accuracy — spend-based factors use broad industry averages that may not reflect your specific supply chain
- Inflation and currency effects — rising prices can increase your reported emissions without any change in actual activity
- Cannot track real reductions — because the method is tied to financial spend rather than physical activity, genuine emissions reductions (e.g. a supplier switching to renewable energy) may not be reflected
Activity-based accounting
The activity-based method calculates emissions by multiplying physical activity data (such as kilowatt-hours of electricity, litres of fuel, or tonnes of material purchased) by a specific emission factor for that activity. For example, 10,000 kWh of electricity consumed × 0.68 kg CO₂e/kWh = 6.8 tonnes CO₂e.
Advantages
- Higher accuracy — uses real-world consumption data and specific emission factors
- Tracks genuine reductions — reflects actual changes in energy use, transport modes, or material efficiency
- Better for target-setting — provides a reliable baseline against which to measure progress
Limitations
- Data collection burden — requires detailed physical data from operations and suppliers, which can be difficult to obtain
- May not cover all categories — some Scope 3 categories (e.g. purchased goods and services) are hard to quantify with activity data alone
The GHG Protocol data quality hierarchy
The GHG Protocol Technical Guidance for Calculating Scope 3 Emissions ranks calculation methods by data quality, from most to least preferred:
- Supplier-specific method — uses primary data from your suppliers (e.g. product-level carbon footprint data)
- Hybrid method — combines supplier-specific activity data with secondary emission factors
- Average-data method — uses industry-average emission factors applied to activity data (e.g. tonnes of material × average factor)
- Spend-based method — uses financial spend × economic emission factors
The hierarchy makes it clear: activity-based approaches are preferred, but spend-based methods are an acceptable starting point when activity data is unavailable.
A hybrid approach is often best
In practice, most organisations use a combination of both methods. You might use activity-based calculations where you have good data — such as energy consumption, fleet fuel use, and business travel — and fall back to spend-based estimates for categories where physical data is harder to collect, such as purchased goods and services.
Over time, the goal is to progressively shift from spend-based to activity-based data across more categories. This improves accuracy and gives you a clearer picture of where your largest emissions lie — and where reduction efforts will have the most impact.
Which method for which Scope 3 category?
The GHG Protocol Scope 3 Standard defines 15 categories. Here is a practical guide to which method suits each:
| Category | Recommended method |
|---|---|
| 1. Purchased goods and services | Spend-based initially, moving to supplier-specific |
| 2. Capital goods | Spend-based initially, moving to supplier-specific |
| 3. Fuel- and energy-related activities | Activity-based (energy consumption data) |
| 4. Upstream transportation | Activity-based (tonne-km, vehicle type) |
| 5. Waste generated in operations | Activity-based (waste tonnage by type) |
| 6. Business travel | Activity-based (distance, mode of transport) |
| 7. Employee commuting | Activity-based (surveys + distance estimates) |
| 8. Upstream leased assets | Activity-based where possible |
| 9–15. Downstream categories | Varies — often requires modelling or supplier engagement |
Australian emission factors
For activity-based calculations in Australia, the National Greenhouse Accounts (NGA) Factors published by the Department of Climate Change, Energy, the Environment and Water (DCCEEW) are the authoritative source. These factors cover energy, transport, waste, industrial processes, and more, and are updated annually.
For spend-based calculations, databases such as the EXIOBASE multi-regional input-output model or the US EPA Supply Chain Emission Factors are commonly used, though currency and regional adjustments may be needed.
Key takeaway
Neither method is inherently wrong — the right approach depends on your data maturity and reporting goals. Start with spend-based estimates to establish broad coverage, then progressively invest in activity-based data for your most material emission sources. Under the Australian Sustainability Reporting Standards, this progressive improvement is both expected and encouraged.