Learn about the methodology underpinning PCAF 4 and 5 calculations used in Pathzero Navigator.
What is Environmentally-Extended Input Output (EEIO)
Environmentally extended input-output (EEIO) is used in environmental accounting as a tool that calculates greenhouse gas (GHG) emissions from the upstream supply chain activities of different economic sectors per region using industry averages.
When is EEIO used
When actual GHG emissions for a specific company (company A) are not available, they can be estimated by reference to industry benchmarks in a specific region / country. In summary, this means that “typical” average emissions for a sector will be scaled appropriately and deemed to be a suitable estimate for company A, until more specific data can be obtained.
Using EEIO as a reference database
EEIO is a tool developed by economists to infer environmental impact indicators, in this case, GHG emissions from financial indicators. It helps bridge the gap between financial information, usually readily available, and GHG emissions, less frequently disclosed.
EEIO data is produced using national or regional economic and environmental information collected or estimated at the industry level. This information is aggregated and averaged to produce a standard GHG emission per million of currency of economic output for each industry. To simplify:
- Assuming company A belongs to sector X
- Assuming sector X economic output (or cumulative revenue for companies of this sector) is $100M
- Assuming sector X emissions for year 20YY are 200 tCO₂e
- Then emissions per $M revenue for companies in sector X are 2 tCO₂e/$M
- Assuming company A’s revenue in year 20YY is $10M, then inferred emissions for company A for that year are 20 tCO₂e
EEIO estimates are the same across companies categorised within this EEIO sector in a given country / region. The specific EEIO data used by Pathzero Navigator is produced by Exiobase, as recommended by the Partnership for Carbon Accounting in Finance (PCAF). It comprises 163 sectors across 44 countries and 5 “rest of the world” regions.
Limitations of EEIO
The limitations of the estimates are inherent to the limitations in the available EEIO data:
- Results are averaged, i.e. all companies categorised in the same sector are allocated the same emissions intensity per million of revenue (or asset)
- The sectoral allocation is driving emissions intensity factors
- Depending on the region, data availability and accuracy (for financial and greenhouse gas reporting) varies
Assumptions used by Pathzero with regards to the use of Exiobase EEIO factors
Pathzero uses the emissions factors directly from Exiobase, which represent a combined Scope 1, 2 and an upstream Scope 3 emissions factor, and then applies an "uplift factor" to account for downstream Scope 3 emissions not included in the factors provided by Exiobase. This uplift factor is based on the EEIO sector a company is assigned to, and ensures that all PCAF 4 and 5 estimates are conservative.
PCAF results using EEIO
When financial information and EEIO are used as the main data sources to calculate financed emissions, the best possible result will be a PCAF 4 or 5 score.
Learn more on how to reach PCAF 1
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