At Grumbic we've reviewed quite a few carbon footprint measurements, and there's one mistake that keeps showing up when measuring emissions from capital goods (Scope 3, Cat. 2): calculating emissions by applying emission factors to the book value of assets. A building bought in 2021 that shows up in the 2023 footprint at its depreciated value. A vehicle fleet that "emits" less every year because it keeps depreciating. Machinery that gets dragged along period after period until its net value hits zero.
The mistake is understandable, because the standard itself uses financial accounting to define what counts as a capital good. But it's still a mistake, and one that distorts the entire measurement. In this post we explain what the GHG Protocol and ISO 14064-1 actually say, why emissions don't depreciate, and how to fix your measurement if you've been doing it this way.
What capital goods are in a carbon footprint
Capital goods are the assets a company buys and uses for several years: buildings, machinery, equipment, vehicles, facilities. Category 2 of Scope 3 covers the emissions generated to produce them: extracting the raw materials, manufacturing the asset and transporting it to you. These are known as cradle-to-gate emissions (from raw material extraction until the asset reaches your hands).
How do you know whether a purchase goes in Category 2 or Category 1 (purchased goods and services)? The GHG Protocol solves it with a simple rule: follow your accounting. If the item is capitalized as a fixed asset, it's Category 2. If it's recorded as an expense, it's Category 1.
And that's where the trap is. Since classification depends on accounting, it's easy to assume the calculation does too. It doesn't. Accounting decides where the asset goes, not how its emissions are measured.
What the GHG Protocol says: everything in the year of purchase, no depreciation
The GHG Protocol's Scope 3 standard is explicit on this point. Section 5.4 of the Corporate Value Chain (Scope 3) Standard (and chapter 2 of the Technical Guidance as well) says companies should not depreciate, discount or amortize the emissions from producing capital goods. The total cradle-to-gate emissions are accounted for in the year of purchase, just like any other product in Category 1.
The logic is simple: the emissions from manufacturing a building or a machine happened once, before the asset ever reached your hands. The asset can lose value on your books, but those emissions are already in the atmosphere and they don't shrink with depreciation. An emissions measurement records physical flows. Depreciation spreads a financial cost over time. They're two different things, and mixing them produces a number that means nothing.
And what happens if you buy a lot one year and nothing the next? Category 2 will jump from year to year, and that's fine. The standard says so: instead of smoothing the curve, you explain in the report that there was a large or unusual investment that year. Volatility is part of the footprint, not a flaw you need to fix by amortizing.
Why book value also breaks the spend-based method
Most companies calculate this category with the spend-based method: spend times an economic emission factor (kgCO₂e per peso, dollar or euro spent). Those factors come from input-output models like EXIOBASE or the EPA's USEEIO, and they have a precise definition: emissions per unit of purchase price, in a specific currency and year. That's why the guidance asks you to adjust spend for inflation and exchange rate before multiplying.
Applying that factor to book value fails on both ends. Book value isn't a purchase price: it's an accounting figure that goes down based on whatever useful life and depreciation method was defined, and it has nothing to do with the emissions from manufacturing the asset. It doesn't match the factor's reference year either, so not even an inflation adjustment can fix the calculation. The result is a number with no physical meaning, which on top of that re-counts every year an asset that should have been fully accounted for when it was bought.
What about ISO 14064-1? An important nuance
ISO 14064-1:2018 classifies things differently (six categories instead of scopes) and covers capital goods in Annex B, subclause B.5.2 b). Here there's a real difference with the GHG Protocol: ISO gives two options. One, account for the total production emissions in the year of purchase, same as the GHG Protocol. Two, amortize that total and report it pro-rata over the amortization period.
So yes, under ISO you can amortize. But watch what gets amortized: a total amount of emissions calculated once, when the asset is purchased, and then spread evenly over time. The standard never contemplates recalculating emissions every year on the current book value. Using book value is neither Option 1 nor Option 2: it's not a valid method under either framework.
And in practice: if you report under the GHG Protocol, which is what CDP, SBTi and most regulatory frameworks require, the amortization option doesn't even exist. There's only one rule: everything in the year of purchase.
How to measure it right
The correct procedure for Category 2 is this:
- Start from the fixed asset register. Everything capitalized in the reporting year goes into that year's Category 2. Assets from previous years don't show up again.
- Use the best method available, in this order: supplier data (the product's cradle-to-gate footprint), hybrid method, average data per physical unit (for example, kgCO₂e per m² built or per tonne of machinery), and only as a last resort the spend-based method.
- If you use spend-based, use the original purchase price (the capex from the year of acquisition), adjusted to the factor's reference currency and year. Never the net book value.
- Account for 100% in the year of purchase and don't include that asset again in later years.
- Explain in the report if the year had large investments that make Category 2 spike compared to previous years.
Three specific cases worth having clear. Leased assets don't go here but in Category 8 (upstream leased assets), except for finance leases that give you accounting ownership. Capitalized improvements (major capex on an existing asset) go into Category 2 in the year they're capitalized. And a construction project spanning several years can be accounted for as the spend is incurred or in the year it's placed in service, as long as you apply the same criterion consistently and document it.
What if I've been measuring it wrong?
Fixing your capital goods methodology is a change of method and an error correction, and that triggers the GHG Protocol's base year recalculation policy. If the impact exceeds the significance threshold your company defined, you need to recalculate the base year and the years in between so the series stays comparable, and document the change.
In practice it's three steps: build the asset purchase register by year with original cost, recalculate each year's Category 2 assigning 100% of the emissions to the year of purchase, and remove from the measurement the assets dragged along from previous years. The result is usually a more volatile series, with investment peaks some years and near-zero others. But that is, precisely, the real picture.
