25-06-2025
Tariffs Are Quietly Inflating Your Carbon Costs — ERP Data Fixes That
Transitioning to activity-based carbon calculations, as defined by the Greenhouse Gas (GHG) Protocol, shields businesses from the tariff influence, cuts costs and fast tracks decarbonization.
There's a hidden variable that could be affecting your company's carbon calibration: tariffs.
Tariffs are logistical headaches, but behind the scenes they could be inflating your carbon emissions and taking bigger chunks out of your finances than you realize.
Spend-based carbon calculations attribute emissions based on the cost of supplies. It's a straightforward method that most companies use when starting to calculate their carbon footprints, but it is not well-equipped to handle fluctuating tariffs.
Even without tariffs, spend-based calculations are approximations that meet a basic threshold of acceptability, but lack the granularity and accuracy of activity-based calculations. The addition of erratic tariffs inflates the calculation and reduces the reliability of carbon emissions.
Activity-based calculations, on the other hand, use activity data from operations, like kilograms purchased or kilometers travelled, multiplied by the supplier's or industry average emissions factors. Activity data is easily sourced from the ERP system.
Transitioning to activity-based carbon calculations, as defined by the Greenhouse Gas (GHG) Protocol, shields businesses from the tariff influence, cuts costs and fast tracks decarbonization.
How do tariffs inflate spend-based calculations?
In spend-based carbon calculations, you take the cost of imported goods and multiply it by emission factors to get a rough estimate of a product's embedded carbon emissions.
Depending on which dataset is used, tariffs can inflate the cost of imported goods and the corresponding emissions. Additionally, spend-based emission factors are usually conservative, erring on the side of inflating emissions rather than under counting.
This means higher perceived emissions. For your sustainability strategy, this means loftier decarbonization goals. In the voluntary carbon market, it's more offset purchases. Whichever way you slice it, it means increased costs.
The most widely used datasets for spend-based carbon calculations are ill-equipped to account for the influence of tariffs on costs. Some datasets account for the inflation of tariffs, others don't, but none of them are able to keep up with the pace of tariff changes that we've seen so far this year, leaving businesses unclear on their true carbon footprint.
The domino effect
Relying on spend-based datasets to calculate carbon emissions results in generally acceptable but inaccurate carbon data.
Your team's decarbonization strategy fundamentally relies on carbon data. Dealing with baseline data uncertainty can mean investing in the wrong decarbonization technology, pursuing the wrong sustainability opportunities, and mitigating the wrong climate risks. Even the right decarbonization decisions can look wrong when you rely on imprecise data.
Business leaders relying on inaccurate and inflated carbon calculations may over purchase carbon offsets and be unsure where net zero actually is, and even less sure about how to get there.
Shoddy sustainability strategies erode investor confidence and repel the ever more conscious consumer. Lackluster sustainability performance can also make business partnerships and financing options more difficult to secure.
In short, spend-based calculations create unnecessary enterprise risks.
Activity-based calculations drive decarbonization
Carbon emissions calculated using activity data are immune to swings in tariffs, and a much more reliable method to measure imported carbon. A 50 percent tariff makes no difference to kilometers travelled or purchased weight of goods.
Many global standards and regulations like the EU Corporate Sustainability Reporting Directive (CSRD), however, follow the GHG Protocol, which accepts either spend-based or activity-based carbon calculations. Businesses participating in the voluntary carbon market or developing decarbonization strategies can also get by with spend-based calculations.
Spend-based calculations are easier for quick, widespread adoption and this entry level method can get businesses started on their decarbonization journey.
At some point though, the insights gained from spend-based calculations fall flat, inaccurate data leads businesses down the wrong path, and an upgrade towards activity-based calculations is required.
The activity-based approach captures the value framework of the C-suite, identifying opportunities for margin growth and mitigating risk exposure.
Opportunities for decarbonization can be identified with confidence using physical quantities of activities, not dollars. Activity-based carbon data can be broken down along the lines of P&L, surfacing revenue and removing risk.
Moving from spend-based to activity-based calculations uncovers the hidden opportunities and value in decarbonization while shielding you from tariff carbon inflation. ERP-centric systems serve as the primary source of activity-based data, and the ultimate tool for guiding decarbonization strategies.
Learn more here.
