Do you adjust EFs based on inflation?

When calculating spend-based Scope 3 emissions, a common question is whether emissions factors should be adjusted for inflation to reflect current prices. At Trace, we deliberately do not adjust spend-based emissions factors for inflation, and here’s why:

1. Emissions Factors Are Calibrated to a Specific Price Year

Spend-based emissions factors are developed using input–output models, which are based on economic data from a defined base year (e.g. 2022 AUD). These factors are calibrated to reflect the carbon intensity per dollar in that year’s prices.

Adjusting the factors for inflation would not completely solve the issue unless all customer spend data were also converted to real (inflation-adjusted) dollars—something that adds significant complexity given carbon assessments are almost always performed in arrears.

2. Inflation does not occur uniformly

The price of different goods and services inflate at different rates in the real world, meaning that it may not make sense to apply a blanket inflation rate to all emissions factors. 

3. Updated Factors Capture Real-World Changes Over Time

Instead of manually adjusting for inflation, Trace incorporates updated emissions factors as they become available. These updates reflect real-world changes in the economy and supply chains, including:

• Shifts in production methods and energy use

• Structural changes in industry

• Changing price-emissions relationships over time

This means emissions intensity per dollar evolves naturally with each update.

4. Inflation Doesn’t Increase Carbon Emissions

While inflation raises the monetary cost of goods and services, it does not increase the actual emissions generated during their production or delivery. Adjusting emissions factors for inflation risks miscalculating emissions, especially for sectors where prices have risen but carbon intensity has remained stable or declined.

Summary

Trace does not adjust emissions factors for inflation because:

• Factors are already tied to a specific price year

• Inflation does not occur uniformly across goods and services

• Regular factor updates better reflect changing emissions intensity

• Inflation does not inherently affect how much carbon is emitted

This approach balances accuracy with usability and helps ensure a smooth experience for all users.