About one-third of Japan's CO₂ emissions originate from the industrial sector, primarily from manufacturing. To fulfill their social responsibility, Japanese manufacturers must continually work to reduce these emissions. Managing product-specific CO₂ emissions accurately can be achieved through the Carbon Footprint of Product (CFP) assessments, which track greenhouse gas (GHG) emissions across each stage of a product's lifecycle, similar to the principles of activity-based costing (ABC). NEC refers to this approach as activity-based GHG emission (ABG) management. This paper introduces the regulations surrounding CFP disclosure, presents an ideal management approach using ABG for continuous improvement, identifies the anticipated challenges, and outlines how NEC plans to offer value in addressing these areas.

1. Introduction

Carbon neutrality aims to address global warming by reducing CO₂ emissions and offsetting any remaining emissions through methods such as reforestation and technological absorption. These efforts work together to achieve a net-zero CO₂ balance.

Japan has set a goal to achieve carbon neutrality by 2050.¹⁾ At COP26, the 26th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change, then-Prime Minister Fumio Kishida pledged to reduce greenhouse gas emissions by 46% from 2013 levels by 2030, with an aim to further decrease emissions to 50%.

Data from Japan's Ministry of the Environment and Ministry of Economy, Trade and Industry (Fig. 1) indicate that the country emitted 1.14 billion tons of greenhouse gases (GHG) in fiscal year 2022. About 30% of the emissions came from the industrial sector, especially manufacturing.

This underscores the urgent need for Japan's manufacturing industry to tackle carbon neutrality as part of its social responsibilities. Thus, the idea of the Carbon Footprint of Product (CFP) approach, which measures GHG emissions—including CO₂ and its equivalents—through a product's entire lifecycle (Fig. 2) is attracting attention.

Successful implementation of the CFP requires robust collaboration and data sharing across the supply chain, beyond the efforts of individual companies. This paper explores regulatory and standardization trends in CFP disclosure, outlines best practices for managing CFPs, discusses implementation challenges, and highlights NEC's innovative approach to these challenges.

2. Regulations and Standardization Trends for CFP Disclosure

Among the environmental impact substances linked to the Sustainable Development Goals (SDGs)—including water (H₂O) and sulfur oxides (SO_X), which contribute to acid rain—efforts to standardize the management of CO₂ emissions information, establish data spaces, and develop legal regulations are particularly advanced.

2.1 Advances in Standardizing Rules for CFP Information Management

While CO₂ emissions standardization frequently centers around ISO 14064, it does not comprehensively address aspects such as frameworks for inter-company information exchange. To fill these gaps, efforts are underway to develop comprehensive international standards.

The Pathfinder Framework and Pathfinder Network are international technical specifications proposed through the Partnership for Carbon Transparency (PACT), an initiative led by the World Business Council for Sustainable Development (WBCSD) and chaired by CEOs and senior executives from private companies around the world. The Pathfinder Framework provides guidance on methodologies for calculating CFPs and sharing the results across the supply chain. Meanwhile, the Pathfinder Network defines data formats, application program interfaces (APIs), and the standards for intercompany data exchange to ensure data confidentiality. Such initiatives drive the standardization of CFP management rules beyond individual enterprises.

2.2 Development of Data Spaces and Regulatory Frameworks in Europe

In Europe, the establishment of GAIA-X, data spaces for enterprises, is progressing alongside the advancement of the Internet and IoT technologies. While many are familiar with Electronic Data Interchange (EDI) for ordering and invoicing systems, the need for data exchange also extends to areas such as Carbon Footprint of Products (CFPs). Europe is actively exploring various use cases and developing methodologies for business-to-business data exchange.

The automotive industry has been particularly proactive, establishing the Catena-X data space, which is now operational. As mentioned earlier, managing a product's carbon footprint requires data exchange between companies. To support this, inter-company collaboration is beginning through platforms aligned with the previously discussed Pathfinder Framework and Pathfinder Network.

Moreover, Europe is set to require mandatory CFP declarations for batteries in electric vehicles starting in February 2025, with penalties for non-compliance that could include high tariffs, fines, or suspension of business operations. These regulations are expected to expand to cover batteries in industrial machinery, smartphones, computers, and home energy storage systems. Beyond battery regulations, the Ecodesign for Sustainable Products Regulation (ESPR), which went into effect on July 18, 2014, covers a wide range of materials and products, including steel, aluminum, textiles, furniture, tires, detergents, paints, and chemicals.

These apply to all companies in the supply chain. In addition, it is now commonplace for manufacturing companies to do business with Europe. In Japan's various manufacturing industries, it is becoming impossible to say that these things are "happening in the next field.

2.3 Trends in Inter-company Circulation of CFP Data in Japan

In Japan, the Ministry of Economy, Trade and Industry is also working with the automotive industry to develop the Ouranos Ecosystem, a domestic inter-company space. As the first use case, a traceability management system for storage batteries has been established, promoting the disclosure and sharing of product CFP information. In this way, the information infrastructure and business rules for managing product CFPs are being established in Japan and Europe.

3. Ideal Approach to CFP Management in Manufacturing

There are two main methods for calculating CFPs.

The first is the allocation-based method, which uses a formula that leverages readily available information, making it a popular choice for many tools that offer CFP calculation capabilities:

CFP of applicable product = Total CO₂ emissions of the company × (Shipment volume* of the product / Total shipment volume of all products*)
*Shipment volume: Shipment value or weight of shipped products

The second method, illustrated in Fig. 3, is the activity-based approach. This method calculates the CFP by multiplying emission factors by the relevant activity levels, such as the amount of resources used in the procurement and manufacturing processes. These calculations are then summed to determine the total carbon footprint.

For example, the combination of activity levels and emission factors for each process is as follows.:

Procurement process
= CO₂ emissions per component or material × Quantity used per product
Manufacturing process
= Energy consumption from equipment used to produce one unit of the product × CO₂ emission factor for that energy

Implementing this methodology requires a detailed understanding of product composition, activity data, and emission factors for each item and process, which can be complex. However, it is highly effective in gaining insight into operational realities and driving CO₂ reduction efforts. The Pathfinder framework also strongly advocates for management at this level of detail. In cost management, the concept of Activity-Based Costing (ABC) is similar, where each process is treated as an activity, resulting in comparable calculation methods. NEC has introduced the term Activity-Based GHG emission (ABG) to describe and promote this approach.

3.1 Architecture of the ABG Management System

To address the challenge of reducing CO₂ emissions for our manufacturing customers, the focus is on making improvements easily actionable within the framework of Activity-Based GHG (ABG) management. The architecture, shown in Fig. 4, consists of the following components.

3.2 Addressing Challenges in Implementing an ABG Management System

Implementing an Activity-Based GHG emission (ABG) management system involves significant challenges, not only from a system perspective but also in terms of business process transformation. For instance, obtaining CO₂ emissions data for each component and material from suppliers requires them to have their own ABG management systems. Achieving full compliance with all suppliers is not easy. This issue is particularly prominent for assembly manufacturers, where the proportion of CO₂ emissions from procured items (Scope 3, Category 1) is considerable—a challenge also faced by NEC itself.

Additionally, collecting energy information from on-site equipment (Scope 1 and 2) requires investing in power measurement devices and other related technologies. The complexity of managing mixed-model production lines further adds to the challenge of ABG management.

To address these challenges, NEC offers ABG management system solutions through its expertise in business transformation consulting and the following solutions:

4. Conclusion

In this paper, we have discussed the ideal approach for implementing activity-based GHG emission (ABG) management and the challenges associated with achieving this goal. Achieving carbon neutrality requires not only the implementation of ABG management systems but also a variety of initiatives, such as power purchase agreements (PPAs) for renewable energy installations and resource aggregation. NEC plans to further enhance its services to support these endeavors.

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