Category 2 — Capital Goods covers emissions from the extraction, production, and transportation of capital goods purchased or acquired by the company in the reporting year. Capital goods are fixed assets with an extended useful life that the company uses to manufacture products, provide services, or otherwise conduct its operations.
What Counts as a Capital Good?
Capital goods include:
- Machinery and production equipment
- Buildings and facility infrastructure
- IT hardware (servers, computers, network equipment)
- Vehicles used in operations (company fleet)
- Furniture and fittings in commercial premises
- Laboratory and medical equipment
The defining characteristic is that capital goods are not consumed in the production process - they are used repeatedly over multiple years. In financial accounting, this is reflected in their capitalisation on the balance sheet and depreciation over their useful life.
How Category 2 Differs from Category 1
Despite covering physical goods, Category 2 is accounted for differently from Category 1:
| Feature | Category 1 (Purchased Goods) | Category 2 (Capital Goods) |
|---|---|---|
| Asset type | Consumed in operations; expensed | Used over multiple years; capitalised |
| GHG allocation | Emissions assigned to year purchased | Full lifecycle emissions assigned to year of acquisition |
| Examples | Raw materials, packaging, office supplies | Machinery, buildings, company vehicles |
The full cradle-to-gate emissions of a capital good are attributed to the year of acquisition - not spread over the depreciation period. This means that a company's Category 2 emissions may spike in years when significant capital investments are made (e.g., a new factory line) and fall in years with minimal capital expenditure.
Calculation Methods
Category 2 uses the same four calculation methods as Category 1:
- Supplier-specific method: Obtain GHG data from equipment suppliers (e.g., a machine manufacturer's product carbon footprint)
- Hybrid method: Supplier-specific data for major equipment; average-data for minor items
- Average-data method: Use EIO or LCA databases with appropriate emission factors per unit of capital good
- Spend-based method: Apply EIO emission factors per unit of capital expenditure by sector
For most companies, the spend-based or average-data method is used for initial estimates, as capital goods purchasing is often less frequent and involves fewer individual items than Category 1.
Category 2 - Capital Goods Emissions (Spend-Based)
Category 2 Emissions
Total cradle-to-gate emissions from capital goods purchased in the reporting year, in tCO₂e
Capital Expenditure
Total spend on capital goods in the reporting year (currency)
EIO Emission Factor
tCO₂e per unit of capital expenditure for the relevant industry sector
Category 2 - Capital Goods Emissions (Physical Data)
Category 2 Emissions
Total cradle-to-gate emissions from capital goods purchased in the reporting year, in tCO₂e
Quantity
Mass or number of capital goods purchased (tonnes or units)
Physical Emission Factor
tCO₂e per tonne or per unit of capital good
A company purchases a new CNC milling machine for £250,000. The EIO emission factor for industrial machinery (UK) is 0.35 kgCO₂e per £ of output. What are the Category 2 emissions from this purchase in tCO₂e?
Materiality and When to Include Category 2
Category 2 tends to be most material for:
- Capital-intensive industries (manufacturing, mining, energy, construction) where large machinery and facilities are regularly purchased
- Companies undergoing rapid expansion (new factories, data centres, renewable energy installations)
- Technology companies with significant server and hardware infrastructure
For service-sector companies with minimal capital expenditure, Category 2 may be negligible. In such cases, the company should document this conclusion - noting the small capex budget relative to total spend - rather than simply omitting the category.
Accounting for a new factory building in Category 2 is like recording the full sticker price of a car as a cost in the year you buy it, rather than spreading it over five years of depreciation. From a carbon perspective, all the steel, concrete, glass, and energy used to make the building were consumed during its construction - those emissions occurred in the year the building was produced, regardless of how long it will be used.
A common error is double-counting assets purchased for resale (inventory) as capital goods. A logistics company that buys trucks for its own fleet records them in Category 2. A truck dealer that buys trucks to sell to customers records them in Category 1 (purchased goods for sale). The distinguishing test: if the item is used in the company's own operations, it is Category 2. If it is purchased for resale, it is Category 1.
Key Takeaways
- 1Category 2 covers capital goods (machinery, buildings, IT hardware, vehicles) - assets with extended useful lives that are capitalised and depreciated
- 2Full cradle-to-gate emissions are attributed to the year of acquisition, not spread over the depreciation period - causing spikes in years with major capital investments
- 3The same four calculation methods as Category 1 apply: supplier-specific, hybrid, average-data, and spend-based
- 4Distinguish capital goods (used in operations - Category 2) from goods purchased for resale (inventory - Category 1) to avoid double-counting
- 5Category 2 is most material for capital-intensive industries and companies undergoing rapid expansion (new factories, data centres)