Polybutylene adipate terephthalate (PBAT) is widely regarded as a promising biodegradable polymer for agricultural mulch and packaging films, yet its high carbon footprint constrains broader applications. Lignin has been explored as a filler for PBAT to improve its environmental impacts, but limited interfacial compatibility with PBAT restricts the amount that can be incorporated. This study proposes lignin modification by phenolation to enhance the compatibility with PBAT and reduce the carbon emissions of the PBAT composite. A phenolated lignin (PL) can be incorporated up to 20 wt% into PBAT without damaging the toughness of the neat PBAT. A global warming potential assessment shows that the carbon emissions of the PBAT-PL composite are reduced by 11.4% compared to the PBAT (9.49 kgCO2 eq.), outperforming 17 reported PBAT composites (>9.82 kgCO2 eq.). This study demonstrates PL is a promising filler enabling high loading, advancing the biodegradable polymer blending applications.