Introduction
Understanding how your organization calculates its carbon footprint is essential to driving meaningful climate action. One area that often causes confusion is Scope 2 emissions, which arise from the purchase of electricity. The Greenhouse Gas (GHG) Protocol provides two approaches to account for these emissions: the location-based and market-based methods.
In this guide, we break down the differences, explore residual energy mix emissions, and explain when to use each method.
What Are Scope 2 Emissions?
Scope 2 emissions are indirect greenhouse gas emissions resulting from the consumption of purchased electricity, heat, or steam. While your organization consumes this energy, a third party generates it.
To ensure transparency, the GHG Protocol requires companies to report Scope 2 emissions using both the location-based and market-based methods.
Location-Based Method: What It Means
The location-based method calculates emissions using the average carbon intensity of the local power grid where your operations occur. It relies on emission factors that reflect the energy mix—such as coal, gas, or renewables—supplying electricity in your area.
Key Points:
- Reflects physical reality: Shows emissions from the electricity physically delivered to your facility.
- Standardized: All organizations using the same grid apply the same emission factor, regardless of purchasing choices.
Example:
If your company consumes 100,000 kWh in a region with a grid emission factor of 0.2 kg CO₂/kWh:
100,000 kWh × 0.2 kg CO₂/kWh = 20,000 kg CO₂e
Market-Based Method: A Customized Approach
The market-based method calculates emissions based on the specific electricity your company buys. If you invest in renewable energy through Renewable Energy Certificates (RECs), Power Purchase Agreements (PPAs), or other contracts, you can reflect that choice.
Key Points:
- Tailored to procurement: Emissions depend on your energy suppliers and contracts.
- Promotes renewables: Lets companies report lower emissions when they support clean energy sources.
Example:
If your company buys 100% renewable electricity, your market-based emissions could be zero, even if the local grid includes fossil fuels.
What Are Residual Energy Mix Emissions?
Residual energy mix emissions refer to the emissions from the grid electricity left after all renewable energy claims (e.g., RECs or PPAs) are accounted for. This “leftover” energy typically includes fossil fuels and other non-renewables.
Key Points:
- Prevents double counting: Ensures renewable claims aren’t duplicated, keeping carbon accounting fair and accurate.
- Used in market-based method: Companies without renewable contracts must use residual mix factors.
Example:
If a company uses 100,000 kWh in a region with a residual mix factor of 0.3 kg CO₂/kWh:
100,000 kWh × 0.3 kg CO₂/kWh = 30,000 kg CO₂e
Understanding residual emissions helps clarify the difference between your physical electricity use and your investment in renewable energy.
Why Both Methods Matter
The GHG Protocol requires both methods because each offers a unique perspective:
- Location-based: Highlights emissions physically released in your operating region.
- Market-based: Reflects your purchasing decisions and their environmental impact.
For instance, a company might consume grid electricity (location-based) but invest in RECs (market-based) to offset its footprint. Reporting both offers a transparent view of carbon strategy and impact.
Which Method Should You Focus On?
While both are vital, your emphasis may vary depending on:
- Reporting frameworks: Some standards prefer one method over the other.
- Sustainability goals: If you’re showcasing renewable investments, focus more on the market-based method.
Still, the location-based method serves as a universal baseline, helping compare emissions across regions and organizations.
Conclusion
Grasping the difference between location-based and market-based Scope 2 emissions, along with residual energy mix, is crucial for precise carbon reporting. These methods work together to give a full picture of your organization’s environmental footprint.
By applying both approaches, you can make smarter decisions, align with international standards, and demonstrate your commitment to sustainability.
Stay tuned for more insights on carbon accounting and climate strategy on Greengency.