Scope 2 represents one of the largest sources of GHG emissions globally. There are significant opportunities for organizations to reduce these emissions by reducing electricity demand and/or shift to low-carbon sources.

Reporting Scope 2 emissions is heavily based on a dual accounting and reporting approach defined by the Greenhouse Gas Protocol. This approach requires companies to report two sets of Scope 2 emissions: market-based and location-based emissions.

The location-based method reflects the emissions the company is directly releasing into the air as a result of the use of the regional or national electricity grid, whereas the market-based method reflects whether companies intentionally choose to procure low-carbon electricity or not.

Location-based Scope 2 emissions are calculated using emission factors that reflect the emissions intensity of the local grid. These are typically updated annually for each country. Market-based Scope 2 emissions are calculated by the specific contractual agreements companies have established.

In Cozero, you only need to track your emissions using the market-based method. The location-based Scope 2 emissions are automatically calculated based on your inputs. This way, you receive two sets of emissions data to use in reporting.

This article provides an overview of the market-based approach and its methodology. For more information on accounting for Scope 2 emissions, see the Wiki on Electricity.

Calculating emissions in the market-based method can be done by using contractual agreements companies have with their electricity providers. The method should therefore be used for locations where the following contractual instruments are available:

If a company does not have any such contracts or if contracts do not meet the required quality criteria (see below for more info) then it should use the residual mix: regional emission factors representing the emissions that remain after certificates, contracts, and supplier-specific factors have been claimed and removed from the calculation. This approach avoids double counting of the emissions from contractual instruments.

Residual mix factors are not widely available, and mostly used for European countries.

If the residual mix is not available, then the location-based method shall be used (in this case, the reported Scope 2 market-based emissions will be the same as the location-based emissions). In Cozero, your emissions will automatically be calculated with the correct methodology based on the data available for your geographical location when you select the activity “Residual or grid mix”.

The available calculation methods for market-based emissions are shown below, in order of preference. Companies should follow this order and use the best available method to account for their emissions. For more information, see the GHG Protocol Scope 2 Guidance (Chapters 6 and 10).

These different market-based methods both result in zero Scope 2 emissions, but their upstream impacts vary based on the source. This is the result of the way renewable electricity contracts work, and how they support the generation of renewable electricity.

Power purchase agreements (PPAs) and bundled renewable energy certificates are contracts that directly finance the generation of renewable electricity. These mechanisms are seen as a stronger means of increasing the overall availability of renewable electricity. As the electricity contract and possible certificates are directly connected to the generated renewable electricity, the upstream impacts are calculated based on the energy type, and also generate lower Scope 3.3 impacts than average grid electricity.

Renewable certificates that are not purchased together with the electricity are typically called unbundled certificates. They are purchased separately from the electricity, and are therefore not connected to its generation. Because of this, these mechanisms don’t directly influence the renewable electricity generation in the local grid. Unbundled certificates are more flexible to obtain and use, but their impacts to increasing local renewable electricity generation are weak or poorly traceable. Therefore, these certificates can be used to offset Scope 2 emissions, but this market based-method does not apply to Scope 3. The Scope 3.3 emissions are calculated based on the average regional grid emissions intensity. This results in slightly higher Scope 3 emissions compared with direct purchases of renewable electricity.

Whichever method applies to you, it is important you have the certificates available to prove it. This is important for reporting and transparency purposes, and you need to be able to prove the type of certificate if you want to have your carbon footprint verified.

To make the market-based method globally consistent and able to give accurate results, your contractual instruments should meet certain criteria.

The presence of contractual information in any market where a company has operations triggers the requirement to report according to the market-based method. If the contractual instruments do not meet the mentioned criteria, other data can be used as an alternative (eg. residual or grid mix data).

If no facilities in the entire organizational boundary of the reporting entity are located in markets with contractual claims systems, or where no instruments within those systems meet Scope 2 quality criteria required by this document, the location-based method shall be used to calculate Scope 2 emissions.

Renewable energy certificates (RECs) are issued as proof of electricity produced by renewable sources. Each REC endorses that 1MWh was generated and injected to the grid by a specific renewable source, such as wind or solar plant. A certificate is often bought, sold and canceled with prices determined by a supply and demand market. When an eligible energy producer generates electricity, it receives certificates for the corresponding volume produced that can be kept by the producer, released on the market or transferred to third parties such as final consumers. They can be sold as bundled with the electricity or unbundled, meaning sold separately. These certificates have become a sort of currency in the renewable energy market, helping buyers to credibly claim their sustainable energy choice and reduce their environmental impact.

If a multi-regional company has any operations within the corporate inventory where the market-based method applies, then a market-based method total shall be calculated for the entire corporate inventory to ensure completeness and consistency. For any individual operations in the corporate inventory where market-based method data is not applicable or available, data from the location-based method may be used to represent the emissions from the facility. For these operations, the calculated Scope 2 emissions according to the market-based method will be identical to the location-based.

In that case, because they do not own a certificate (certificates are sold off), companies should calculate their emissions using other market-based method emission factors such as “replacement” certificates, a supplier-specific emission rate, or residual mix (for the market-based method total) and the grid average emission factor (for the location-based total).

Each unit of electricity consumption should be matched with an appropriate emission factor. For the market-based method, this means choosing a contractual instrument or information source for each unit of electricity. For instance, if a company has purchased certificates to apply to half of a given operation’s electricity use, it will need to use other instruments to calculate the emissions for the remaining half.

Companies centrally purchasing Renewable energy certificates for all the operations in a single country or region should indicate how they match these purchases to individual on-site consumption.

Companies may also use certificates provided by their supplier, separately from the other supplier mix information. This ensures equivalent treatment of certificates regardless of how they are sourced.

Illustrating example:

A utility delivers 1,000 MWh in total to customers and 200 MWh of that (20%) comes from zero-emitting renewables for which the renewable energy certificates have been retired. Any customer of that utility would be able to claim that 20% of their electricity is renewable and substantiated with certificates.

If Customer A of this utility consumes 2.5 MWh (of the total 1,000 MWh), they can claim 0.5 MWh of renewable energy (of the 200 MWh total) without double counting, but cannot claim any more than this. To cover all of their electricity consumption with zero-emission certificates, Customer A would need to purchase additional 2 MWh of renewables on their own.