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Scope 2 Accounting: Market-based Method
Scope 2 Accounting: Market-based Method

There are 2 methods to calculate scope 2 emissions: location-based method and market-based method.

Updated over a week ago

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.

There are two methods to calculate scope 2 emissions: location-based method and market-based method. For more information see the Wiki on Purchased electricity.

Market-based Approach

As a reminder, the market-based method reflects emissions from electricity that companies have purposely chosen, or their lack of choice. This method should be used for locations where the following type of contracts or instruments are available:

  • Energy Attribute Certificates (RECs, GOs, I-REC, etc.);

  • Power Purchase Agreements (PPAs) with energy generators (for both low-carbon, renewable, or fossil fuel-based energy);

  • Green electricity products from energy suppliers.

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. These factors are widely available for European countries and should always be used in market-based accounting, before diverting to the location-based grid mix.

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).

Market-based method accounting hierarchy

When choosing the emission factors, companies need to use the most accurate emission factor available.

As described above, here is a hierarchy of calculation approaches which can be used in your market-based accounting. For more information, see the GHG Protocol Scope 2 Guidance (Chapter 6 and 10).

Emission factors

Example

Energy attribute certificates (e.g. unbundled, bundled with electricity, conveyed in a contract for electricity, or delivered by a utility)

  • Renewable Energy Certificates (U.S., Canada)

  • Guarantees of origin (EU)

Contracts for electricity, such as power purchase agreements (PPAs) and contracts from specified sources, where electricity attribute certificates do not exist or are not required for a usage claim

  • Contracts that convey attributes to the entity consuming the power where certificates do not exist

Supplier/Utility emission rates, such as standard product offer or a different product (e.g. a renewable energy product or tariff), and that are disclosed (preferably publicly) according to best available information

  • Green energy tariffs

  • Voluntary renewable electricity program or product

Residual mix that uses energy production data and factor out voluntary purchases

  • Calculated by EU country under RE-DISS project

Other grid-average emission factors

  • Defra annual grid average emission factor (UK)

  • IEA national electricity emission factors

Scope 2 Quality Criteria

To make the market-based method globally consistent and able to give accurate results, your contractual instruments must meet these 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 criteria then 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, then only the location-based method shall be used to calculate scope 2.

All contractual instruments used in the market-based method for Scope 2 accounting shall:

  1. Convey the direct GHG emission rate attribute associated with the unit of electricity produced.

  2. Be the only instruments that carry the GHG emission rate attribute claim associated with that quantity of electricity generation.

  3. Be tracked and redeemed, retired, or canceled by or on behalf of the reporting entity.

  4. Be issued and redeemed as close as possible to the period of energy consumption to which the instrument is applied.

  5. Be sources from the same market in which the reporting entity‘s electricity-consuming operations are located and to which the instrument is applied.

In addition, utility-specific emission factors shall:

  1. Be calculated based on delivered electricity, incorporating certificates sourced and retired on behalf of its customers. Electricity from renewable facilities for which the attributes have been sold off (via contracts or certificates) shall be characterized as having the GHG attributes of the residual mix in the utility or supplier-specific emission factor.

In addition, companies purchasing electricity directly from generators or consuming on-site generation shall:

  1. Ensure all contractual instruments conveying emissions claims be transferred to the reporting entity only. No other instruments that convey this claim to another end user shall be issued for the contracted electricity. The electricity from the facility shall not carry the GHG emission rate claim for use by a utility, for example, for the purpose of delivery and use claims.

Finally, to use any contractual instrument in the market-based method requires that:

  1. An adjusted, residual mix characterizing the GHG intensity of unclaimed or publicly shared electricity shall be made available for consumer Scope 2 calculations, and its absence shall be disclosed by the reporting entity.

FAQ

How do energy attribute certificates work?

Energy Attributes Certificates (EAC) are issued as proof of electricity produced by renewable sources. Each EAC 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, which means 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.

How to apply the market-based method in the case of a multi-regional company?

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 should

be used to represent the emissions from the facility. For these operations, the calculated scope 2 according to the market-based method will be identical to the location-based.

How to apply the market-based method in the case of consumption from owned/operated facilities or direct-line transfers?

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).

How to match emission factors with units of electricity consumption?

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 energy attribute certificates for all the operations in a single country or region should indicate how they match these purchases to individual site consumption.

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

For 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 energy attribute certificates have been retired. Any customer of that utility would be able to claim that 20 percent 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 only need to purchase 2 MWh of renewables on their own.

For additional information on the calculation of emissions, users can refer to the GHG Protocol, Scope 2 Guidance.

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