1. Overview of Location-Based and Market-Based Emissions
The Greenhouse Gas (GHG) Protocol provides standards for measuring and managing GHG emissions. Within Scope 2 emissions, which include indirect emissions from the consumption of purchased electricity, steam, heating, and cooling, two distinct accounting methods exist: location-based and market-based.
Location-Based Emissions: Location-based emissions reflect the average emissions intensity of the electricity grid where consumption occurs. This method focuses on the emissions from energy that your organization actually consumes, regardless of any contracts or renewable energy credits that have been purchased.
Example: If your company operates in a region with a high percentage of coal-fired power plants, your location-based emissions will be higher than in a region dominated by renewable energy sources.
Market-Based Emissions: Market-based emissions, on the other hand, account for the specific electricity purchases made by the organization, including any contracts or instruments that convey information about the carbon intensity of the electricity purchased (e.g., renewable energy certificates, power purchase agreements). This method allows organizations to report emissions based on their procurement choices and the impact of their efforts to source lower-carbon electricity.
Example: If a company purchases renewable energy through RECs (Renewable Energy Certificates), their market-based emissions will likely be significantly lower than their location-based emissions, reflecting their efforts to procure cleaner energy.
2. Calculation Methods for Market-Based Emissions
The GHG Protocol provides a hierarchy of emission factor types for calculating market-based emissions:
Source: GHG Protocol Scope 2 Guidance
Level 1 & 2: Energy Attribute Certificates & Contracts
The Greenly platform supports the input of renewable energy percentages from contracts and/or energy certificates such as RECs, which offer the highest precision.
Level 3: Supplier Emission Rates
If provided by your organization, supplier-specific emission factors can be used. These factors are based on the actual fuel mix and technology used by the supplier, reflecting the direct emissions from the production process.
Level 4: Residual Mix
Residual emission factors are based on the mix of electricity production remaining after accounting for all explicitly tracked and claimed renewable energy. These are typically more emissive than grid-average emission factors used in location-based calculations.
Level 5: Other Grid-Average Emission Factors
If supplier-specific or residual factors are not available, grid-average emission factors, also used in location-based calculations, are applied. This is the default behavior of the Greenly building module.
3. Regulation and Reporting Requirements
French Regulatory GHG Assessment (BEGES):
In France, the location-based approach is mandatory for regulatory GHG assessments.
GHG Protocol:
Both location-based and market-based approaches are required by the GHG Protocol. The GHG inventory must include sections for both "Scope 2 Emissions - Location-based" and "Scope 2 Emissions - Market-based." Companies can choose between the two approaches when disclosing total GHG emissions and setting targets or action plans.
Reasons to Choose One of the Approaches
Location-Based:
This approach is useful for showing the GHG intensity of grids where operations occur, the aggregate performance of energy-intensive sectors, and risks/opportunities aligned with local grid resources and emissions. However, it omits the emissions from differentiated electricity purchases or supplier contracts.
Market-Based:
This approach highlights individual corporate procurement actions, opportunities to influence electricity suppliers, and risks/opportunities conveyed by contractual relationships. However, it does not account for average emissions in the location where electricity is consumed.
4. Conclusion
Accurately calculating both location and market-based emissions is essential for transparent and effective GHG reporting. At Greenly, we are committed to following best practices to ensure precise and reliable data. Understanding the differences between these approaches allows companies to make informed decisions about their environmental impact and communicate their progress effectively to stakeholders. Whether you are using a location-based or market-based approach, aligning with the GHG Protocol and regulatory requirements is crucial for a credible and comprehensive GHG emissions inventory.