When reporting indirect energy-related GHG emissions (Scope 2), one can use a location-based or a market-based approach.
Depending on the reporting company's goals and constraints, one of the two approaches will be selected to compute total GHG emissions as well as set reduction targets and action plans.
Definitions
According to the GHG Protocol, "the market-based method reflects emissions from electricity that companies have purposefully chosen (or their lack of choice), while the location-based method reflects the average emissions' intensity of grids on which energy consumption occurs".
Location-based
GHG emissions are based on average energy generation emission factors for defined geographic locations.
Market-based
GHG emissions are based on GHG emissions emitted by the generators from which the reporter contractually purchases electricity bundles.
Regulation
French regulatory GHG assessment (BEGES)
The reporting company has to use the location-based approach.
GHG Protocol
Both location and market-based approaches are compulsory: the GHG inventory must include a "Scope 2 Emissions - Location-based" and "Scope 2 Emissions - Market-based" section.
However, the reporting company will choose between the two approaches when disclosing its total GHG emissions and when setting targets and establishing action plans.
Reasons to choose one of the approaches
Location-based
The location-based approach is most useful for showing:
GHG intensity of grids where operations occur
The aggregate performance of energy-intensive sectors
Risks/Opportunities aligned with local grid resources and emissions
However, this approach omits showing emissions from differentiated electricity purchases, supplier offerings or other contracts.
Market-based
The market-based approach is most useful for showing:
Individual corporate procurement actions
Opportunities to influence electricity suppliers and supply
Risks/Opportunities conveyed by contractual relationships
However, this approach omits showing average emissions in the location where electricity occurs.
Moreover, by design, energy attribute certificates (e.g. RECs, GOs) are separate from the physical distribution of energy. Thus, a market-based approach does not consider the overall picture of the mix of resources required to maintain grid stability.