Scope 2: location-based and market-based methods

What is the difference between the two scope 2 methods?

The location-based method reflects the average emissions intensity of the grids on which energy consumption occurs, using grid average emission factors published by governments or grid operators, such as eGRID in the United States. The market-based method reflects emissions from the electricity a company has purposefully chosen, or its lack of choice, through contracts and certificates. Location-based figures fall only when a company uses less electricity or its grid gets cleaner; market-based figures also fall when it buys renewable electricity attributes. See calculating scope 1 and 2 emissions.

How does the market-based method work?

For each unit of electricity, a company uses the most precise contractual emission rate available, in this order:

• Energy attribute certificates: renewable energy certificates (RECs) in North America, guarantees of origin (GOs) in Europe and I-RECs in many other countries, each representing one megawatt-hour of generation.
• Direct contracts: power purchase agreements with a generator, physical or virtual, where the certificates are conveyed to the buyer.
• Supplier-specific emission rates: a utility's green tariff or its disclosed fuel mix.
• Residual mix: the grid's emissions after removing electricity whose attributes have been claimed by others.
• Grid average: used only where no residual mix is published.

Location-based vs market-based: three plants in three countries

A group has three plants. The emission factors below are illustrative; real inventories use published factors for the right country and year. See choosing emission factors.

The US plant's certificates cover all its consumption, so its market-based emissions are zero. At the German plant, the 4,000 MWh not covered use the residual mix of 0.62, higher than the grid average of 0.38 because other buyers have claimed the renewable output, so market-based emissions there are 2,480 tonnes against 4,000 x 0.38 = 1,520 for the same megawatt-hours on a location basis. The Indian plant has no instruments, so both figures are the same. The group reports 13,920 tonnes location-based and 8,160 tonnes market-based, and explains the instruments behind the difference.

What are the scope 2 quality criteria?

A contractual instrument counts in the market-based method only if it conveys the emission rate of the generation it represents; is the only instrument carrying that claim; is tracked and retired or cancelled by or for the company; relates as closely as possible to the period of consumption; and comes from the same market as the consumption, such as the same country or interconnected grid. Supplier rates must be calculated on the same basis, and the residual mix must exclude claimed attributes to avoid double counting. Instruments that fail the criteria are ignored, and the residual mix or grid average applies instead.

Which figure do the reporting rules require?

The GHG Protocol requires both figures, known as dual reporting, from companies with operations in markets offering contractual instruments. ESRS E1 requires both. IFRS S2 requires location-based scope 2 with information about contractual instruments that helps users understand the market-based picture. California's SB 253 follows the GHG Protocol. Targets can be set on either basis, but a company should say which, because buying certificates can meet a market-based target without any change at its plants. See IFRS S2 and California SB 253.

How could the scope 2 revision change the market-based method?

The GHG Protocol consulted from October 2025 to 31 January 2026 on proposals that market-based instruments match consumption hour by hour and come from generation that can physically deliver to the company's grid, with more precise location-based factors where available. Annual certificates bought from distant markets would count for much less. After low support from companies, the Independent Standards Board asked in July 2026 for further work on several market-based approaches, and the outcome will feed into a combined GHG Protocol and ISO corporate standard planned for late 2028. See the scope 2 revision and the GHG Protocol explained.

How are certificates and contracts accounted for?

Certificates bought to support a company's own claims are usually held as intangible assets or prepayments until retired, then expensed. Physical power purchase agreements may qualify for the own-use exemption, while virtual ones are usually derivatives measured at fair value. See renewable energy certificates and power purchase agreements.

This guide is general information. It is not tax or legal advice for your situation.