Location-based and market-based Scope 2: how to calculate it, with an example
Scope 2 is calculated with two methods: location-based, with the grid average factor, and market-based, with the factors from your contracts and guarantees of origin. Differences, a numerical example and special cases.
Scope 2 is calculated by multiplying the kWh of purchased energy by an emission factor, with two methods that must both be reported. The location-based method uses the national grid average factor. The market-based method uses the factor from your contracts: energy covered by guarantees of origin cancelled in your name counts as zero, and the rest is calculated with the residual mix.
What Scope 2 is
Scope 2 covers the indirect emissions generated to produce the energy your company buys and consumes. The CO₂ comes out of the power station, but the consumption is yours, and the GHG Protocol attributes it to you. It includes electricity drawn from the grid, purchased heat and steam, for example from district heating, and cooling bought from third parties.
The rules are in the Scope 2 Guidance published by the GHG Protocol in 2015, which introduced dual reporting: emissions from electricity must be calculated with two different methods and both reported.
Location-based and market-based compared
| Location-based | Market-based | |
|---|---|---|
| What it measures | The average impact of the grid in the country where you consume | The impact of the energy you chose to buy |
| Factor used | National grid average factor, published by ISPRA for Italy | Factor from the supplier or the contractual instrument, otherwise the residual mix |
| What brings it down | Only consuming less energy | Consuming less and buying certified renewable energy |
| What it is for | A common, comparable benchmark | Showing the effect of your purchasing choices |
Guarantees of origin
In Europe, the most widely used instrument for the market-based method is the guarantee of origin (GO), which certifies that a quantity of energy was produced from renewable sources. If your supply contract includes GOs cancelled in your name for all your consumption, the market-based emissions of that energy can be zero. A contract called “green” without documented GOs is not enough: always ask the supplier for proof of cancellation for your consumption and your reporting year.
The residual mix
Without contractual instruments, the market-based method uses the residual mix: the mix left on the grid after removing the renewable energy already sold with GOs. In many European countries, Italy included, the residual mix has a higher factor than the grid average. This is why a company without GOs often sees a market-based Scope 2 higher than its location-based one.
A complete calculation example
A company with two sites draws 120,000 kWh from the grid in a year: 80,000 kWh at the plant and 40,000 kWh at the offices. The factors are indicative, rounded values, useful only to show the method.
| Method | Calculation | Emissions |
|---|---|---|
| Location-based, grid factor 0.25 kgCO₂e/kWh | 120,000 × 0.25 | 30 tCO₂e |
| Market-based without GOs, residual mix 0.45 kgCO₂e/kWh | 120,000 × 0.45 | 54 tCO₂e |
| Market-based with GOs on the plant | 80,000 × 0 + 40,000 × 0.45 | 18 tCO₂e |
The same consumption can therefore be worth 30, 54 or 18 tCO₂e. Reporting both methods, with the assumptions explained, makes the figure understandable to readers and protects you from challenges. If you want to start from a single bill, you will find an example in the article on calculating emissions from a utility bill.
The calculation step by step
- Gather the bills for every POD. Twelve months for each site, including warehouses, cellars and signs with separate meters.
- Add up the kWh drawn. Use actual readings and check adjustments, without subtracting the energy fed into the grid.
- Apply the grid factor. For location-based, use the most recent ISPRA emission factor and note the year.
- Reconstruct the contracts. For market-based, separate the kWh covered by cancelled GOs from those without contractual instruments.
- Apply contractual factors and the residual mix. Zero or the supplier's factor for covered energy, the AIB residual mix for the rest.
- Report both results. With sources, years and assumptions, site by site.
Special cases
- Solar panels for self-consumption. The energy you produce and consume does not generate Scope 2, because you do not buy it: you only count the kWh drawn from the grid.
- Energy fed into the grid. The kWh you sell are not subtracted from your Scope 2 emissions.
- Rented offices with utilities in the landlord's name. If you manage the space, ask for the consumption data or derive it from the shared charges, and document the method.
- Electric vehicle charging points. The energy that charges company vehicles from your utilities is already on your bill and falls under Scope 2.
- District heating. Use the emission factor provided by the network operator, if available.
What is changing
The Scope 2 Guidance is under revision by the GHG Protocol. Topics under discussion include stricter criteria for contractual instruments, such as closer matching in time and location between purchased renewable energy and consumption. Until the new version is published, the 2015 rules remain valid.
In a report following the voluntary VSME standard, disclosure B3 of the Basic module asks for location-based Scope 2, together with total energy consumption. Market-based is still required by the GHG Protocol and lets you show banks and clients the effect of guarantees of origin: it is worth always calculating both. To choose the right contracts, read the article on renewable energy and Scope 2.
Scope 2 is calculated with two methods, and both must be reported. Location-based uses the grid average factor and only goes down if you consume less. Market-based uses the factors from your contracts: documented guarantees of origin bring it to zero for the energy covered, and without GOs the residual mix applies, which is usually higher.
Download the free Scope 2 guide
We have put the method together in a free PDF guide: the two methods, guarantees of origin, the residual mix, a complete example, special cases and the document checklist. Download the guide to calculating Scope 2.
