When we talk about measuring Scope 2 emissions, the conversation often centers on two main approaches: location-based and market-based. Each has its rationale—and there’s plenty of debate over which reporting method best captures a company's carbon footprint.
Location-based emissions show you the average emissions intensity of the grid where you consume electricity. It’s like taking a snapshot of the local energy mix. Market-based emissions, on the other hand, consider the renewable energy contracts and certificates you’ve chosen. These might include things like RECs (Renewable Energy Certificates) or PPAs (Power Purchase Agreements).
Understanding the difference goes beyond ticking a compliance box. It can significantly impact how companies make strategic decisions about their energy procurement.
In this article, we’ll walk you through both methods, explore their impact on energy procurement, and explain how reporting both location-based and market-based emissions gives a more complete picture of a company’s emissions profile.
Understanding Emissions
Before diving into the ins and outs of market-based vs. location-based emissions, it helps to zoom out and look at the bigger picture of emissions reporting. Knowing this framework makes it easier to see why different methods exist in the first place and how they fit into broader corporate sustainability goals.
The Greenhouse Gas (GHG) Protocol establishes three distinct categories of emissions that companies need to track and report:
- Scope 1: These are direct emissions from sources owned or controlled by the organization, such as company vehicles, on-site fuel combustion, and manufacturing processes.
- Scope 2: These indirect emissions result from purchased electricity, steam, heating, and cooling. This category is where the distinction between market-based and location-based approaches becomes crucial.
- Scope 3: This encompasses all other indirect emissions occurring in an organization's value chain, from supplier activities to employee commuting and product end-of-life treatment.
Understanding Scope 2 Emissions
Scope 2 emissions present a unique challenge in emissions reporting because they lie at the intersection of direct energy consumption and energy procurement decisions.
- They often account for a big chunk of a company's overall carbon footprint.
- There are many ways to reduce Scope 2 emissions, whether it's by boosting energy efficiency or buying renewable energy.
- You can actually manage them by making strategic energy procurement choices.
The dual reporting approach for Scope 2 emissions—employing both location-based and market-based methodologies—has emerged from the demand for companies to get a fuller picture of their energy use, how their buying choices affect the environment, and how well their sustainability efforts are working.
What are Location-Based Emissions?
Location-based emissions offer a more direct method to calculate Scope 2 emissions based on the electricity mix of the grid that physically supplies a facility. This was once the only available accounting methodology for Scope 2 reporting, so every company had to measure emissions using the average intensity of the local grid.
Here’s a quick example: if a company in the UK uses 100,000 kWh of electricity and the local emission factor is 0.21233 kgCO₂e per kWh, their location-based emissions would amount to 21.23 tCO₂e. This calculation provides a clear, objective measure of the company's grid-related emissions.
This method is particularly helpful when you want to:
- Get a clear picture of your environmental impact in different locations.
- Compare how different offices or facilities stack up against each other.
- Figure out where to put new facilities based on how clean the local power is.
- See how different regions are getting better (or worse) at using clean energy over time.
Location-based emissions are essentially a baseline, providing a consistent way to track and compare electricity-related emissions across different regions.
However, they don't show off any special efforts your company might be making to use renewable energy, which is why many companies also look at market-based emissions as part of their reporting strategy.
What are Market-Based Emissions?
As the push for decarbonization grew, the European Energy Certificate System (EECS) was introduced to let buyers choose cleaner energy. For each megawatt-hour of renewable power generated, a matching certificate is created. This confirms that electricity came from a renewable source.
By 2015, this led to the “market-based” method for carbon accounting. Unlike location-based emissions reporting—which uses regional grid averages—market-based reporting focuses on the actual electricity you purchase. It factors in renewable energy certificates (RECs), guarantees of origin (GOs), and other contractual tools.
Note: RECs are market-based instruments that certify the generation of 1 megawatt-hour (MWh) of electricity from renewable sources, such as wind, solar, or hydroelectric power, and its injection into the power grid. Energy buyers can purchase RECs to support and claim their use of renewable energy.
Essentially, it acknowledges your clean energy investments and ties them to a lower (or zero) emissions total for that portion of electricity.
Here's a practical example of how market-based calculations work:
If a company uses 10,000 kWh of electricity and 6,000 kWh is covered by renewable energy certificates (with an emission factor of 0), while 4,000 kWh comes from standard grid power at 0.0585 kgCO₂e/kWh, the total market-based emissions would be: (6,000 kWh × 0 kgCO2e/kWh) + (4,000 kWh × 0.0585 kgCO2e/kWh) = 234 kgCO2e.
Many companies tend to favor market-based emissions reporting because it ties directly to their renewable energy efforts. It’s especially helpful if you have strong climate goals and are looking to show real progress in carbon reduction.
Key Differences Between Market-Based and Location-Based Emissions
Accurately measuring your company’s carbon footprint isn’t just about counting emissions: it’s about understanding where they come from and how renewable energy procurement decisions shape them.
The location-based method tracks what’s physically released into the air by the local grid, while the market-based method shows the emissions a company essentially “owns” through specific energy contracts.
Below is a detailed breakdown of how the differences between the two methods affects your energy reporting and procurement strategy:
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Why Do Companies Use Both Location and Market-Based Emissions?
The debate between market-based vs location-based emissions isn't about choosing one over the other.
The Greenhouse Gas Protocol requires companies to report both market-based and location-based emissions, recognizing that each method highlights different aspects of a company’s carbon footprint.
Location-based reporting captures the real-world impact of local grid emissions, while market-based reporting shows how energy procurement choices—such as purchasing RECs—can reduce a company’s overall emissions.
Together, they offer a clearer view of your overall environmental performance and help validate renewable energy investments.
This dual approach also drives progress toward a carbon-neutral economy since companies can ensure that every dollar spent on clean energy contributes effectively to reducing overall electricity emissions.
How Flexidao Helps Companies Track Market-Based and Location-Based Emissions
Meeting the evolving demands of Scope 2 emissions reporting, which now includes both voluntary initiatives and impending mandatory regulations, requires granular data access capabilities to monitor your progress and strategize accordingly.
Flexidao has helped companies like Google, Kimberly Clark, Iron Mountain, and Microsoft to track both market-based and location-based emissions tracking by providing insights into electricity consumption and carbon intensity.
Our platform can:
- Manage Complex Data at Scale
For businesses with multiple facilities or large electricity portfolios, data will be consolidated in one centralized system. You can then apply filters to view high-level overviews or drill down to specific regions, assets, or time frames.
- Visualize and Track Progress Toward Sustainability Goals
Interactive dashboards and KPIs highlight where renewable energy coverage meets or falls short of decarbonization goals. This clarity helps you advance procurement strategies and adjust renewable energy investments as needed.
- Automate Compliance and Reporting
Aligns with relevant standards and regulatory requirements, helping companies confidently report their Scope 2 emissions. Automated calculations reduce manual effort and potential errors, making it easier to demonstrate progress to stakeholders.
Learn more about the ways Flexidao’s platform can simplify your Scope 2 emissions reporting to help optimize your renewable energy procurement strategy toward sustainability targets.
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