Market-Based vs Location-Based Emissions: Understanding Scope 2 Accounting
If you've started measuring your organisation's Scope 2 emissions, you may have come across two figures that appear to measure the same electricity use: location-based emissions and market-based emissions.
At first, this can be confusing. If your business used the same amount of electricity, in the same buildings and during the same reporting period, why might there be two different answers?
The difference is simpler than it first sounds: the two methods look at your electricity use from two different perspectives.
The location-based method looks at the electricity grid where your business operates. In simple terms, it asks: based on the average electricity mix in this area, what emissions are associated with the electricity we used?
The market-based method looks instead at how your business buys its electricity. For example, it can take certain renewable electricity contracts and certificates into account, provided they meet the relevant accounting requirements.
A simple way to remember the difference is this: location-based looks at where your electricity is used, while market-based looks at how your electricity is purchased.
This means the same electricity consumption can produce different location-based and market-based Scope 2 emissions without either figure necessarily being incorrect.
In this guide, we'll look more closely at market-based vs location-based emissions, why the two methods exist, how each is calculated, what information businesses need and why renewable electricity purchasing can make the distinction particularly important.
Why Are There Two Methods for Measuring Scope 2 Emissions?
Scope 2 emissions cover indirect greenhouse gas emissions associated with the generation of electricity, steam, heating and cooling that an organisation purchases or acquires and consumes. For many businesses, purchased electricity will be the main source they encounter.
If you're looking for a broader introduction to what counts as Scope 2 and how to collect the underlying energy data, our guide to Scope 2 emissions explains those fundamentals in more detail.
Once you move further into Scope 2 accounting, however, electricity creates an interesting challenge.
When you switch on a light in your office, the electricity comes through the wider electricity grid. At the same time, your business may have chosen a particular supplier, tariff or renewable electricity product. Scope 2 accounting uses the two methods to capture these different parts of the picture.
Those are two different pieces of information, which is why location-based and market-based accounting provide two different perspectives on the same purchased energy.
In simple terms:
Location-based Scope 2 emissions reflect the average emissions intensity of the electricity grids where energy consumption occurs.
Market-based Scope 2 emissions reflect emissions associated with the electricity products and contractual instruments an organisation has chosen, where the relevant information meets the required accounting criteria.
Understanding that distinction is the key to understanding why your organisation can end up with two different Scope 2 figures.
What Are Location-Based Emissions?
The location-based method looks at the average emissions associated with electricity generation in the geographical area where your organisation consumes electricity.
This means the location-based calculation generally isn't concerned with whether you've chosen a particular renewable tariff. It looks at the average emissions from the electricity grid supplying the area where that electricity was used.
Imagine your business has an office in Manchester that consumes 100,000 kWh of electricity during its reporting year. To calculate its location-based Scope 2 emissions, the organisation would generally take its electricity consumption and apply an appropriate grid emission factor.
Electricity consumed × grid emission factor = location-based Scope 2 emissions
For UK organisations, the Government publishes greenhouse gas conversion factors that can be used to calculate emissions from activity data such as purchased electricity.
The location-based method therefore helps answer a question along the lines of:
What emissions are associated with the electricity system where we consumed our energy?
This matters because electricity grids are not identical. Their carbon intensity can vary depending on the mix of generation sources supplying them, and that mix can also change over time.
As a result, an organisation operating across different countries or regions may need to consider different electricity emission factors when calculating its location-based Scope 2 emissions.
What Are Market-Based Emissions?
The market-based method approaches Scope 2 accounting from a different direction.
Instead of focusing primarily on the average emissions of the grid where electricity is consumed, market-based Scope 2 considers information associated with the electricity products and contractual arrangements an organisation has chosen to purchase.
This helps answer a different question:
What emissions are associated with the electricity products or contractual instruments our organisation has purchased?
This calculation can use information from your electricity supplier or energy contract. Depending on the market, that might include a supplier-specific emission factor or an energy certificate showing particular attributes of the electricity you've purchased.
However, this doesn't mean a business can simply choose whichever emissions figure appears on an electricity contract and use it.
There are rules around what evidence can be used. The GHG Protocol calls these its Scope 2 Quality Criteria. Put simply, they help determine whether a contract, certificate or other electricity claim is suitable to use in a market-based calculation.
You may not have suitable supplier or contractual information for all of the electricity your business uses. When that happens, the market-based method provides a hierarchy for deciding which emission factor should be used instead, which can include residual mix data where it is available.
This is why market-based Scope 2 accounting can require more information than simply knowing how many kilowatt-hours of electricity your business consumed.
Market-Based vs Location-Based Emissions: What's the Difference?
Both methods calculate Scope 2 emissions, but they provide different information about the electricity an organisation consumes.
Location-Based Method | Market-Based Method | |
What does it reflect? | Average emissions associated with electricity generation in the location where energy is consumed | Emissions associated with qualifying electricity products and contractual purchasing choices |
What is the main starting data? | Electricity consumption and relevant grid emission factors | Electricity consumption plus qualifying supplier or contractual information |
Does geographical location matter? | Yes, because the relevant electricity grid is central to the calculation | Market boundaries and qualifying contractual information are important |
Does the electricity product you purchase affect the result? | Generally not directly | Potentially, where the relevant contractual information meets the required criteria |
Can renewable electricity purchasing affect the figure? | It doesn't change the underlying grid-average approach | It can affect the result where qualifying contractual instruments are used correctly |
Can the two figures be different? | Yes | Yes |
Should the two results be added together? | No | No |
The important point is that location-based and market-based emissions aren't competing calculations where you choose whichever answer you prefer. They provide complementary information about your organisation's electricity consumption.
Why Can Location-Based and Market-Based Scope 2 Emissions Be Different?
A simple example can make the difference easier to understand.
Imagine two businesses operate offices next door to each other. Both offices consume exactly 100,000 kWh of electricity during the year, so from a physical electricity-use perspective their activity data is identical.
For the location-based calculation, both organisations are connected to the same electricity system. If they use the same appropriate grid emission factor, their location-based Scope 2 emissions could therefore be the same.
However, imagine that the two organisations have made different electricity purchasing decisions. One has qualifying contractual information associated with its electricity procurement, while the other doesn't have the same contractual arrangements.
Their market-based Scope 2 emissions could therefore differ, even though their electricity consumption and location-based emissions are the same.
That doesn't mean one organisation physically received a completely separate stream of electrons through the wires into its office. Instead, the market-based method provides a way of accounting for eligible contractual electricity purchasing choices, while the location-based method continues to reflect the emissions characteristics of the electricity system serving the location.
This is why seeing two different Scope 2 figures isn't automatically a sign that something has gone wrong with your carbon accounting.
What Data Do You Need for Location-Based Scope 2 Accounting?
For a location-based calculation, businesses generally need to start with information about where and how much energy they consumed.
Useful information can include:
Electricity consumption in kWh
Purchased steam, heating or cooling where relevant
The site or building where the energy was consumed
The country or geographical area associated with that consumption
The reporting period
The appropriate grid emission factor for that location and period
For a UK business, much of the activity data may already be available through electricity bills, meter readings or energy management records.
The UK Government publishes greenhouse gas conversion factors annually, which allow organisations to convert activity data including purchased electricity into greenhouse gas emissions.
If your organisation operates across several sites or countries, keeping the consumption data connected to the correct location becomes particularly important. Combining everything into one electricity figure before checking the appropriate emission factors could make it harder to calculate the footprint accurately.
What Data Do You Need for Market-Based Scope 2 Accounting?
Market-based accounting starts with the same underlying energy consumption, but it can require additional information about how that electricity was purchased.
Depending on your organisation and energy market, useful information may include:
Electricity consumption
Electricity supplier
Tariff or electricity product
Supplier-specific emissions information
Relevant contractual instruments
Energy attribute certificates where applicable
The reporting period associated with the electricity and contractual instrument
The geographical market in which the instrument applies
Residual mix information where relevant
This is where Scope 2 carbon accounting can become more detailed. Your finance or facilities team may know exactly how much electricity the organisation purchased, while information about the tariff, supplier-specific emission factor or associated certificates may sit with procurement, an energy manager or the electricity supplier itself.
Bringing those pieces together can make market-based reporting considerably easier.
What Are Contractual Instruments in Market-Based Scope 2 Accounting?
A contractual instrument is used to convey information about energy generation to the organisations purchasing or consuming electricity.
‘Contractual instrument’ at first sounds technical, but it essentially refers to evidence connected with the electricity you've purchased that can tell you something about how that electricity was generated or its associated energy attributes.
Depending on the market, this can include instruments such as energy attribute certificates and certain supplier-specific products or contracts. In the UK and Europe, you may also encounter terminology such as Guarantees of Origin and Renewable Energy Guarantees of Origin (REGOs).
However, the existence of a certificate or contractual claim alone isn't the end of the accounting process. The GHG Protocol sets quality criteria intended to ensure that contractual information used for market-based Scope 2 accounting represents an appropriately allocated claim.
This matters because electricity attributes need to be tracked carefully to reduce the risk of the same attributes being claimed more than once.
What Is a Residual Mix in Scope 2 Accounting?
Residual mix is another term businesses may encounter when calculating market-based emissions.
In broad terms, a residual mix is the electricity attributes left in the market after separately tracked or claimed attributes, such as certain renewable electricity attributes, have been accounted for elsewhere.
This can become relevant where an organisation doesn't have qualifying contractual instruments covering all of its electricity consumption.
For a newcomer, the important point is that you don't necessarily need to calculate a residual mix yourself. You simply need to know that it may affect which emission factor is appropriate when your electricity isn't covered by qualifying contractual information.
The principle behind it is important. If renewable electricity attributes have already been allocated to one purchaser through an eligible contractual instrument, those same attributes shouldn't simply be available for another organisation to claim as well.
Residual mix information can therefore help market-based accounting distinguish between electricity attributes that have already been claimed and those remaining within the relevant market.
Does Buying Renewable Electricity Make Market-Based Emissions Zero?
This is where businesses need to be particularly careful.
Buying electricity described as renewable, green or 100% renewable doesn't mean you should automatically enter zero for your Scope 2 emissions without looking at the underlying evidence and accounting methodology.
Renewable energy procurement can affect market-based Scope 2 emissions where the associated contractual instruments and information satisfy the applicable Scope 2 accounting criteria.
Your location-based emissions, however, continue to reflect the emissions intensity of the electricity grid serving the location under that method.
An organisation can therefore potentially have a location-based Scope 2 figure that is significantly higher than its market-based figure.
That difference can be legitimate, but the market-based result needs to be supported by appropriate information rather than simply by the marketing description of an electricity tariff.
If your business purchases renewable electricity and isn't sure what information is available, a practical starting point is to speak to your electricity supplier or energy procurement team and ask what contractual and emissions information supports the product you're buying.
What Is Scope 2 Dual Reporting?
Once you understand why the two calculations exist, the idea of Scope 2 dual reporting becomes much easier to follow.
‘Dual reporting’ simply means showing two Scope 2 results: one calculated using the location-based method and one using the market-based method, where the GHG Protocol's requirements for doing so apply.
Under the current GHG Protocol Scope 2 Guidance, companies calculate and report Scope 2 using both the location-based and market-based methods where the market-based method applies and the relevant Quality Criteria can be met.
Organisations without operations in markets where applicable contractual instruments are available may report only a location-based figure.
This is particularly important for newcomers: don't add the two figures together. They are two different views of the same category of energy use, rather than two separate sets of emissions.
Dual reporting gives the reader two pieces of information: one about the electricity system connected to the organisation's consumption, and another about qualifying electricity purchasing choices.
It's also worth knowing that the GHG Protocol is working on revisions to its Scope 2 Guidance.
Proposed changes have included updates to location-based and market-based accounting, but businesses should distinguish between current requirements and proposed future changes rather than treating consultation proposals as rules that already apply.
Which Scope 2 Figure Should Businesses Use?
There isn't a universal answer that allows every organisation to simply choose one figure and ignore the other.
Which figure you need to report will depend on why you're measuring your emissions in the first place. A voluntary carbon footprint, customer request, reporting framework or carbon target may each specify how Scope 2 should be reported.
Where dual reporting applies under the GHG Protocol, both figures provide useful information and should be treated as distinct results rather than choosing whichever number makes the organisation's footprint look smaller.
If you're reporting Scope 2 emissions for a particular disclosure requirement, customer request or carbon target, check which accounting methodology that framework expects you to use.
For internal decision-making, looking at both figures can also be valuable. Your location-based result can help you understand how electricity consumption and changes in the wider grid affect your footprint, while your market-based result can help show the effect of eligible electricity procurement choices.
How Can Businesses Improve Their Scope 2 Accounting?
Good Scope 2 accounting depends on more than applying an emission factor at the end of the year.
Businesses can make the process more manageable by building a consistent record of the information behind their calculations.
That can include:
Keeping electricity consumption organised by site and reporting period
Recording which electricity supplier and tariff applies to each site
Retaining relevant contractual and certificate information
Using emission factors appropriate to the reporting year and methodology
Recording the source of supplier-specific emission factors
Documenting assumptions and data gaps
Keeping location-based and market-based calculations clearly separated
Reviewing methodology changes as reporting guidance develops
You don't necessarily need every piece of Scope 2 data to be perfect before you begin measuring. What matters is understanding which data you have, where there are gaps and which methodology you're applying, so that your calculations can become more robust over time.
How Can Scope Help With Scope 2 Emissions Tracking?
When electricity data is spread across different bills, sites, suppliers and reporting periods, even a relatively straightforward Scope 2 calculation can become difficult to manage consistently.
Scope's carbon tracking software gives businesses one place to bring their carbon activity data together and build a clearer picture of their emissions.
With Scope, businesses can:
Bring energy and emissions data together rather than relying on disconnected spreadsheets
Record electricity and other activity data as part of their wider carbon footprint
Calculate emissions using relevant emission factors
Track Scope 1, Scope 2 and Scope 3 emissions within a consistent process
Compare carbon data across reporting periods
Improve the quality of their carbon data over time
Keep business and event carbon tracking together within the same platform
Carbon tracking software doesn't remove the need to understand your electricity contracts or choose the appropriate Scope 2 accounting methodology. What it can do is make the underlying activity data and emissions calculations much easier to organise, review and improve.
If you're ready to start bringing your energy and carbon data together, create your free Scope account and begin building your business carbon footprint in one place.
Market-Based vs Location-Based Scope 2 FAQs
What Is the Main Difference Between Market-Based and Location-Based Emissions?
Location-based Scope 2 emissions reflect the average emissions associated with the electricity system where energy is consumed, while market-based Scope 2 emissions reflect qualifying electricity purchasing choices and contractual information. The two methods therefore provide different perspectives on the same category of purchased energy.
Can Market-Based and Location-Based Emissions Be Different?
Yes. The same amount of electricity consumption can produce different location-based and market-based Scope 2 figures because the two calculations use different emission factor approaches and information.
Is Market-Based Scope 2 Always Lower Than Location-Based Scope 2?
No. Businesses shouldn't assume that the market-based method will automatically produce a lower result. The outcome depends on the qualifying contractual information and emission factors applicable to the organisation's electricity purchases.
Do Businesses Have to Report Both Location-Based and Market-Based Scope 2 Emissions?
Under the current GHG Protocol Scope 2 Guidance, companies report both methods where the market-based method applies and the relevant Quality Criteria can be met. Organisations should also check the requirements of any particular reporting framework, programme or regulation they are following.
Does a Renewable Electricity Tariff Mean My Scope 2 Emissions Are Zero?
Not automatically. Renewable electricity procurement can affect market-based Scope 2 emissions where the relevant contractual information meets the required accounting criteria. Location-based emissions still reflect the electricity grid under the location-based methodology.
What Is a Grid Emission Factor?
A grid emission factor represents the greenhouse gas emissions associated with electricity generation for a particular electricity system and period. It can be applied to electricity consumption data when calculating location-based Scope 2 emissions.
What Is an Energy Attribute Certificate?
An energy attribute certificate is an instrument used to convey specified attributes associated with electricity generation. Where applicable, these instruments can form part of market-based Scope 2 accounting when the relevant quality criteria are satisfied.
What Is Scope 2 Dual Reporting?
Scope 2 dual reporting means calculating and reporting separate location-based and market-based Scope 2 results where the GHG Protocol's dual-reporting requirements apply. The figures aren't added together; they provide two different views of the organisation's purchased energy emissions.
Understand What Your Scope 2 Figures Are Telling You
Market-based vs location-based emissions can seem unnecessarily complicated when you first encounter two different figures for the same electricity consumption.
The distinction becomes much clearer once you understand that the methods are designed to tell you different things.
Your location-based Scope 2 emissions help show the emissions associated with the electricity system where your organisation consumes energy, while your market-based Scope 2 emissions can reflect qualifying choices your organisation has made about the electricity it purchases.
Neither method removes the need for good underlying energy data. Start with the electricity consumption you already have, keep that information connected to the correct sites and reporting periods, and collect relevant supplier and contractual information where market-based accounting applies.
From there, your organisation can build a more complete and transparent picture of its Scope 2 emissions without expecting every piece of data to be perfect from day one.
Scope helps businesses bring their carbon data together, calculate emissions and track their footprint over time, with business and event carbon emissions managed within the same platform.
Create your free Scope account and start building a clearer picture of your organisation's carbon emissions.
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