The Greenhouse Gas Protocol (GHG Protocol) is a globally recognized framework that guides organizations in measuring and managing greenhouse gas emissions. Developed through collaboration between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol engages businesses, NGOs, governments, and other
What Are Scope 2 Emissions?
The Greenhouse Gas Protocol categorizes emissions that contribute to climate change into different “scopes.” Scope 2 covers the greenhouse gases released from the electricity, heating, and cooling an organization buys and uses. In simple terms, Scope 2 emissions are based on the energy sources a company relies on — whether it comes from fossil fuels or renewable energy.stakeholders in tackling climate change.
Scope 2 Accounting Methods
To report Scope 2 emissions—those from purchased electricity, heating, and cooling—the GHG Protocol’s Scope 2 Guidance provides two accounting methods: the market-based and location-based approaches. These methods help organizations calculate emissions based on their electricity sourcing choices and the regional energy grid.
Market-based Method:
What? This approach calculates emissions based on the specific electricity sources a company chooses through contractual agreements, such as Power Purchase Agreements (PPAs) or Energy Attribute Certificates (EACs) like RECs, GOs, or I-RECs.
Below are a few examples of contractual instruments:
- Power Purchase Agreement (PPA): An investment in a renewable energy project, which can include both the energy itself (Physical PPA) or just the energy attributes (Corporate PPA).
- Supplier-Specific Contracts: Agreements with suppliers to purchase products with lower emissions than their average. These contracts vary by region due to energy grid regulations, so it’s crucial to understand if the renewable energy comes directly from the supplier or from the market.
- Energy Attribute Certificates (EACs): Certificates that verify the right to claim renewable energy attributes. EACs can be bought with the energy or separately on a spot market and often support other contracts, like PPAs or supplier agreements.
There are different EACs depending on the market, for example Renewable Energy Credits (RECs) in the US, Guarantees of Origin (GOs) in Europe and International Renewable Energy Credits (I-RECs) in 60+ countries in Asia, Africa, Latin America,…
Who? This method is suitable for organizations that have a clear preference for renewable or low-carbon energy sources and actively contract for electricity with specific emission characteristics. For example, companies using PPAs to secure solar power can demonstrate lower emissions because they are tied directly to the renewable source.
Example: If a company in the Vietnam purchases RECs sourced from a wind farm to certify its electricity consumption, it can report emissions associated with the wind source under the market-based method, using an emission factor of zero due to the renewable origin.
Location-based Method:
What? This approach uses the average emissions of the local electricity grid, capturing the carbon intensity of the energy in a defined geographic area (such as a country or city). It reflects the general mix of energy sources available in the region, without reference to specific contractual arrangements.
Who? It’s applicable for companies operating in areas without accessible supplier-specific data or for locations where organizations cannot control the energy mix they receive.
Example: A company operating in a location where coal and natural gas are predominant may report higher emissions in the location-based method than in the market-based one, as it reflects the average grid emissions.
Dual Reporting:
In regions with both supplier-specific data and grid-average data, companies are recommended (or sometimes required) to report both market-based and location-based emissions, a practice known as dual reporting. This dual approach gives a complete view of emissions, capturing both a company’s purchasing choices and the regional energy context.
Example: In a deregulated market, a company might choose renewable energy certificates (RECs) to lower its market-based emissions profile while still reporting location-based emissions according to the local grid’s average carbon content.
Organizations are encouraged to use both where supplier-specific data is available; if not, the market-based method alone is recommended.
How to Reduce Scope 2 Emissions and Support Renewable Energy
The market-based and location-based methods offer companies different ways to reduce emissions by focusing on the source of their electricity.
The market-based method is more flexible. It lets companies claim clean electricity use by buying Energy Attribute Certificates (EACs) and other contractual instruments. This allows them to choose where their energy comes from and where their emissions are counted.
When companies buy EACs, they provide extra income to renewable energy producers, which can encourage more investment in clean energy. This method allows companies of any size to show a preference for clean energy, even in areas where renewables are limited.
EACs also help track demand for renewable energy. Without them, it’s hard to tell how many companies or individuals are willing to pay for low-carbon energy.
The location-based method works differently. It doesn’t let companies reduce their own emissions directly, but it encourages them to support renewable energy in their area by backing policies that promote clean energy. When companies collectively support renewables, it can help drive more public and private investment in local clean energy.
EACs as a Simple and Valid Tool to Reduce Scope 2 Emissions
Energy Attribute Certificates (EACs)—such as Guarantees of Origin (GOs) in Europe, RECs in the U.S., and I-RECs—provide a simple, cost-effective way for companies to track and verify their renewable energy use. EACs ensure that companies are genuinely using renewable energy, enabling them to make credible claims about their emissions reductions. By utilizing EACs, businesses can effectively reduce their Scope 2 emissions through the market-based method, offering an affordable route to achieving sustainability goals.
Additionally, EACs align with global frameworks like RE100, the Science Based Targets initiative (SBTi), CDP, Higg FEM and so forth, helping businesses meet international climate targets while strengthening their environmental reputation.
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