Location vs. Market-Based Scope 2 Why your emissions double-counting check matters.

When companies report their greenhouse gas (GHG) emissions, Scope 2—covering purchased electricity, steam, heating, and cooling—often seems simple at first glance. Yet it is also one of the most misunderstood categories in sustainability accounting. The GHG Protocol requires companies to disclose Scope 2 emissions in two ways: location-based and market-based. Understanding the difference between them, and ensuring you are not double-counting or misreporting, is essential for credible disclosure and investor trust.

The location-based method calculates emissions using the average grid emission factors where electricity consumption takes place. For example, if a company operates in a country where the grid is largely coal-powered, its Scope 2 footprint will be relatively high, regardless of any contractual arrangements. This method reflects the “physical reality” of the grid mix and provides a baseline view of a company’s dependence on local energy infrastructure.

The market-based method, by contrast, accounts for emissions based on specific instruments and contracts—such as power purchase agreements (PPAs), renewable energy certificates (RECs), or guarantees of origin—that a company uses to source electricity. If a company procures renewable electricity through such mechanisms, its market-based Scope 2 emissions may be significantly lower than its location-based footprint. This approach highlights a company’s active procurement choices and its role in driving renewable energy demand.

The challenge comes in ensuring that the two methods are applied correctly, and that reductions in market-based emissions are not overstated. Double-counting risks arise if renewable attributes are claimed by more than one party, or if certificates are not properly retired in registries. Similarly, using generic or unbundled RECs with limited additionality may create a misleading impression of decarbonization progress. Investors and regulators are increasingly alert to these pitfalls, pushing companies to provide transparent evidence trails, including the origin, vintage, and certification of renewable procurement instruments.

For companies, the dual reporting requirement is not just a compliance exercise—it is a credibility test. Disclosing both location-based and market-based Scope 2 emissions provides stakeholders with a fuller picture: the location-based figure shows exposure to the carbon intensity of local grids, while the market-based figure reflects procurement strategy and ambition. Together, they allow users of sustainability data to assess whether reductions are driven by real-world changes in energy systems or by contractual mechanisms.

In practice, best-in-class reporters go further by reconciling the two approaches, explaining discrepancies, and disclosing how they avoid double-counting. They also communicate how renewable procurement supports broader grid decarbonization rather than just delivering paper-based reductions. By treating location vs. market-based Scope 2 not as an accounting nuisance but as a strategic transparency issue, companies can strengthen their climate credibility and demonstrate genuine leadership in the transition to clean energy.