Learn how the greenhouse gas (GHG) protocol defines Scope 2 emissions, how they are calculated and the requirements an organisation needs to follow when reporting their Scope 2 emissions.
How are Scope 2 emissions defined in the GHG protocol?
As per the GHG Protocol, all reporting organisations must disclose GHG emissions associated with their operations and categorise them as direct or indirect. Direct emissions are emissions from sources that are owned or controlled by the company. Indirect emissions occur as a consequence of the activities performed by the reporting company but the actual emissions of greenhouse gases occur at sources owned or controlled by another company.
Scope 2 is categorised as indirect emissions and encompasses GHG emissions related to the consumption of energy in the form of electricity, steam, heat or cooling. Emissions related to the production, extraction and transportation of consumed energy are included under Scope 3 category 3: Fuel and Energy Related Activities not included in Scope 1 or Scope 2.
For accurate Scope 2 GHG accounting, the company should use total (or gross) energy purchases from the grid rather than “net” purchases. This means it should include the total energy purchased from the grid for Scope 2 (and not should subtract any electricity it sold to the grid). On-site generation should be counted as Scope 1.
Head over to our support article for a general intro to the GHG Protocol and how it’s used for climate reporting.
What are the different methods to allocate Scope 2 GHG emissions from purchased energy?
There are two main approaches for allocating GHG emissions from energy purchased by the reporting company. These are location-based and market-based methods. In short, the location-based method allocates emissions based on the average emissions intensity of the grid where energy is consumed, while the marked-based method allocates emissions based on active choices that the consumer has made with regards to its purchased energy, for instance by buying energy from specific suppliers or by buying contractual instruments.
Market-based method
The market-based method allocates GHG emissions from purchased energy based on the contractual instruments purchased by the consumer (such as energy attribute certificates, direct contracts or supplier specific emission rates). A consumer’s market-based emissions will be significantly lower if they’ve purchased contractual instruments.
By obtaining contractual instruments, consumers can claim that their electricity comes from a specific generator or supplier and apply the associated emissions factor (most often 0 g CO2e/kWh) in their Scope 2 calculations. By contrast, consumers that haven’t purchased any contractual instruments are mandated to use a residual mix in their Scope 2 reporting, which represents all energy for which the energy source is not verified by contractual instruments. In the European market, contractual instruments are only issued for renewable energy. As a result, the residual mix typically contains carbon intensive fuels like coal and gas, and has a high emissions intensity (535 g CO2e/kWh for Norway in 2024).
In the EU and Norway, electricity suppliers are obliged by the revised Electricity Market Directive (2009/72/EC) to disclose the origin of their deliveries of electrical energy in the previous year through product declarations to consumers:
- In cases where guarantees of origin have been purchased, the CO2e-intensity reported by a specific power plant can be used.
- This number is often close to zero or even set to 0 g CO2e/kWh (omitting the life cycle impact of the power plant and electricity grid).
- Electricity suppliers who do not purchase guarantees of origin must use a defined residual mix in their marketing materials and on electricity bills.
- In Norway, The Norwegian Energy Regulatory Authority (NVE) has the authority to define the residual mix. The NVE electricity disclosure for 2024 is calculated from a European residual mix, ending up at 535 g CO2e/kWh.
- In Sweden, Energimarknadsinspektionen (Ei) has this authority. The Ei electricity disclosure for 2024 is calculated from a Nordic residual mix and therefore is slightly lower, at 465 g CO2e/kWh.
Location-based method
The location-based method allocates GHG emissions from purchased energy based on the average emissions intensity of the energy generation within a defined geographic area and time period. Under this method, companies cannot lower their Scope 2 emissions by purchasing “clean” electricity - the only ways to reduce the electricity emissions are for the grid as a whole to grow cleaner or for consumer’s electricity use to be reduced.
For location-based reporting, there are several interpretations of the grid on which electricity consumption occurs, ranging from local to global. All the alternatives have different trade-offs and use cases, and each option can have a significant effect on your organisation's calculated Scope 2 emissions. The GHG Protocol recommends using regional or sub-national grid average emission factors, with national level factors as a fallback when more granular data is unavailable.
In Norway, national level emission factors are most commonly applied. For instance, the NVE’s physical electricity disclosure at 11.9 g CO2e/kWh (2024) is a commonly used factor in GHG reporting. It includes emissions from Norwegian electricity production, while also factoring for imported and exported electricity. Broader ranges, such as the Nordic or European mix are usually not used in GHG reporting. These are more relevant for calculating the effect of an individual reducing their personal electricity consumption.
Why do we need two different methods for accounting for Scope 2 GHG emissions?
The two Scope 2 accounting methods each provide a different decision-making value. Both highlight different opportunities to reduce emissions and reduce risks. The ultimate goal should be system-wide emission reduction over time in order to limit global warming. Achieving this requires clarity on what kinds of decisions individual consumers can make to reduce both their own emissions as well as how they can contribute to emission reductions towards the grid as a whole. There are three types of decisions companies can make that impact overall electricity grid emissions.
- Site of operations
A company’s choice of where to locate its office buildings, industrial facilities, distribution centers, or data centers directly affects its GHG emissions, as well as the grid on which its energy use is based. For instance, locating new facilities on a GHG-intensive grid means that energy demand will be met with higher GHG emissions. By contrast, locating operations in areas with low-carbon energy generation, or additional benefits such as natural ambient cooling or heat, can lead to lower GHG emissions and costs.
Therefore, from a location-based perspective, a company’s shift in site of operations will result in use of a different grid average emission factor, and possibly a shift in energy supply overall.
From a market-based perspective, a relocation could result in changes in suppliers (new utility service areas), changes in which contractual instruments are available, actions of other consumers in the market, or the residual mix used in that location. - Focus on energy efficiency
Once a company has established a location for its operations, it can reduce its emissions through lowering its own energy demands. A company can reduce energy consumption through measures such as choosing an energy-efficient building, carrying out energy-efficient retrofits, using more efficient electronics or lighting, and making behavioral decisions such as switching off appliances when not in use. Therefore, a company’s shift in energy demand will entail changes in reported Scope 2 emissions. A decrease in energy consumption will result in a decrease in the total Scope 2 emissions, for both location and marked-based methods.
From a location-based perspective, collective changes in consumption contribute to changes in the grid average emission factor over time. Shifting energy consumption to periods of low-emissions generation on the grid (often non-peak hours) can further contribute to system-wide reductions.
From a market-based perspective, reducing electricity demand can minimize the additional costs associated with purchasing contractual instruments at a premium above standard electricity costs. - Actions to influence energy mix of the grid
The mix of generation technologies on any given grid depends on multiple factors, including the availability of natural resources, local policies, and current market dynamics. Energy consumers can influence these factors directly or indirectly, by sending market signals, most often through contractual purchasing agreements. When a company purchases a large volume of such instruments, their limited supply can drive up prices. Higher prices, in turn, signal the market to issue more instruments, which may be made possible by building new renewable energy capacity or importing more renewable energy from other regions.
Over time, these procurement efforts can shift supply and demand patterns, influencing both consumer behavior and supplier investment decisions. As a result, the grid’s average emission factor and the cost of contractual instruments evolve, ultimately affecting both location-based and market-based emissions.
What are the requirements to be followed when reporting Scope 2 GHG emissions?
The Scope 2 Guidance provides a set of requirements that organisations must follow when calculating and reporting their Scope 2 emissions:
- Companies with operations in markets providing product or supplier-specific data or contractual instruments should account for Scope 2 emissions using both location-based and marked-based methods.
- Companies must use emission factors that include the emissions of all greenhouse gases included in the Kyoto Protocol. In Ducky, we use emission factors compliant with this requirement
- Companies need to disclose the choice of method(s) and emission factors used for Scope 2 accounting.
- Contractual instruments in the market-based method must meet a set of quality criteria to ensure that instruments are legitimate and no double counting of emissions between consumers takes place.
- Companies must disclose the year chosen as the base year for Scope 2 emissions calculation.
How should emissions from energy use in leased assets be allocated?
Energy use in leased buildings or from leased assets can be a significant source of emissions. To decide whether these emissions are relevant and which scope they belong to, companies need to assess who owns, operates, or controls the leased assets. According to the GHG Corporate Standard, leases generally give operational control to the tenant (lessee) unless specified otherwise. This means that if a company leases space or uses a leased asset, emissions from all purchased energy should be reported under Scope 2. On the other hand, if a company owns an asset but leases it out without operating it, the related emissions may either be reported under Scope 3 or excluded from the inventory based on the consolidation approach chosen.
For example, if your company leases an electric car, the emissions from charging the vehicle fall under your Scope 2, since operational control rests with the lessee. For the lessor, the emissions associated with the car would typically be reported under Scope 3, Category 13 (Downstream Leased Assets), or excluded from their inventory depending on the consolidation approach they follow.