The most recent GHG Protocol Guidelines on Scope 2 calculations that are still valid today were published in 2015. The then updated version of the guidelines contains an important change that introduced a new methodology for Scope 2 calculations. This meant that for companies operating in markets where an electricity trading scheme is in place, Scope 2 can be represented by two different numbers.

Definitions

The first method, called location-based uses the average emissions intensity of electricity networks within a given geographical area where energy consumption takes place. With the new market-based methodology, companies can calculate emissions from an electricity mix that they have intentionally chosen to purchase through direct contracts with suppliers or energy attribute certificates such as Renewable Energy Certificates (RECs), Guarantee of Origin (GOs), etc.

All these instruments are usually used to purchase energy from renewable or low-carbon sources, but direct contracts can also cover the purchase of electricity generation from fossil fuels. As Sweden belongs to the European Energy Certificate scheme AIB, Swedish companies can use the market-based approach.

Insights from the choice of method

So in which cases is it better to apply one or the other method? The location-based approach is more suitable for showing absolute increases or decreases in energy consumption that may occur, for example, due to energy efficiency measures. In turn, the market-based approach can indicate whether a company is buying low-carbon electricity to reduce its emissions. More generally, this approach also points to a deliberate choice of a specific electricity mix or the absence of such a choice.

This means that within the market-based approach there is a so-called residual mix, which consists of energy that has not been used by anyone. For example, in Sweden, the residual mix consists mostly of fossil energy sources with high emissions. As a result, a Swedish company that does not purchase any fossil-free electricity can have quite high Scope 2 emissions under the market-based approach, often even higher compared to the location-based figure.

Consequently, it can be argued that market-based electricity figures are more accurate, especially when a company has a direct contract with its electricity supplier, which explains why the GHG Protocol recommends using primarily market-based figures. However, both methodologies highlight different aspects of Scope 2 emissions as mentioned earlier and this helps to evaluate the company's energy consumption from different perspectives and metrics. Thus, both methods can provide valuable insights so it is not surprising that both figures have to be reported under CSRD.

New proposals for more detailed reporting

In addition, it is important to understand that when a company buys energy certificates, it does not mean that the company will actually use the electricity it paid for. The reason for this is that there is no physical traceability of the renewable energy from the point of production to the end use in a common electricity grid. Therefore, it is now being considered whether more detailed reporting of Scope 2 emissions should be required.

One of the proposals is to limit the validity of energy attribute certificates from the general electricity market (e.g. EU) as it is now to the electricity grid region. In other words, companies can currently use energy certificates from the same general electricity market to account for emissions from their electricity consumption, but if this proposal is accepted, these certificates will only be valid within the same electricity grid region, which is significantly smaller.

Another proposed change would mean that companies can only claim to use renewable energy if it was produced in the same hour that the company used power from the grid. More studies and discussions will be carried out before any change is made but an update could come as early as 2025.

Scope 2 calculations according to both methods in Our Impacts

Our Impacts, the sustainability platform offered by ZeroMission to its clients since 2011, performs Scope 2 emissions calculations using both the location-based and market-based approaches.

Please contact us directly if you want to know more about climate calculations with Our Impacts.