Key takeaway
- Location-based Scope 2 reflects the average emissions of the grid your facility is on.
- Market-based Scope 2 reflects the specific emissions of the electricity you've contracted for (PPAs, RECs, GOs, green tariffs).
- The GHG Protocol Scope 2 Guidance requires dual reporting in markets where market-based instruments exist.
- The two methods can produce dramatically different results — both are valid; both should be disclosed.
Location-Based vs Market-Based Scope 2: Which to Use and When
The Scope 2 dual-method requirement is one of the most genuinely confusing technical topics in emissions accounting. Most practitioners take longer than they should to understand it, and many companies under-report by using only one method without disclosing the other.
This guide makes it clear in 10 minutes: what the two methods are, why the GHG Protocol expects both, and what makes a market-based claim credible.
What Scope 2 is
Scope 2 covers indirect emissions from purchased electricity, steam, heat, and cooling. The emissions don't happen at your facility — they happen at the generation source. Your inventory accounts for them because you consume the energy.
The GHG Protocol's Scope 2 Guidance, published in 2015, introduced the dual-method approach. Before then, most companies reported only what's now called the location-based method.
The two methods explained
Location-based
Multiply your electricity consumption (in kWh) by the average grid emission factor for your location.
- Reflects what the grid was emitting, on average, when you consumed electricity.
- Does not change based on your renewable energy contracts.
- The grid emission factor is published by national bodies (DEFRA in the UK, EPA in the US, EMBER for global coverage of 99 countries) and updated annually.
Market-based
Multiply your electricity consumption by the emission factor of the specific electricity you contracted for.
- Reflects your specific contracts: green tariffs, Power Purchase Agreements (PPAs), Renewable Energy Certificates (RECs), Guarantees of Origin (GOs).
- Can be zero if all your electricity is contractually renewable and meets the GHG Protocol Scope 2 Quality Criteria (covered below).
- Otherwise uses the residual mix factor — the grid average minus what's been claimed by other purchasers via contracts.
The underlying logic: location-based answers "what was the grid emitting?" Market-based answers "what did your specific electricity cost in emissions terms?" Both questions matter for different decisions.
Why does the GHG Protocol require both?
The GHG Protocol Scope 2 Guidance (2015) requires dual reporting for organisations operating in markets with the necessary instruments. Most major markets qualify.
The reason: each method serves different decisions.
- Location-based shows your operational footprint regardless of contracts. It reflects where you operate and the grids you depend on.
- Market-based shows your contractual choices. It rewards companies that actively procure renewable electricity.
Reporting only market-based and claiming "zero" doesn't tell the full story. A company on a coal-heavy grid that has bought enough RECs to claim zero market-based emissions still has a real operational footprint that the location-based number captures. Investors, regulators, and SBTi increasingly expect both numbers to be disclosed side-by-side.
How to do market-based reporting credibly
The GHG Protocol Scope 2 Guidance defines five Quality Criteria for instruments used in market-based accounting:
- Conveys all greenhouse gas emissions attributes of the generation it represents.
- Has not been double-counted — the same MWh of generation cannot be claimed by two parties.
- Has been retired (cancelled) — used once, and only once.
- Is generated as close to consumption as possible (vintage). The instrument's generation date should be reasonably close to the consumption period.
- Is sourced from generators with eligible commissioning dates — many regimes restrict claims to recently commissioned generation.
Plus the additionality conversation. RECs that don't drive new renewable generation are weaker claims than PPAs that do. SBTi and increasingly the EU regulators are tightening what counts as a credible market-based claim.
PPAs, GOs, RECs — the instrument types
The main instrument types you'll encounter:
- Power Purchase Agreement (PPA). A direct contract with a renewable generator. Generally the strongest claim because it's tied to a specific generation source and often drives new generation capacity.
- Virtual PPA (vPPA). A financial contract that doesn't change physical electricity delivery but provides REC attributes. A credible claim when vintage and additionality criteria are met.
- Bundled RECs. RECs sold with the underlying electricity. Generally credible.
- Unbundled RECs. RECs sold separately from electricity, often years after generation. Weaker claim; increasingly challenged.
- Guarantees of Origin (GOs). European equivalent of RECs. Same quality criteria apply.
- Green tariffs. Utility-administered programmes offering renewable electricity. Quality varies; check the underlying generation mix and additionality.
What regulators and stakeholders expect
The expectation is converging on dual reporting with rising scrutiny on market-based claims:
- Most regulators — both methods, with location-based as the primary.
- SBTi — both required; market-based used for target tracking with strict instrument criteria.
- CDP — both required.
- CSRD / ESRS E1 — both required.
- IFRS S2 — both expected; specific guidance on instrument credibility.
- California SB 253 — emissions disclosure under GHG Protocol; expects both methods where market-based instruments exist.
Common mistakes
- Reporting only market-based and claiming "zero" without disclosing location-based. Methodologically incomplete and increasingly challenged.
- Treating unbundled RECs as fully renewable without additionality assessment. The Scope 2 Quality Criteria are the floor, not the ceiling. SBTi and the EU are raising the bar.
- Mixing methods across years. Location-based one year, market-based the next, with no recalculation. Year-over-year comparison becomes meaningless.
- Using outdated grid emission factors. DEFRA, EPA, and EMBER all update annually. Document the factor source and version used.
- Failing to document the methodology choice. Assurance providers will challenge undocumented decisions.
How frameworks reference Scope 2
- GHG Protocol Scope 2 Guidance (2015) — the methodology source for both methods and the Quality Criteria.
- IFRS S2 — expects GHG Protocol-consistent emissions, including dual Scope 2 reporting where applicable.
- ESRS E1 — requires both location-based and market-based disclosure.
- CDP climate questionnaire — both methods required.
- SBTi — market-based used for target tracking, with strict instrument quality requirements.
Where to go from here
- Calculating Scope 3 emissions: the 15 categories explained — Category 3 (fuel- and energy-related activities) interacts with Scope 2 method choice.
- Setting your base year and reporting boundaries — the foundational scoping decisions.
- Setting science-based targets: the SBTi process — SBTi's renewable electricity criteria add tighter standards on market-based claims.
- The GHG Protocol framework deep page.
If you're already reporting only one method, start dual reporting next cycle. The location-based number requires only your existing electricity data and a published grid emission factor; you likely already have everything you need.