Scope 2 emissions are the indirect greenhouse gas (GHG) emissions resulting from the consumption of purchased electricity, heat, or steam. To calculate these emissions, companies use two methods that allocate the GHG emissions created by electricity generation to the end consumers of a given grid: location-based and market-based calculations.

Location-Based Calculation

The location-based method measures Scope 2 emissions by considering the average emissions intensity of the grid where energy consumption takes place. This approach uses regional or national grid emission factors to estimate the GHG emissions associated with a company's electricity consumption, reflecting the average environmental impact of the electricity production within a specific geographic area.

Market-Based Calculation

The market-based method, on the other hand, takes into account the specific electricity products or contracts a company has chosen for its energy consumption. This approach considers factors such as renewable energy certificates, power purchase agreements, or other contracts that distinguish the company's electricity sources from the average grid mix. By using the market-based calculation, companies can better reflect the environmental outcomes of their energy procurement choices.

In conclusion, the main difference between the location-based and market-based methods lies in the source of emission factors used. Location-based calculations rely on average grid emission factors, while market-based calculations consider the specific energy products or contracts chosen by the company, allowing for a more accurate representation of the company's electricity-related GHG emissions.

Practical Example: Location vs. Market Based

To understand the difference between the two methods, please read the following example

Let's consider an example of a company, EcoCorp, which consumes 10,000 MWh of electricity annually. To calculate its Scope 2 emissions, EcoCorp will use both the location-based and market-based methods.

Location-Based Calculation

Suppose the average emissions intensity of the grid where EcoCorp operates is 0.5 kg CO2e per kWh (kilograms of carbon dioxide equivalent per kilowatt-hour). Using the location-based method, the calculation would be:

Emissions (Location-Based) = Electricity Consumption x Grid Emissions Factor Emissions = 10,000 MWh x (0.5 kg CO2e/kWh x 1,000 kWh/MWh) Emissions = 5,000,000 kg CO2e (5,000 metric tons CO2e)

Market-Based Calculation

EcoCorp has a power purchase agreement (PPA) for 40% of its electricity consumption (4,000 MWh) from a wind farm, which has an emissions factor of 0 kg CO2e per kWh. The remaining 60% of the electricity (6,000 MWh) comes from the grid with an average emissions factor of 0.5 kg CO2e per kWh.

Emissions (Market-Based) = (Electricity Consumption from Wind Farm x Wind Farm Emissions Factor) + (Electricity Consumption from Grid x Grid Emissions Factor) Emissions = (4,000 MWh x 0 kg CO2e/kWh) + (6,000 MWh x 0.5 kg CO2e/kWh x 1,000 kWh/MWh) Emissions = 0 + 3,000,000 kg CO2e Emissions = 3,000,000 kg CO2e (3,000 metric tons CO2e)

In this example, EcoCorp's location-based Scope 2 emissions are 5,000 metric tons CO2e, while the market-based Scope 2 emissions are 3,000 metric tons CO2e, reflecting the company's choice to source part of its electricity from renewable energy.