Scope 2 Emissions: Accurately Accounting for Market-Based vs. Site-Based Emissions

As of July 2026‍

Scope 2 emissions result from purchased energy—and represent the area of the carbon footprint where a single kilowatt-hour can lead to two completely different figures. The reason is the dual methodology of location-based and market-based valuation. Anyone who wants to comply with ESRS E1 or demonstrate reduction targets must clearly distinguish between these two values. In addition, the ongoing revision of the GHG Protocol is tightening the requirements for the market-based method.

Key Points at a Glance

• Scope 2 includes indirect emissions from purchased electricity, heat, steam, and cooling (GHG Protocol Scope 2 Guidance, 2015).
• The location-based method uses the average grid emission factor; the market-based method uses contractual instruments such as certificates of origin, PPAs, or green electricity rates.
• ESRS E1 requires both figures: Scope 2 emissions must be reported on a site- and market-based basis (Delegated Regulation (EU) 2023/2772).
• The GHG Protocol revision proposes hourly matching, a deliverability requirement, and the "marginal emissions impact" metric for the market-based method.
• The first consultation ran from October 2025 to January 31, 2026 (over 400 responses); the final standard is expected by the end of 2027.

What are Scope 2 emissions?

Scope 2 emissions are the indirect greenhouse gas emissions resulting from the generation of purchased and self-consumed energy—specifically electricity, heat, steam, and cooling. While they are not physically generated at the company’s premises but rather at the energy supplier’s facility, they are attributed to the consuming company. As such, they serve as the lever through which nearly every organization can directly influence its carbon footprint via its electricity procurement.

Scope 2 (GHG Protocol): Indirect emissions from purchased energy (electricity, heat, steam, cooling) that is generated outside the company’s boundaries but consumed within them. Defined in the GHG Protocol Scope 2 Guidance (2015) and in ESRS E1 (data point E1-6).

Scope 2 must be distinguished from Scope 1 (direct emissions from a company’s own facilities and vehicles) and Scope 3 (all other indirect emissions in the value chain). A comprehensive corporate carbon footprint includes all three scopes; Scope 2 is usually the part that can be reduced most quickly.

Location-Based vs. Market-Based: What's the Difference?

The difference lies in the emission factor: The location-based method calculates electricity consumption using the average emission factor of the local grid, while the market-based method uses the factor from the contracts that were actually procured. The same kilowatt-hour thus has two values—one reflecting the physical reality of the grid and one reflecting the procurement decision.

CriterionLocation-basedMarket-basedEmission factorGrid average (grid mix)Contractual instruments, otherwise residual mixAnswers the question: “How clean is the local grid?”“What impact does my procurement have?” Leverage Reduce consumption, location selection Green electricity, PPAs, certificates of origin Is the green electricity rate visible? No Yes ESRS-E1 disclosure Required Required

What method does the regulation require?

Regulations generally require both methods to be used in parallel. ESRS E1 under the CSRD mandates that companies disclose their gross Scope 2 emissions using both a site-based and a market-based approach (Delegated Regulation (EU) 2023/2772, data point E1-6). CDP, RE100, and the SBTi also build on this dual approach—market-based reporting serves as the basis for crediting green electricity in these frameworks.

In practical terms, this means that a purely location-based calculation does not comply with the CSRD, and a purely market-based calculation obscures the physical reality of the grid. Both figures belong in the report, clearly labeled. Those preparing CSRD reports should establish the dual Scope 2 disclosure early in the data collection process, rather than reconstructing it at the end.

How do you calculate Scope 2?

Scope 2 is calculated by multiplying energy consumption by energy type by the appropriate emission factor—once by the grid factor (location-based) and once by the contract factor (market-based). The effort involved lies less in the formula than in data quality and the correct factor hierarchy.

In Five Steps

1. Record consumption data: electricity, heat, steam, and cooling by location in kWh, using actual billing figures rather than estimates whenever possible.
2. Location-based calculation: Consumption × average grid emission factor for the respective region.
3. Review contractual instruments: certificates of origin, PPAs, green electricity rates, and supplier-specific factors.
4. Market-based calculation: Consumption × contract factor; apply the residual mix to quantities not covered by the contract.
5. Document both values: report them separately, and record the data sources and quality criteria (audit-traceable).

For the market-based method, the GHG Protocol specifies a hierarchy of emission factors: first, fuel-specific contracts and certificates (certificates of origin, PPAs); then, supplier-specific factors; then, the residual mix; and—if none of these are available—the grid average as a fallback. Only instruments that meet the quality criteria (including uniqueness and geographic attribution) may be counted toward emissions reductions.

GHG Protocol Scope 2 Revision: What's Changing?

The revision focuses primarily on the market-based method and tightens its requirements. The GHG Protocol Technical Working Group has put forward three key proposals: a requirement for hourly matching, a deliverability requirement (geographic alignment of generation and consumption), and a new supplementary metric called “Marginal Emissions Impact.”

The dual methodology will remain in place, but the bar for credible market-based reporting is being raised: In the future, green electricity must align more closely with consumption in terms of time (hourly) and location (grid region). The first public consultation ran from October 2025 through January 31, 2026, and yielded over 400 responses. A second consultation has been announced for the second half of 2026; the final, revised Scope 2 standard is expected by the end of 2027—the stated goal is a binding standard rather than mere guidance. For context, see also our analysis of the collaboration between ISO and the GHG Protocol.

What does this mean for businesses?

For companies, this means above all that market-based accounting will become more data-intensive. Those who currently offset green electricity through annual certificates should assess how robust this offsetting will remain under stricter temporal and spatial criteria. The right time to align your electricity procurement and data collection with these requirements is before the final standard is adopted—not after.

At the same time, it’s worth taking a look at marginal emission factors: They show which emissions are actually caused by an additional or saved kilowatt-hour, and are often more meaningful than average values when measuring the impact of measures. For science-based climate target setting, a clear distinction between site-based and market-based values is a prerequisite anyway—our SBTi update from April 2026 shows how the calculation of Scope 2 targets has recently changed.

Our Assessment

The following review reflects the opinion of Five Glaciers Consulting.

Based on our project experience, the most common mistake isn’t the formula, but the data set: missing proof of origin, annual consumption figures without time-series resolution, and green electricity rates whose certificates have never been verified. It is precisely these gaps that make the audit more expensive, because hourly matching is simply not possible without load profile data.

We recommend setting up the dual Scope 2 inventory in an auditable manner now and reviewing electricity procurement in parallel—not to chase after every draft of the consultation, but to have reliable data when the regulations take effect. Reporting is not an end in itself: Separating average and marginal analyses primarily improves investment decisions regarding which measures actually reduce CO₂ emissions.

Conclusion

Scope 2 is the part of the carbon footprint where the choice of methodology and data quality make the biggest difference. Dual reporting is not optional but a requirement under ESRS-E1—and the GHG Protocol revision will significantly tighten the market-based methodology by the end of 2027. It makes sense now to separate the site-based and market-based inventories in an auditable manner, to review certificates of origin and contracts, and to prepare data collection for finer temporal resolution. This will ensure the inventory remains robust before the new standard takes effect.

Accurate Scope 2 Accounting – Location- and Market-Based, ESRS-E1-Compliant

About the Author
Dr. Merlin C. Köhnke advises companies at Five Glaciers Consulting on carbon accounting (CCF/PCF), Scope 2 methodology, and data quality in ESG reporting.
Contact: merlin.koehnke@fiveglaciers.com

Sources

1. GHG Protocol: Scope 2 Guidance (2015). ghgprotocol.org/scope-2-guidance (as of July 2026).
2. GHG Protocol: Scope 2 Standard Updates – ISB Approves Consultation on Market- and Location-Based Revisions (2025/26). ghgprotocol.org (as of July 2026).
3. GHG Protocol: Public Consultation – Scope 2 (October 2025). Consultation Document (PDF) (as of July 2026).
4. European Commission: Delegated Regulation (EU) 2023/2772 (ESRS, incl. E1). eur-lex.europa.eu (as of July 2026).