As businesses become more aware of the need to track and reduce their carbon emissions, the way they account for those emissions matters more than ever. For purchased electricity, the GHG Protocol defines two distinct approaches to calculating and reporting Scope 2 greenhouse gas (GHG) emissions: location-based and market-based. Understanding the difference is essential for any organisation aiming to meet its sustainability targets and comply with reporting requirements.
In this article we break down what market-based and location-based emissions accounting mean, how they differ, and why companies are generally expected to report both.
What is market-based emissions accounting?
Market-based emissions accounting reflects the emissions associated with the energy a company chooses to purchase. This method uses emission factors tied to specific contractual instruments, such as renewable energy certificates, supplier-specific rates or residual mix factors, to estimate the carbon footprint of the electricity an organisation consumes.
Key features of market-based accounting
- Procurement focus: accounts for emissions based on the specific energy contracts or renewable energy certificates (RECs) a company has secured.
- Voluntary energy choices: reflects deliberate decisions to invest in cleaner, low-carbon energy.
- Renewable energy impact: buying green energy through RECs or power purchase agreements (PPAs) can lower the emissions reported in a company's market-based figure.
Why market-based accounting matters
Market-based accounting is particularly useful for companies seeking to:
- Demonstrate progress on sustainability goals by prioritising renewable energy and making conscious procurement choices.
- Lower their reported carbon footprint by investing in clean energy sources.
- Enhance transparency by showing the emissions tied to specific energy decisions.
For more on how businesses can cut their emissions day to day, see our article on green living in the workplace and corporate sustainability strategies.
What is location-based emissions accounting?
Location-based emissions accounting reflects the average emissions intensity of the electricity grid in the geographic area where an organisation operates. Rather than looking at the contracts a company has signed, it applies the average emission factor of the grid that supplies a given location.
Key features of location-based accounting
- Grid focus: uses the average emissions intensity of electricity generated in a region, regardless of the contracts a company holds.
- Geographical factors: the emission factor depends on the local generation mix, including coal, natural gas and renewables.
- No voluntary choices: unlike market-based accounting, it does not credit renewable energy purchases; it only considers the grid's overall profile.
Why location-based accounting matters
Location-based accounting is important for companies that:
- Want to understand the real-world impact of their operations in a specific location, given the grid's emissions profile.
- Need a consistent basis that cannot be influenced by contractual instruments, which makes results comparable across organisations and over time.
- Want to see regional variability in energy supply and the environmental impact of electricity generation.
To understand how this feeds into sustainability reporting, we recommend our guide on getting to know your carbon footprint data in real time.
Why companies report both methods
A common misconception is that organisations pick one method or the other. In practice, the GHG Protocol Scope 2 Guidance requires dual reporting: companies operating in markets where contractual instruments are available should report Scope 2 emissions using both the location-based and market-based methods. Each tells a different part of the story:
- Location-based shows the impact of the physical grid the company draws on.
- Market-based shows the effect of the company's energy procurement decisions.
Reporting both gives stakeholders a fuller, more honest picture and prevents a green tariff from masking a high-carbon grid, or vice versa. Frameworks such as the CSRD and CDP rely on this dual approach.
Putting the two methods to work
Rather than choosing between them, the practical task is to collect the data each method needs: grid emission factors for the location-based figure, and contracts, RECs and supplier factors for the market-based figure. Understanding how Scope 2 fits alongside Scopes 1 and 3 helps put both numbers in context and keeps reporting consistent year on year.
FAQs
What is the main difference between market-based and location-based emissions accounting?
Market-based accounting reflects the emissions tied to the energy contracts a company purchases, while location-based accounting calculates emissions from the average energy mix of the local grid.
Do companies have to use both methods?
Where contractual instruments such as RECs or PPAs exist, the GHG Protocol requires companies to report Scope 2 emissions under both methods. This dual reporting captures both procurement decisions and the emissions intensity of the regional grid.
Which method is used for regulatory compliance?
The location-based figure provides a consistent, grid-based baseline, while the market-based figure recognises renewable energy purchases. Most reporting frameworks expect both, so companies disclose them side by side rather than choosing one.
