Scope 2 Accounting Methodologies
Scope 2 carbon accounting plays a critical role in understanding and managing the GHG emissions associated with electricity consumption. This category accounts for emissions generated during the production of electricity, which are then attributed to the entity consuming it. Organizations looking to calculate their carbon footprint, especially from electricity use, can utilize two distinct methodologies: location-based and market-based approaches. This documentation explores these methodologies to help organizations choose the most suitable approach for their reporting and sustainability goals.
Location-Based Approach
The location-based approach calculates emissions based on the average emission intensity of the electrical grid from which the electricity is consumed. It involves aggregating the emissions from all electricity generation feeding into the grid—regardless of the specific energy sources—and allocating them to end consumers based on their electricity usage. This approach reflects the mix of energy sources on the grid, including fossil fuels, nuclear, and renewables, and assigns emissions to consumers in proportion to their consumption.
Market-Based Approach
In contrast, the market-based approach provides a more nuanced calculation of emissions, considering the specific types of electricity that a company elects to purchase. This method calculates emissions based on the characteristics of these specific purchases, allowing organizations to account for emissions reductions through the procurement of cleaner electricity compared to the average grid mix. It is particularly significant for organizations that invest in RECs or enter into power purchase agreements (PPAs) for green power.
Comparative Insights
Here's a detailed comparison of the two methodologies:
| Aspect | Location-Based Approach | Market-Based Approach |
|---|---|---|
| Emission Factor Application | Uses grid-average emission factors, reflecting the general mix of grid electricity. | Uses specific emission factors reflecting purchased electricity products. |
| Claims of GHG Reduction | Does not allow for claims related to specific energy choices. Consumers' influence is limited to reducing overall consumption or moving to areas with cleaner grids. | Allows companies to make substantiated claims about GHG reductions based on contractual purchases of green power. |
| Support for Renewable Energy | Indirect, as consumers contribute to demand but specific purchases aren't tracked. | Directly supports renewable energy by recognizing and incentivizing cleaner energy choices. |
| Regulatory Alignment | Generally accepted for broad compliance with regulatory frameworks. | Preferred in markets and regulations that recognize voluntary renewable energy commitments. |
Conclusion
The choice between location-based and market-based approaches for Scope 2 carbon accounting depends on an organization's specific goals, the regulatory requirements they face, and their commitment to environmental sustainability. While the location-based approach offers a measure of the emissions intensity of the grid's energy mix, the market-based approach allows organizations to demonstrate their proactive efforts in reducing their carbon footprint through strategic energy purchases. Understanding these methodologies is crucial for organizations aiming to enhance their environmental stewardship and to effectively communicate their actions and impacts in sustainability reports. The GHG protocol requires the calculation of the organizational GHG emissions with both methodologies.