Scope 2 accounting: market-based vs location-based

Every organization that buys electricity has a Scope 2 number, and most have two of them. The GHG Protocol Scope 2 Guidance asks reporters to calculate purchased-electricity emissions two ways, using a location-based method and a market-based method, and the two results are often far apart. That is not an error. The methods are built to answer different questions, and understanding the difference is the difference between a defensible disclosure and one that gets picked apart.

The requirement to publish both is called dual reporting, and it applies wherever contractual instruments such as energy attribute certificates are available in the market. The GHG Protocol introduced the two methods in its 2015 Scope 2 Guidance, and the split has shaped corporate climate reporting ever since.

What Scope 2 actually covers

Scope 2 is the indirect emissions from energy your organization purchases and consumes: electricity, and where relevant purchased steam, heat and cooling. The emissions physically happen at the power plant, but they are counted in your inventory because your demand caused them. Scope 2 sits alongside Scope 1 (direct combustion you own) and Scope 3 (everything else in your value chain). For most commercial and institutional portfolios, purchased electricity is the largest single line in the footprint.

The location-based method: what the grid around you emits

The location-based method multiplies the kilowatt-hours you consumed by an average emission factor for the grid you sit on. It ignores any contracts you signed and asks a simpler question: given where this building draws power, what did that power emit on average? In the United States the standard source is the EPA eGRID subregion factors; in Canada, provincial grid intensities from Environment and Climate Change Canada serve the same role. Because those factors reflect the real generation mix on a wire, location-based results move with the grid, not with your procurement.

The strength of location-based accounting is that it is hard to game. You cannot lower it by buying a certificate. It reflects the physical grid, which is why it stays useful for understanding exposure and for comparing sites in different regions.

The market-based method: what you chose to buy

The market-based method reflects the emissions of the electricity you contractually purchased. If you buy power bundled with attribute certificates, sign a power purchase agreement, or select a specific supplier product, those choices show up here. The idea is to reward and record procurement decisions that drive clean generation onto the grid.

Not just any claim counts. The GHG Protocol specifies eight Scope 2 Quality Criteria that a contractual instrument must meet to be used in the market-based total, covering things like conveying the generation attribute, being tracked and retired once, being as close as possible to the consumption period, and being sourced from the same market. The Guidance then sets a five-tier hierarchy that orders which emission factor you must apply first, from energy attribute certificates and contracts down to supplier-specific and residual-mix factors.

The residual mix: the factor most reporters forget

If some buyers in a market claim the clean generation through certificates, the leftover, unclaimed generation is dirtier than the grid average. The market-based method requires you to apply that leftover, called the residual mix, to any consumption you cannot back with a valid instrument. Skipping it and using the plain grid average understates the market-based number. In the United States, Green-e publishes residual mix emission rates by eGRID subregion each year for exactly this purpose.

Market-based vs location-based at a glance

Why the data underneath decides everything

Both methods start from the same input: how many kilowatt-hours you consumed, at which site, over which period. If that number is wrong, both totals are wrong, and no methodology choice can save you. This is where most Scope 2 work quietly breaks down. Consumption is buried across bills in different formats, interval files, and supplier statements, and the periods rarely line up cleanly with the reporting year.

• Consumption pulled from bills and interval data, tied to the correct account and site
• Billing periods reconciled so partial months are apportioned to the reporting year
• Estimated reads flagged so they do not silently distort the total
• Contractual instruments matched to consumption for a defensible market-based figure

That is the work MartinAI is built for: reading every field on every bill and interval file, checking it for internal consistency, and handing your team structured, analysis-ready consumption. Once the kilowatt-hours are clean, running both Scope 2 methods is arithmetic rather than archaeology.

Mandatory dual reporting is spreading

Dual reporting is no longer only a voluntary best practice. California's Climate Corporate Data Accountability Act (SB 253) requires large companies doing business in the state to disclose Scope 1 and Scope 2 emissions in accordance with the GHG Protocol, with the first Scope 1 and 2 reports due by August 10, 2026. As GHG-Protocol-based mandates take effect, the two-number discipline becomes a compliance requirement, not a stylistic choice.