Location-based vs market-based: two Scope 2 methods

A company in Germany that buys standard electricity with no certificates can report two very different Scope 2 results for the same kilowatt-hours. The average German production mix in 2025 emitted 305 g CO₂ per kWh. The residual mix, which a company uses without green certificates, emitted 701 g CO₂ per kWh (AIB, 2025). So the market-based result is more than twice as high as the location-based one.

• Location-based vs market-based: two GHG Protocol methods for Scope 2 that use the same energy data but different emission factors.
• Location-based: shows the emissions of the grid you take power from, with an average factor for the region or country.
• Market-based: shows the emissions of the energy you bought under contracts; without them, you use the residual mix.
• Reporting: the GHG Protocol, the ESRS E1 standard and CDP ask for both results; you base your target on one method.
• Changes: the GHG Protocol and ISO are working on one joint standard; until then, the 2015 Scope 2 Guidance applies.

What is Scope 2 of a corporate carbon footprint?

Scope 2 covers indirect greenhouse gas emissions from producing the energy that your organisation buys and uses: electricity, heat, steam and cooling. The emissions happen at the power plant or heating plant, not at your site. But your company decides how much energy it uses and who it buys it from. So these emissions belong to your company.

For comparison: Scope 1 covers direct emissions, for example from fuel burnt in your own boilers and vehicles. Scope 3 covers all other indirect emissions in your value chain, from raw materials you buy to the use of products you sell. You express emissions in all scopes in tonnes of carbon dioxide equivalent (t CO₂e).

The formula is simple: energy use × emission factor = Scope 2 emissions. You take energy use from invoices, meters and energy management systems. The whole difference between the location-based and market-based methods is which emission factor you use.

Scope 2 does not include grid losses, or the emissions from extracting and transporting fuels for power plants. These go to Scope 3, category 3. We explain Scopes 1, 2 and 3 and their reporting in Scope 1, 2 and 3 emissions.

The location-based method: grid emissions where you use energy

The location-based method gives your energy the average emission factor of the grid where you use it: a region or a country. It does not matter if your company signed a green contract or bought certificates. Only the place where you used the energy counts.

Which emission factors should you use?

The GHG Protocol Scope 2 Guidance (2015) sets an order of factors for this method:

1. Regional or subnational factors that reflect the physical flow of energy between regions.
2. National factors based on electricity production.

In the EU, national grid factors come from national agencies or energy statistics, and international sources such as the IEA publish them too. In the UK, most companies use the UK Government GHG Conversion Factors for Company Reporting. The Department for Energy Security and Net Zero (DESNZ) publishes them every year. Always state the source and the year of the factor in your report.

Two points belong in the method description of your report:

• Which gases the factor covers. Some national factors cover only CO₂, without methane and nitrous oxide. The GHG Protocol asks you to disclose this.
• Whether the factor includes imports and exports of electricity. A production-based national factor does not.

What does the location-based result show?

It is a physical picture of emissions. The result falls when your company uses less energy, or when the national grid decarbonises. But it does not reflect any of your buying decisions. For this reason, many companies see it as less useful for management. With this method, you cut your carbon footprint through energy efficiency and your own energy sources. We describe how to plan this in how to reduce your business carbon footprint.

The market-based method: emissions of the energy you bought under contracts

The market-based method gives your energy the emission factor from the contractual instruments you used to buy it. These are contracts and certificates that carry the energy attribute: the right to claim where the energy came from. If your company has no instruments, it uses a factor without attributes, called the residual mix.

The order of factors in the market-based method

The GHG Protocol orders data sources from the most to the least precise:

This is an order of data precision, not a ranking of the best ways to buy energy. Always take the highest level available for each part of your energy use. Calculate the rest with a factor from a lower level.

Residual mix: why is it higher than the national average?

The residual mix is the energy mix that remains after you take out the energy whose attributes were already sold. These attributes were cancelled with guarantees of origin. If one company bought guarantees from a wind farm, a second company cannot count the same wind power in its average. So the residual mix has less renewable energy and higher emissions than the production mix.

The Association of Issuing Bodies (AIB) publishes residual mixes for European countries every year. In the 2025 edition (published in May 2026), the figures for some countries were:

Source: AIB, European Residual Mixes 2025, version 1.0 (2026). The values cover CO₂ only.

Supplier-specific emission factor

In the EU, electricity suppliers must show their customers the fuel mix of the electricity they sell. They must also show its environmental impact, at least its CO₂ emissions (Electricity Directive (EU) 2019/944, Annex I). UK suppliers also publish their fuel mix.

The supplier factor is level 3 in the order. But before you use it, check how the supplier calculated it. The GHG Protocol requires that it includes cancelled guarantees of origin. It must not count renewable energy whose attributes were sold to someone else. If the supplier does not describe its method, ask directly if its “green” mix is backed by cancelled guarantees of origin.

Location-based vs market-based: a comparison

The table compares the two methods side by side.

The two methods do not compete. They answer two different questions: how much the grid you use emits, and what energy your company chose to buy.

Worked example: a manufacturer in Germany

A plant in Germany used 2,000 MWh of electricity in 2025. For this example, we use two AIB figures for 2025. The production mix (304.94 g CO₂/kWh) serves as the grid average. The residual mix is 701.47 g CO₂/kWh.

Location-based

2,000 MWh × 0.30494 t CO₂/MWh = 610 t CO₂

Market-based: four ways of buying electricity

What this shows:

• Without green instruments, the market-based result is 2.3 times the location-based one (1,403 vs 610 t CO₂). This often surprises companies in their first report.
• Even in option C, the location-based result stays the same (610 t CO₂). Guarantees of origin do not change the physical emissions of the grid, so your report must show both results.
• Only lower energy use or your own renewable installation, whose guarantees you have not sold, lowers both results.

We prepare a full inventory with both Scope 2 results as part of our corporate carbon footprint service under the GHG Protocol.

Which instruments lower the market-based result?

Guarantees of origin

In the EU, a guarantee of origin is the document that proves to an end customer that energy comes from a renewable source. A national issuing body issues it, and most EU countries trade guarantees in the European Energy Certificate System (EECS). To assign a guarantee to your energy use, it must be cancelled in the registry for you. A guarantee is valid for 12 months after the end of the energy production period.

In the UK, the equivalent is the Renewable Energy Guarantee of Origin (REGO), issued by Ofgem. The UK is a separate market: count REGOs for energy used in Great Britain, and EU guarantees of origin for energy used in the EU. We explain when guarantees are worth buying, and when they are only a cost, in guarantees of origin: when are they worth buying?

PPAs and supplier offers

A PPA, physical or virtual, is a long-term contract to buy power from a specific renewable installation. It lowers the market-based result. This works only if the energy attributes go to your company alone, usually through guarantees of origin that come with the contract. A supplier's “green” offer lowers the result only if the supplier cancels guarantees of origin for the energy you use.

Quality criteria for contractual instruments

The GHG Protocol sets quality criteria for instruments. A certificate or contract must:

1. carry information on the emissions of the energy produced;
2. be the only instrument that carries this claim for that amount of energy;
3. be tracked and cancelled by your company or on its behalf;
4. cover a period as close as possible to the period of energy use;
5. come from the same market where you use the energy.

Other criteria cover supplier factors, which must include cancelled certificates. They also cover direct contracts and your own generation: no other instruments may exist for the same energy. Finally, a residual mix must be available for energy without attributes. Instruments that do not meet the criteria cannot lower your result: you calculate that part of your energy use with the residual mix.

Heat, steam and cooling in Scope 2

You report district heat, process steam and cooling with the same two methods as electricity. In practice, both results are often the same, because one network usually supplies heat without contractual instruments.

Find the emission factor in this order:

1. The factor from your heat supplier: its fuel mix and the emissions assigned to the heat it produced.
2. If the supplier does not give it: a calculation from fuels and efficiency. Divide the emission factor of the fuel by the efficiency of heat production. In the UK, the DESNZ conversion factors also include a factor for heat and steam.

Do not calculate heat with an electricity factor. It is a different form of energy, made from other fuels with a different efficiency.

Which method should you report? GHG Protocol, ESRS, CDP and SBTi

The table shows what each standard asks for.

In practice, every company in the EU or the UK that calculates its footprint under the GHG Protocol should report both results. This is not only for CSRD reporting. Customers, banks and ESG rating platforms that check suppliers' climate data look at both results more and more often. You choose only which method your reduction target uses. If you plan an SBTi target under the new standard, remember that the location-based result sets the ambition, so buying certificates alone is not enough.

Common mistakes in Scope 2 calculations

When we verify carbon footprints, we see these seven problems most often:

1. Reporting only one method, usually the market-based one with a low result.
2. Using a factor from the wrong year or country, or a factor whose source is not stated.
3. A zero market-based result based on a “green tariff”, with no proof that guarantees of origin were cancelled for your company.
4. Using the national average factor in the market-based method when a residual mix exists. This lowers the result and counts renewable energy twice.
5. Certificates from another market, for example EU guarantees of origin for energy used in Great Britain, or REGOs for sites in the EU.
6. District heat calculated with an electricity factor.
7. No description of the method: the source and year of the factors, whether CH₄ and N₂O are left out, and which residual mix you used.

We describe more common mistakes across the whole footprint in 6 common carbon footprint calculation mistakes.

What will the revision of the Scope 2 rules change?

The 2015 guidance was written when the market for certificates was small. Today, it lets a company match night-time energy use with certificates from daytime solar power in another market. This does not reflect real emissions well. So the GHG Protocol held a public consultation from 20 October 2025 to 31 January 2026. It received about 1,100 responses from 56 countries. The main proposals are:

• Hourly matching: a certificate would cover energy use in the same hour in which the energy was produced. Load profiles and exemptions would help smaller users.
• Deliverability: in Europe, the market boundary would be the bidding zone, not the whole EU.
• A new order of location-based factors: local and hourly factors first, if they are public and free.
• A conservative fallback factor: without a residual mix, a factor based on fossil fuels instead of the grid average.
• Avoided emissions as a separate metric, outside the inventory.

On 29 July 2026, the GHG Protocol and ISO announced that they will work on one joint corporate standard. Under the plan, a draft that also covers Scope 2 goes to consultation in the second quarter of 2027. Publication is planned for the fourth quarter of 2028. The start date and any transition periods are not known yet. Until then, the 2015 guidance applies, and current reports need no changes. We explain the harmonisation in the new Scope 2 rules and the joint GHG Protocol and ISO standard.

What can you do now? Collect hourly data on your energy use. Check the age and origin of the installations behind your PPAs and guarantees of origin. And do not base a long-term strategy only on cheap annual certificates.

Frequently asked questions