Scope 2 guide · 2026
Location-Based vs Market-Based Scope 2: Which Factor to Use
Under the GHG Protocol Scope 2 Guidance you do not choose between the two methods — you report both. The location-based figure uses an average grid emission factor; the market-based figure reflects the electricity contracts and certificates you have actually purchased. This guide walks through both calculations step by step, where to source each factor, and how to explain the difference in your disclosure.
The short answer
Calculate and report both methods — they answer different questions. The location-based method multiplies your electricity consumption (kWh) by an average grid emission factor for the region the energy is drawn from; it shows the emissions of the grid you sit on, regardless of what you bought. The market-based method uses the emission factors of the specific products you have contracted — green tariffs, power purchase agreements (PPAs) and energy attribute certificates such as RECs or Guarantees of Origin — and a residual-mix factor for any untracked supply. The GHG Protocol Scope 2 Guidance requires dual reporting, so both figures appear in your inventory. For science-based targets and most disclosures the market-based number is the one you reduce against, because it reflects the purchasing decisions you can actually change.
Why there are two Scope 2 numbers
Scope 2 covers the indirect emissions from electricity, steam, heat and cooling that your organisation purchases and consumes — energy generated somewhere else but used by you. Because the same kilowatt-hour can be described two ways — by the physical grid it flowed through, or by the contract you bought it under — the GHG Protocol defines two parallel accounting methods. Neither replaces the other: location-based shows your exposure to the grid, market-based shows the impact of your procurement choices, and reporting both keeps your inventory honest about what is real reduction versus a change in what you purchased.
Location-based method
Multiplies your electricity consumption by an average emission factor for the grid your sites draw from. It reflects the physical grid mix where you operate and is largely outside your direct control — it falls only as the grid itself decarbonises.
Market-based method
Uses the emission factors of the energy products you have contracted — green tariffs, PPAs and certificates such as RECs or Guarantees of Origin — plus a residual-mix factor for any supply you cannot claim. It reflects your procurement choices, so it moves when you change what you buy.
How to calculate location-based and market-based Scope 2 in 6 steps
Run both calculations from the same consumption data so the only difference between your two figures is the emission factor applied. This is the sequence we recommend — and the workflow CarbonTool is built around:
- 1
Understand what Scope 2 covers
Scope 2 is the indirect emissions from the electricity, steam, heat and cooling your organisation purchases and consumes. Confirm your boundary: which sites and meters are in scope, and whether you also buy purchased heat or steam, not just electricity. Everything that follows is calculated on this same consumption data.
- 2
Calculate location-based emissions with a grid average factor
Take total electricity consumed at each site in kilowatt-hours for the reporting year and multiply it by the average grid emission factor for that location (the regional or national grid mix). Sum across sites to get your location-based total. This figure ignores any contracts or certificates — it is purely the grid you sit on.
- 3
Calculate market-based emissions using your contracts and certificates
Apply the emission factor of the specific products you have purchased: zero or near-zero for verified renewable tariffs, PPAs and certificates (RECs, Guarantees of Origin), and the published supplier factor where you have one. For any consumption not covered by a contractual instrument, apply the residual-mix factor for the region so untracked supply is not double-counted as clean.
- 4
Source the right factors for each method
Use a recognised grid-average factor (for example DEFRA/UK, EPA eGRID/US, AIB/EU or IEA datasets) for the location-based figure, and supplier-specific or certificate-backed factors plus the published residual mix for the market-based figure. Record the dataset, year and version of every factor so the calculation is reproducible and auditable.
- 5
Decide why dual reporting is required
The GHG Protocol Scope 2 Guidance requires both figures whenever you operate in a market that offers contractual energy instruments. Location-based shows your exposure to the underlying grid; market-based shows the effect of your purchasing. Reporting only one would hide either the grid reality or the value of your renewable procurement, so frameworks expect both.
- 6
Report both figures and explain the difference
Disclose the location-based and market-based totals separately, state the methods and factor sources, and add a short narrative explaining the gap — for example, that certified renewable purchases reduce the market-based figure below the grid average. Keep the same approach year on year so trends are comparable and reductions are credible.
In CarbonTool you enter your electricity consumption once against a GHG-Protocol electricity template, attach your contracts and certificates, and the platform applies both the grid-average and the contractual factors — producing the location-based and market-based figures side by side with a full audit trail behind each. You can estimate a first figure with the free carbon calculator before building the full inventory.
Why your two numbers diverge
The gap between your location-based and market-based totals is created entirely by the emission factors, not the energy used. A site on a coal-heavy grid that buys 100% certified renewable electricity can show a high location-based figure and a near-zero market-based one. The reverse is also possible: a site on a clean grid that buys no green energy will have a low location-based figure but a higher market-based one if the residual-mix factor is dirtier than the grid average. These are the levers that move each number:
Renewable certificates and green tariffs
Verified RECs, Guarantees of Origin, green tariffs and PPAs reduce the market-based figure (often toward zero for covered consumption) but make no difference to the location-based figure, which always uses the grid average.
The grid mix where you operate
A coal-heavy grid raises your location-based figure; a hydro- or nuclear-heavy grid lowers it. This is the main driver of the location-based number and changes only as the grid decarbonises.
The residual-mix factor
Energy you have not claimed with a certificate is valued at the residual mix — the grid average stripped of the renewables others have already claimed. Because it is usually dirtier than the simple grid average, untracked supply can push the market-based figure above the location-based one.
Factor vintage and dataset
Different datasets and reporting years publish different grid and residual factors. Mixing vintages between the two methods, or between years, creates apparent movement that is really just a factor change — so lock the source and year for each.
What CSRD, VSME and other frameworks expect
Dual reporting is the GHG Protocol default, and the major frameworks follow it. Under the CSRD (ESRS E1), companies disclose gross Scope 2 on both a location-based and a market-based basis. The VSME standard for SMEs keeps things lighter but still expects a clear, consistent Scope 2 figure with the method stated, and GRI, CDP and SBTi all reference the same two-method approach. The practical implication is that you should keep both figures, every year, from one consistent dataset. CarbonTool holds your electricity data, contracts and certificates in one data backbone so the same Scope 2 figures flow into CSRD, VSME, GRI, CDP and PCAF reports without re-keying — and every factor carries its source and data-quality level for the auditor. New to the terminology? The carbon accounting glossary defines residual mix, energy attribute certificates and the rest, and there is more practitioner guidance in our insights library.
Got more questions?
Can't find what you're looking for? Check the FAQs below, or reach out and we'll get back to you within one business day.
Yes, in most cases. The GHG Protocol Scope 2 Guidance requires dual reporting whenever you operate in a market that offers contractual energy instruments such as green tariffs or certificates. Frameworks including CSRD (ESRS E1) ask for both figures explicitly. You calculate both from the same electricity data and disclose them separately.
The market-based method is usually the one you set and track reduction targets against, because it reflects the purchasing decisions you can actually change — switching to renewable tariffs, signing PPAs or retiring certificates. Science-based-target and most corporate reduction commitments are tracked on a market-based basis, while the location-based figure remains in your inventory to show grid exposure.
Yes. Verified renewable tariffs, PPAs and energy attribute certificates such as RECs or Guarantees of Origin lower your market-based figure, often to near zero for the consumption they cover, provided the instruments meet the GHG Protocol quality criteria. They do not affect your location-based figure, which always uses the average grid factor regardless of what you have purchased.
Use a recognised published dataset for the region your electricity is drawn from — for example DEFRA conversion factors in the UK, EPA eGRID in the US, AIB factors in the EU, or IEA data. Record the dataset, year and version so the figure is reproducible. CarbonTool maintains GHG-Protocol electricity templates so the correct grid-average factor is applied automatically per location.
Because they apply different emission factors to the same consumption. Renewable certificates and green tariffs can drive the market-based figure far below the location-based one, while a clean grid can do the opposite — a low location-based figure but a higher market-based one if untracked supply is valued at a dirtier residual mix. A large gap is normal and should be explained in your disclosure.
Under the CSRD (ESRS E1) you disclose gross Scope 2 on both a location-based and a market-based basis. The VSME standard for SMEs is lighter but still expects a clear, consistently calculated Scope 2 figure with the method stated. Keeping both figures from one consistent dataset, as CarbonTool does, satisfies CSRD, VSME, GRI, CDP and SBTi without re-keying.
Report both Scope 2 numbers from one dataset.
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