Mastering Scope 2 Emissions: Market vs. Location-Based Methodologies

Scope 2 emissions are indirect emissions by the companies due to the consumption of purchased electricity. The GHG emissions released are brought into the organizational boundary of the company. It is crucial to account for scope 2 emissions as this helps the companies and organisations to identify emission sources and try to measure and manage them by adopting various sustainable strategies.

Understanding Scope 2 emissions:

Scope 2 emissions occur in the organizational space of the company due to consumption of purchased electricity or heating-cooling systems. The purchased electricity is used to derive mechanical energy to run turbines, processing, manufacturing, heating, and cooling systems. Reporting authorities must understand scope 2 emission sources to measure and identify the most emitting sources and try to curb the emitting sources by switching to eco-friendly practices.

Approaches to account scope 2 emissions

Scope 2 emission calculation requires companies to adopt specific methods as outlined by the GHG Protocol. GHG protocol talks about two important methods to measure GHG emissions generated from purchased electricity from the grid through end-use by the consumers. The two approaches are the market-based approach and the location-based approach.

Location-based approach

The location-based approach is used to measure the Scope 2 emissions of a company depending on GHG emissions from purchased electricity from a grid. This involves average emission calculation from the local grid from where the company sources power.

The advantage of this approach is that it shows accurate physical dynamics of the grid. This is because a lot of companies consume grid electricity to power their businesses. The disadvantage of this approach is that to reduce one’s Scope 2 emissions, the only way is the disposal of electricity consumption.

The formula utilized to calculate the location-based approach is:

kWh of electricity used x local grid emissions factor = Location-based Scope 2 GHG Emissions

The emissions factor used in this calculation represents the average emission resulting from energy generation within a defined geographical region and for a specific time.

The location-based method ensures fairness as everyone utilising the electricity from the same grid poses the same emission impact. Hence, this approach utilises the average emissions of the local grid rather than measuring individual impact. This ensures collective responsibility for the share of emissions from electricity consumption.

Market-based approach

Market-based emissions are the emissions resulting from the company and its contractual agreements in the market. The contractual agreements are the energy agreements that a company does in the market. These may be in the form of renewable energy contracts, direct contracts, supplier-specific emission rates, and residual mix. This is different from the power generated from the grid.

Calculation of emissions from these instruments should ensure compliance with GHG protocol standards. The emission factor employed in calculating emissions is derived from the contractual agreements meeting Scope 2 qualifying criteria.

A simple formula to calculate market-based emission factor:

kWh consumed x Contract source emissions factor = Market-based Scope 2 CO2e GHG Emissions

The market-based approach focuses on individual organizations and their contractual activity in the marketplace.

Step-by-step calculation of Scope 2 emissions

• Determination of electricity consumed

  The amount of electricity used is called the activity data necessary for the quantification of Scope 2 emissions. Utility bills, purchase records and on-site use of electricity by the organization are treated as scope 2 emissions. This data is the correct data from than individual collection of data from sub-meters.

• Determination of emission factors

  The emission factor converts activity data into emission data attributable to purchased electricity, steam, heat and cooling purchases. The location-based method considers emission factors for the electricity. The location-based emission can be a direct line, regional line, or national emission factor.

  The market-based approach involves emission factors specific to the various contractual arrangements. The market emission factors are different for energy attribute certificates, contracts, supplier emission details, residual mix factors, and national emission factors.

• Calculation of emissions

  The following equation is used to calculate emissions

  Emissions = Electricity × EF

  Where:

  • Emissions are masses of carbon dioxide, methane, and nitrous oxide that are emitted.
  • Electricity is the quantity of electricity purchased.
  • EF is the emission factor
  The emissions are to be multiplied by global warming potential (GWP) to calculate CO2 emissions.

Conclusion

Scope 2 emissions calculation is important for companies to measure their emissions and develop effective carbon reduction strategies. This effort shows that the company is committed to meeting the organization's operational needs and commitment towards the environment.

Scope 2 emissions are significant for businesses, making up a big chunk of their carbon footprint, around 60% on average according to the World Resources Institute. These emissions mainly come from purchased energy, like electricity. The good news is that compared to Scope 1 emissions (which come directly from a company's activities), businesses have more control over Scope 2 emissions. They can choose where to buy their energy from and influence its source, making it a more manageable aspect of their environmental impact.

Market-based emissions represent a more granular image of an organization's carbon footprint, while the location-based approach provides transparency about physical emissions at a site. FloCard as an organization makes sure that individuals and companies reach their carbon reduction targets by democratizing sustainability across spaces.