Growing awareness of environmental issues has led to the emergence of rigorous standards for measuring companies’ carbon footprints. Among them, the GHG Protocol stands out as a reference in terms of GHG emissions accounting. In this article, learn everything you need to know about Scope 2, the calculation methods, and its implications, as part of the GHG Protocol.
Scope 2 under the GHG Protocol
The GHG Protocol, or “Greenhouse Gas Protocol“, is an internationally recognized standard for accounting for companies’ greenhouse gas (GHG) emissions. Under the GHG Protocol, emissions are classified into three categories, called “Scopes”. Scope 2 refers to indirect emissions resulting from the consumption of electricity, heating and cooling purchased and consumed by the company.
The main role of Scope 2 is to enable organizations to identify and manage their carbon impact related to their electrical energy consumption, as it is a major source of emissions.
The GHG Protocol provides specific guidance on how these emissions are to be accounted for, with two main methods of calculation: the location-based method and the market-based method. These two approaches offer different perspectives and can lead to different results in terms of emissions.
Scope 2 accounting according to the GHG Protocol
The location-based method measures an organization’s GHG emissions based on the average of its electricity emissions in its region of consumption.
The key steps of this method are as follows:
- Determining electricity consumption: The company starts by quantifying its electricity consumption over a period of time, usually expressed in megawatt hours (MWh).
- Application of regional emission factors: Then, this consumption is multiplied by the average emission factors for the region or country in question.
- Calculation of emissions: The product of this multiplication gives the total GHG emissions attributable to Scope 2.
One of the main advantages of this method is its simplicity. By relying on pre-established average data, companies can quickly estimate their emissions without having to consider the specificity of their energy supply contracts.
However, this approach also entails several limitations. It does not take into account an individual company’s efforts to switch to cleaner or renewable energy sources. Thus, two companies in the same region with radically different energy supplies (one using green energy, the other fossil sources) would have similar reported emissions under this method.
The market-based method focuses on the specific energy choices made by a company. It provides a more accurate representation of the greenhouse gas emissions resulting from an organization’s energy purchasing decisions. Thus, this method takes into account the nature of the electricity that the company has actually purchased (green energy, fossil energy or a mix of both).
The key steps of this method are:
- Energy Contract Valuation: The company should review its energy supply agreements to determine the exact source of its electricity.
- Use of specific emission factors: This method employs emission factors directly associated with the type of electricity purchased. For example, if a company has purchased certified green electricity, its emissions are considered zero for that part of its consumption.
- Calculation of emissions: The company’s electricity consumption is multiplied by the appropriate emission factors to obtain the total GHG emissions.
One of the biggest benefits of this method is that it accurately reflects a company’s efforts to reduce its carbon footprint. It values proactive choices such as investing in renewable energy or signing green electricity contracts.
However, it is more complex to implement, as it requires accurate accounting of energy contracts and renewable energy certificates. Finally, without proper management, there is a risk of double counting, especially if renewable energy certificates are resold.
Choice of method: what are the impacts for companies?
The choice between the location-based method and the market-based method has several impacts on an organization’s carbon footprint and its emissions reduction strategy.
Thus, the choice of method must be in line with the company’s sustainability strategy. If the organization aims to highlight its specific investments in clean energy, the market-based method is more relevant. Investors, whether customers or regulators, are placing increasing importance on corporate environmental responsibility. A market-based method, by more accurately reflecting the company’s energy choices, offers a more accurate picture of the organization’s efforts and is a significant advantage in the company’s communication of its environmental responsibility. However, the market-based method requires more complex management, requiring precise monitoring of energy contracts and renewable energy certificates.
For a company starting its emissions reduction journey, with limited resources, and wanting to compare itself to other companies in its region, the geographic method is more suitable.
Finally, in some jurisdictions or regions, specific regulations may favor or require either method. Companies should therefore stay informed of local regulatory requirements and adjust their approach accordingly.
The GHG Protocol provides a structured framework for companies to assess and report their emissions, particularly those related to their energy use. The choice between the geographically based and market-based methods influences the results of the carbon footprint, but also the perception of the company’s environmental efforts. It is essential for organizations to understand these methods, align their choice with their sustainability strategy, and stay informed of regulatory developments to ensure accurate and relevant accounting of their emissions. In establishing their carbon footprints, the D-Carbonize tool allows companies to choose the method that best suits their objectives.