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Scope 2: market-based emissions vs. location

Scope 2: market-based emissions vs. location

Summary

Scope 2 of the carbon footprint focuses on indirect emissions from electricity consumption, but there are two approaches to calculating these emissions: market-based and location-based.
The market-based method takes into account a company's specific energy choices, while the location-based method assesses emissions according to the average emissions intensity in the region of consumption.
Each method has its advantages and disadvantages, and the choice depends on the company's objectives and resources.
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INDEX

Définition

Calculation of emissions

Pros/Cons

Why and when should you use this method? 

Definition

Calculation of emissions

Pros/Cons

Why and when should you use this method? 

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Introduction

Scope 2 is an important pillar of the carbon footprint, which encompasses indirect emissions from electricity consumption. However, the way in which these emissions are accounted for varies: should it be based on the energy choices of the market or on the geographical location of the company? In this article, learn about the specifics of each method and how to choose the right calculation method for your business.

Scope 2 emissions

Scope 2 definition: indirect emissions

Scope 2 refers to indirect emissions related to the production of electricity, heating or cooling that the organization buys and consumes. Although these emissions are generated at the point of production of this electricity or heat, they are attributed to the entity that consumes them.

Scope 2 is particularly relevant for many companies, as electricity consumption is often a major source of emissions, especially if that electricity is produced from fossil energy sources. In addition, Scope 2 often offers significant opportunities to reduce emissions, for example by switching to renewable energy sources or improving the energy efficiency of buildings. There are several methods for calculating Scope 2 emissions when establishing the carbon footprint: the market-based method and the location-based method.

Scope 2: Market-based emissions

Définition

La méthode basée sur le marché se réfère à la comptabilisation des émissions de gaz à effet de serre en fonction des choix énergétiques spécifiques qu’une entreprise fait. In other words, it reflects the impact of electricity purchase choices, such as the purchase of green electricity or electricity from fossil sources.

Calculation of emissions

To account for emissions using this method, an organization must consider the emission factors associated with its energy contracts or renewable energy certificates. So, if a company buys certified green electricity, for example, its associated emissions are zero for that portion of energy.

Pros/Cons

Benefits:

Relevance: This method reflects the direct impact of a company’s energy purchasing decisions, providing a clear representation of its efforts to reduce its emissions.

Boosting renewable energy: It encourages companies to invest in greener energy sources.

Disadvantages:

Complexity: The need to track and account for specific certificates or contracts can be complicated and time-consuming.

Risks of double entry: If not managed properly, this method can lead to double entry for some emission reductions, for example, if a company resells its renewable energy certificates.

Why and when should you use this method?

The market-based approach is particularly useful for organizations that want to demonstrate the benefits of their specific investments in renewables or other clean energy sources. It is also an appropriate method when regulations require such accounting. Thus, the market-based method offers companies the opportunity to highlight their specific efforts and investments to reduce their carbon footprint.

Scope 2: Location-based emissions

Scope 1 occupies a central place in an organization's carbon footprint, reflecting its direct greenhouse gas emissions. These come from sources owned or controlled by the entity itself. Scope 1 encompasses all direct GHG emissions from an organization's activities, such as:

Definition

The geographic location-based method evaluates an organization’s greenhouse gas emissions based on the average emissions intensity of electricity generation in the region where that electricity is consumed. It is based on average emission factors defined for specific regions or countries.

Calculation of emissions

Emissions are calculated by multiplying the amount of electricity consumed by the company by the average emission factor for that region. For example, if a company consumes 1,000 MWh of electricity in a region where the average emission factor is 0.5 tonnes of CO2 per MWh, its emissions are 500 tonnes of CO2.

Pros/Cons

Benefits:

Simplicity: The use of average emission factors is an easy-to-use solution.

Uniformity: It provides a uniform comparison between companies operating in the same region.

Disadvantages:

Lack of customization: This method does not reflect a company’s specific efforts to adopt cleaner or renewable energy sources.

Less incentive: It provides less incentive for companies to invest in clean energy, as these investments would not be directly reflected in their carbon footprint.

Why and when should you use this method?

The location-based approach is particularly useful for getting an overview of emissions in a given region. It is often used in the early stages of an emissions reduction strategy, when companies are just beginning to assess their carbon footprint. It is also useful for sectoral or regional comparisons.

Scope 2 calculation: Which methods to choose for companies?

Each method of calculating Scope 2 has its advantages and disadvantages, and the choice of one over another can have significant repercussions in the creation of the carbon footprint.

If the company aims to demonstrate its sustainability commitments, the market-based method is more appropriate. On the other hand, if the main objective is to compare emissions with other companies in the region, the geographically-based method is preferred.

Companies with resources and capabilities to actively monitor their energy contracts can adopt the market-based method. Those looking for a simpler and less complex approach can opt for the location-based method.

Finally, if the company wants to communicate its efforts in green or renewable energy purchases to its stakeholders, the market-based method is more relevant.

The choice between market-based and location-based methods depends on the company’s specific goals, resources, and communication priorities. It is essential for companies to fully understand the implications of each method to make an informed choice that is aligned with their sustainability strategy. To improve their efficiency when establishing their carbon footprint, organizations can use the carbon footprint calculation software D-Carbonize tool.

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