November 27, 2018 By IBM Envizi 4 min read

Building rating and emission reporting bodies will grade your organization on its carbon footprint and emissions resulting from electricity consumption. The problem is that all kWh are not created equal. To ensure that you’re being fairly graded, you should make sure you’re taking advantage of your green power purchases and any green electricity guarantees provided to you in your supplier contracts. This article will take you through the changes to electricity carbon accounting and give you some tips on how to take advantage of updates to GHG reporting for electricity.

Traditional Scope 2 reporting

Since the late 1990s, organizations have been using the Greenhouse Gas Protocol Corporate Standard as the primary guidance document for greenhouse gas accounting and reporting. This standard has evolved over time with only minor changes. One of the biggest criticisms, however, has been around the protocol’s inability to enable organizations to take credit for their green power purchases. In the original version of the Corporate Standard, all GHG reductions were reported separately and unrelated to purchased energy captured in Scope 2 totals.

Under the Corporate Standard, an organization was required to report emissions from electricity (Scope 2) using the grid average emission factor. This effectively put all electricity generation on equal footing. One kWh of power generated from coal had the same impact as one kWh from solar or wind within the same electricity grid. To address this issue, the authors of the GHG Protocol have developed new guidance for Scope 2 reporting. This reporting mainly applies to electricity consumption, but also extends to other Scope 2 sources, like purchased heat, steam and cooling.

A market-based approach

The essence of the guidance released in 2015 is that it encourages organizations to seek out more accurate emissions factors associated with their energy purchases. This new guidance is called the market-based method, which refers to reporting based on the environmental attributes associated with consumed power. This will allow companies to take credit for their green electricity purchases, shining a light on those organizations that are not making an effort to reduce their Scope 2 footprint when market-based totals are compared. Keep in mind that you may find that your electricity supplier may have a fuel type mix that is more heavily dependent on fossil fuels, and therefore has a higher emission factor.

The original method has since been given the name “location-based method,” which refers to the accounting of emissions according to an organization’s local grid electricity mix. To avoid double counting or under-reporting in a region, all organizations must use the same grid-average emission factor when using this method. On the other hand, the market-based method instructs organizations to apply a zero-emission factor to their renewable energy purchases (hydro, wind, bioenergy and solar PV), and supplier or contract specific emission factors if they are available.

Market-based emissions reporting by IBM Envizi

An organization might source supplier-specific emission factors from their electricity retailer and find that the generation-mix has a different proportion of fuel types than the grid average. In this case, the organization would be required to use this factor instead of the grid average. But in cases where more specific emission factors cannot be collected, the residual mix emission factor should be used, which will always be higher than the grid average. The residual-mix emission factor is much like the grid-average emission factor, but differs in that all of the green electricity attributes have been removed.

Therefore, if we have two companies that have the same electricity consumption in the same region, their location-based totals will be the same, but if one company has made significant green electricity purchases and the other hasn’t, then the market-based total for the green electricity purchaser will be significantly lower. In short, the market-based method empowers organizations to take control of their own electricity fuel type mix and not have to rely on the grid average.


Overview of GHG Protocol scopes and emissions across the value chain. Source: Figure 1.1. of Scope 3 Standard, GHG Protocol.

Why start now?

Since the release of the new standard in 2015, CDP now requires market-based reporting alongside location-based. GRESB also allows submissions to use market-based Scope 2 totals. Every year, more and more electricity generators and retailers are being asked to provide environmental attribute information and the expectation is that this trend will continue. While market-based reporting provides an opportunity for organizations looking to reduce their Scope 2 footprint, those organizations that don’t take part are putting themselves at risk of being left behind.

How to start reporting Scope 2 market-based emissions

The first thing to do is to understand how your organization is making its electricity purchases and start reaching out to suppliers to collect emission factors.

  • If your organization has purchased green electricity then it’s likely you will also have the associated attributes. Energy attribute certificates can also be purchased separately from the electricity. Use the Scope 2 Quality Criteria to ensure that collected emissions factors can be used.
  • Next, you should investigate energy contracts such as purchase power agreements. In this situation, attribute certificates may not exist but an emission factor may be tied to the contract.
  • After reviewing contracts you can also check with your electricity retailer to see if your purchased power has a known generation mix or emission factor.
  • In cases where factors cannot be found, you should use publicly available residual mix emission factors. At the moment, only North America and Europe produce residual mix emission factors.
  • Finally, if you’re unable to source any factors using the methods described above, then the grid-average emission factor should be used. In this case, your market-based totals will equal your location-based emissions.

During this reporting year, you may find that sourcing supplier-specific emission factors is difficult, or that residual mix emission factors are not available for your region, but this is expected to be temporary. As residual mix emission factors are developed and published for more regions and electricity suppliers get used to providing these factors to clients, organizations putting in the effort now will find it easier in the future to showcase their green purchasing decisions in their Scope 2 market-based carbon footprint.
Build your sustainability data foundation, streamline reporting and accelerate decarbonization with the IBM Envizi ESG Suite

Was this article helpful?

More from Sustainability

Merging top-down and bottom-up planning approaches

2 min read - This blog series discusses the complex tasks energy utility companies face as they shift to holistic grid asset management to manage through the energy transition. The first post of this series addressed the challenges of the energy transition with holistic grid asset management. The second post in this series addressed the integrated asset management platform and data exchange that unite business disciplines in different domains in one network. Breaking down traditional silos Many utility asset management organizations work in silos.…

An integrated asset management data platform

3 min read - Part 2 of this four-part series discusses the complex tasks energy utility companies face as they shift to holistic grid asset management to manage through the energy transition. The first post of this series addressed the challenges of the energy transition with holistic grid asset management. In this part, we discuss the integrated asset management platform and data exchange that unite business disciplines in different domains in one network. The asset management ecosystem The asset management network is complex. No…

SEC climate-related disclosure rules for public companies

3 min read - On March 6, 2024, the US Securities and Exchange Commission (SEC) adopted rules to enhance and standardize climate-related disclosures by public companies and in public offerings. The commission’s adoption of the rules is two years in the making. The original proposed rules, issued in March 2022, aimed to ensure consistency in how publicly traded companies provided climate-related information to investors. These new rules join existing regulations in both the US and around the world requiring companies to make climate-related disclosures…

IBM Newsletters

Get our newsletters and topic updates that deliver the latest thought leadership and insights on emerging trends.
Subscribe now More newsletters