An introduction to Scope 2 greenhouse gas emissions

Learn how the greenhouse gas (GHG) protocol defines scope 2 emissions, the different methods to account for scope 2 emissions and the requirements an organisation needs to follow when reporting their scope 2 emissions.

How are scope 2 emissions defined in the GHG protocol?

Scope 2  includes GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by the reporting company. Scope 2 only includes emissions from the combustion of the fuel at the site of generation. All upstream emissions associated with the production and processing of fuels, transmission and distribution of energy within a grid are tracked in scope 3, category 3. The four types of purchased energy tracked in scope 2 are as follows:

• Electricity: Used by almost all companies to operate machines, lighting, electric vehicle charging, and heating and cooling systems.
• Steam: Steam is a valuable energy source for industrial processes. It is used for mechanical work, heat or as a process medium.
• Heat: Most commercial or industrial buildings require heat to control interior climates and heat water. Many industrial processes also require heat for specific equipment. Heat may be produced from electricity or through a non-electrical process such as solar thermal heat or thermal combustion processes (as with a boiler or a thermal power plant) outside the company’s operational control.
• Cooling: Similar to heat, cooling may be produced from electricity or through the distribution of cooled air or water.

What are the different methods to account for electricity under scope 2 GHG emissions?

Calculating scope 2 emissions requires determining the emissions associated with electricity consumption. Two methods are used to “allocate” the GHG emissions of electricity generation to the end consumers: location-based and market-based methods. In short, the market-based method reflects emissions from electricity that companies have purposefully chosen (or their lack of choice), while the location-based method reflects the average emissions intensity of grids on which energy consumption occurs. Both methods should be used in GHG reporting.

Market-based reporting

The market-based method takes into account the purchasing decisions of the reporting entity regarding its electricity supply. Many electricity markets, including those in the United States, European Union, and Japan, use a variety of so-called contractual instruments traded between electricity generators, utilities and consumers to convey emissions information about the purchased electricity. They include renewable energy certificates (RECs), Guarantees of Origin (GOs) and other tradable certificates. 

Contractual instruments can be purchased by consumers, giving them the right to claim that their electricity comes from a specific generator. The consumer can then use the GHG emissions factor conveyed in the contractual instrument for calculating their scope 2 emissions. Consumers that haven’t purchased any contractual instruments are mandated to use a residual mix factor in their scope 2 reporting, which is defined as the emissions intensity of the average electricity generated within a geographical area after subtracting all the electricity under contractual instruments.

In the EU, electricity suppliers are obliged by the revised Electricity Market Directive (2009/72/EC) to disclose information regarding their market-based electricity mix the previous year to consumers:

• In cases where guarantees of origin have been purchased, the CO2e-intensity reported by a specific power plant can be used. 
  • This number is often close to zero or even set to 0 g CO2e/kWh (omitting the life cycle impact of the power plant and electricity grid).
• Electricity suppliers who do not purchase guarantees of origin must use a defined residual mix in their marketing materials and on electricity bills. 
  • In Norway, The Norwegian Energy Regulatory Authority (NVE) has the authority to define the residual mix. The NVE electricity disclosure for 2021 is calculated from a European residual mix, ending up at 405 g CO2e/kWh. 
  • In Sweden, Energimarknadsinspektionen (Ei) has this authority. The Ei electricity disclosure for 2021 is calculated from a Nordic residual mix and therefore is slightly lower, at 372 g CO2e/kWh.

Location-based reporting

The location-based method takes into account the emissions intensity of the average electricity generated within a defined geographic boundary and during a specified time period. This method emphasises the connection between consumer demand for electricity and the emissions resulting from local electricity production. It doesn’t allow for an entity to reduce their scope 2 emissions by just purchasing “clean” electricity - the only way to reduce the electricity emissions are for the grid as a whole to grow cleaner or for electricity use to be reduced.

For location-based reporting, there are several interpretations of the grid on which electricity consumption occurs, ranging from local to global. All the alternatives have different trade-offs and use cases, and each option can have a significant effect on your organisation's scope 2 emissions. The GHG Protocol recommends using regional or sub-national grid average emission factors. National level electricity factors may be used in the case where information on other factors (regional and sub-national) is unavailable.

Regional emission factors can reveal large variations from hour to hour or between location and location (from changing fractions of imported fossil-based electricity). This high resolution can be very beneficial for both the company’s control systems and annual reports. However, the  national yearly average factors are the most frequently used as of today. The NVE physical electricity disclosure at 11 g CO2e/kWh (2021) is a commonly used factor in Norwegian corporate GHG reporting. It includes direct emissions from Norwegian electricity production, while also factoring for imported and exported electricity.

The average Nordic or European electricity mix, on the other hand, is usually not used in GHG reporting. These numbers are more relevant for calculating the effect of an individual reducing her personal electricity consumption (then in a full life cycle scope). Read more below.

Note on customer communication

The scope 2 standard does not regulate the use of emission numbers for customer communication - nor is it fit for this purpose.

Contractual instruments like certificates, guarantees of origin and carbon offsets are often used and abused to back claims of “Fossil free” or “Carbon neutral” products and services. It must be noted that electricity suppliers are not allowed to make any claims of environmental benefit from selling such guarantees. This should serve as a warning for other actors as well. At Ducky, we believe that using market-based numbers in customer communication will only lead to confusion, and their use should be limited to fulfilling legal and reporting requirements.

Similarly, scope 2 location-based numbers are sometimes used to calculate and communicate the emissions of a product or service. At Ducky, we believe that this is misleading and will only lead to confusion. Scope 2 is narrowly defined, omitting indirect emissions related to electricity consumption, and should only be used for GHG reporting.

What are the requirements to be followed when reporting scope 2 GHG emissions?

As per the CSDR adopted by the EU in October 2022, it became mandatory for organisations to report their scope 1, 2 and 3 GHG emissions. The scope 2 Guidance provides a set of requirements that organisations must follow while calculating and reporting their scope 2 emissions:

• Location-based reporting should be used exclusively by companies with operations in markets that do not provide product or supplier-specific data or contractual instruments
• Companies with operations in markets providing product or supplier-specific data or contractual instruments should account for scope 2 emissions from using both location-based and marked-based methods. 
• Use emission factors that include the emissions of all greenhouse gases included in the Kyoto Protocol ( CO2, CH4, N2O, HFCs, PFCs, SF6,). The latest Global Warming Potential (GWP) values published by the IPCC should be used to convert the warming effects of non-CO2 gases into CO2 equivalent emissions.
• Methodology disclosure: Companies need to disclose methods and emission factors used for scope 2 accounting. Ducky maintains an up-to-date documentation of its calculation logic and numbers which it can provide when needed.
• Contractual instruments in the market-based method must meet a quality criteria to ensure that instruments are legitimate and no double counting of emissions between consumers takes place. All instruments must:
  • Convey the direct GHG emission rate associated with the unit of electricity produced
  • Be issued and redeemed as close as possible to the period of energy consumption
  • Be sourced from the same market in which the reporting entity’s electricity-consumption occurs
  • Be tracked and redeemed, retired, or cancelled by or on behalf of the reporting entity
• Inventory totals: Companies may either report the inventory total GHG emissions (scope 1 and scope 2) using both scope 2 methods or only one.
• Base-year information: Companies must disclose the year chosen as the base year for scope 2 emissions calculation; the method used to calculate the base year’s scope 2 emissions.

How can Ducky help in all this?

Through our simple API implementations, you can calculate your organisation's GHG emissions through the IT systems you already use. Our scope 2 GHG reporting endpoint uses state-of-the-art climate data encapsulating the entirety of scope 2 emissions. We have referred extensively to the GHG Protocol while formulating our GHG reporting endpoints, which means we comply with all mandatory requirements. Ducky provides continuously updated data, offering high precision, swift implementation, guaranteed maintenance and a lower cost than comparable solutions - integrated into your existing systems. Contact us on support@ducky.eco to get started!

See also our intro to GHG reporting schemes for more on the GHG protocol.