Market Based vs Location Based Scope 2: The Full Guide

For sustainability and LCA teams trying to get their Scope 2 numbers right, the question of market based vs location based Scope 2 is more than a methodological footnote. According to the GHG Protocol, nearly 40% of global greenhouse gas emissions trace back to energy generation, and half of that energy is consumed by industrial and commercial entities. What you report, and how you report it, can shift your disclosed carbon figure substantially, and under frameworks like CDP, CSRD, and SBTi, getting this wrong has real compliance consequences. This guide explains how both methods work, when each applies, and how to use dual reporting to tell a complete and defensible story about your Scope 2 footprint.

Key Takeaways

• The location-based method uses the average emissions intensity of the local electricity grid; the market-based method uses emissions factors from contractual instruments such as Power Purchase Agreements (PPAs) or Energy Attribute Certificates (EACs).
• Both methods are defined by the GHG Protocol Scope 2 Guidance, which requires most reporting companies to disclose both figures, a practice known as dual reporting.
• A company purchasing renewable electricity certificates can report zero Scope 2 emissions under the market-based method while its location-based figure stays unchanged, reflecting the actual grid mix.
• CDP requires dual reporting for virtually all corporate disclosers, and CSRD’s ESRS E1 standard also mandates both figures for in-scope companies.
• Electricity is only one part of a product’s total carbon story. For manufactured goods, upstream raw materials and production processes often dwarf Scope 2 contributions, making full lifecycle thinking essential alongside corporate-level reporting.

What Is Scope 2, and Why Do Two Methods Exist?

Scope 2 emissions come from purchased electricity, heat, steam, and cooling. They are classified as indirect emissions because the burning of fuel happens at the power plant, not at your facility, yet your purchasing decision drives that generation.

The reason two calculation methods exist is straightforward: electricity is produced centrally, transported through shared infrastructure, and consumed locally. As a result, the emissions associated with electricity use cannot be described by a single, universal factor. A factory in Norway buying electricity from a near-100% hydropower grid operates in a fundamentally different carbon environment than the same factory running off a coal-heavy grid in Central Europe. But if that Norwegian factory also purchases renewable energy certificates from wind projects in Germany, should its reported footprint reflect the grid it physically sits on, or the contracts it signs? That tension is precisely why the GHG Protocol introduced two complementary lenses.

How the Location-Based Method Works

The location-based method calculates emissions based on the emissions intensity of the local grid area where electricity usage occurs. In practice, this means taking your kilowatt-hours consumed and multiplying them by the average emissions factor for your regional or national grid.

The point of the location-based method is that everyone in the same power grid is equal. All users of the same electricity from the same generation sources calculate their emissions based on the average emissions intensity of that local power grid. No one gets special treatment, and everyone shares the emissions footprint of the electricity grid pro rata based on the amount of power they consume.

This approach is straightforward to apply, relies on publicly available grid data from national energy agencies, and produces results that are directly comparable across companies operating in the same geography. Its limitation is equally clear: it gives no credit for active renewable energy procurement. A company that signs a long-term PPA with an offshore wind farm looks identical on paper to one that does nothing, as long as they sit on the same grid.

How the Market-Based Method Works

The market-based method calculates emissions based on the electricity that organizations have chosen to purchase, often spelled out in contracts or instruments like Renewable Energy Certificates (RECs).

Unlike the location-based method where everyone on the grid is treated as an average customer, the market-based method focuses on the individual organization and its contractual activity in the energy marketplace. The emissions factor applied to your electricity consumption comes from the specific product you purchased, not the grid average. If that product is certified renewable, its emissions factor is effectively zero.

The instruments used to substantiate market-based claims must meet the GHG Protocol’s Scope 2 Quality Criteria. Common types of Energy Attribute Certificates (EACs) include Guarantees of Origin (GOs), RECs, and I-RECs. In the United States and Canada, the Renewable Energy Certificate System (RECs) is prevalent, serving both compliance and voluntary purposes. The International REC Standard (I-RECs) operates in Latin American, Asian, and African countries lacking local mechanisms.

One important nuance: for any electricity consumption not covered by a qualifying contractual instrument, the GHG Protocol requires companies to apply the “residual mix” factor rather than the grid average. The residual mix represents the “leftover” electricity on the grid after all renewable claims via EACs have been deducted, it should not be confused with the emissions factor of the standard grid average used in location-based reporting. Residual mix factors are typically higher than the national grid average in markets where many companies are claiming renewable energy, which means companies that buy low-quality or spatially mismatched certificates may end up with a higher market-based figure than they expect.

Side-by-Side: What Actually Differs

The simplest way to see the divergence is through a concrete scenario. A manufacturing company based in Germany uses 10,000 MWh of grid electricity per year. Under the location-based method, it applies Germany’s national grid emission factor (which includes a significant share of fossil generation). Under the market-based method, if it has purchased EACs for all 10,000 MWh from certified renewable sources, its Scope 2 figure drops to zero. The physical electrons flowing into its machines are identical in both cases. What changes is the accounting lens.

Dimension	Location-Based	Market-Based
Emission factor source	National/regional grid average	Contractual instrument (PPA, EAC, GO, REC)
Reflects grid reality	Yes	Only if instruments are temporally and spatially matched
Can report zero emissions	No (unless on 100% renewable grid)	Yes (with qualifying certificates for 100% of consumption)
Data availability	High, grid factors are public	Variable, depends on supplier disclosures
Primary use	Grid-level benchmarking, Scope 3 upstream	Renewable procurement strategy, RE100, SBTi

The Dual Reporting Requirement: Why You Need Both

Per the GHG Protocol’s latest Scope 2 reporting guidance, organizations must use both methods when calculating and reporting their emissions, a process known as “dual reporting.” This is not optional.

In practice, virtually every organization reporting to CDP must dual report. CDP’s questionnaire explicitly asks for both the location-based and market-based totals, and the gap between them tells auditors and investors something meaningful: how actively a company is managing its electricity procurement relative to the grid it operates on.

For CSRD-reporting companies, the picture is similar. For CSRD-obligated companies, approximately 75% of ESRS E1 disclosure requirements align directly with CDP, which means the dual reporting infrastructure you build for one framework largely transfers to the other. This alignment is worth noting because it reduces duplicate data collection, but only if your methodology is consistent from the start.

SBTi targets add another dimension. Under SBTi’s corporate net-zero standard, the market-based figure is what counts toward meeting science-based electricity targets. Companies pursuing SBTi validation need a robust market-based Scope 2 methodology to demonstrate progress, while still disclosing the location-based figure for transparency.

A Warning About Market-Based Accounting

The flexibility of the market-based method is also its risk. A company might purchase renewable energy credits from a distant solar project to match its annual electricity use, allowing it to report 100% renewable energy use, even if that electricity is not physically delivered to its facilities at the time of consumption. This temporal and spatial mismatch creates a gap between reported emissions and real-world climate impact.

This is why the GHG Protocol is currently undergoing its first major revision in over a decade. The GHG Protocol’s guidance for Scope 2 emissions is undergoing its first significant revision in over a decade. The changes under consideration aim to promote accurate physical inventories of clean energy by requiring temporal and geographic matching of energy load and generation, and to provide accounting alternatives that accurately measure the impact of procurement decisions. Sustainability teams should monitor these proposed revisions closely, as they could materially change which EAC products qualify for market-based reporting.

The practical takeaway: if your market-based Scope 2 is dramatically lower than your location-based figure, prepare to explain how your certificates meet quality criteria. Auditors under CSRD’s limited assurance requirements will ask.

Scope 2 Inside Product Carbon Footprints: Where the Numbers Actually Land

Corporate Scope 2 reporting operates at the organizational level. But if your sustainability team also works on product carbon footprints, the relationship between Scope 2 and lifecycle emissions gets more nuanced, and more interesting.

Here is a concrete illustration. Devera’s LCA benchmark for a body cream container places the median product footprint at 2.50 kg CO₂e, with manufacturing accounting for 24.1% of that total. The electricity used in manufacturing contributes to that 24.1% phase, but raw materials alone represent 47.7% of the footprint. In other words, a cosmetics brand that switches to 100% renewable electricity at its factory would eliminate, at most, a fraction of the manufacturing phase, while the dominant impact category (ingredient sourcing) remains largely untouched. The grid factor you apply to manufacturing energy, whether location-based or market-based, matters, but it cannot do the heavy lifting that better ingredient choices can.

The same dynamic appears in a very different product category. Devera’s benchmark for a car tire shows a median footprint of 41.41 kg CO₂e, with raw materials at 65.0% and manufacturing at 27.8%. Manufacturing is more significant here, and a tire factory’s Scope 2 method directly affects how that 27.8% is calculated in an LCA. Switching the emissions factor applied to factory electricity from a coal-heavy grid average to a renewable-sourced market-based factor can move the needle on the product footprint score, but the fundamental impact hotspot remains in the rubber, steel, and chemical inputs used to make the tire.

This is not an argument for ignoring Scope 2 methodology. It is an argument for situating it correctly. The grid factor you choose shapes the manufacturing phase of your product LCA. For energy-intensive industries, metals, glass, ceramics, that choice is substantial. For product categories where raw materials dominate, it is a secondary lever. Understanding where impact really comes from in your specific product is what enables genuinely strategic action, rather than optimizing a reporting number that represents a modest share of actual emissions.

For sustainability teams managing multiple product lines, this distinction matters practically. When you calculate a product carbon footprint under ISO 14067 or produce an Environmental Product Declaration, you will need to decide which Scope 2 emission factor to assign to manufacturing electricity. Using the market-based factor is defensible if you have qualifying certificates for that facility. Using the location-based factor is conservative and arguably more representative of the physical grid. Either can be correct; the choice must be documented, consistent, and disclosed. Our complete LCA guide covers how these methodological decisions cascade through a full inventory.

Which Method Should You Report, and When?

The honest answer is: both, always. Beyond that, here is how to think about each in context.

Use the location-based figure as your baseline for understanding your actual physical grid exposure. It is the right input for benchmarking your facilities across geographies, for upstream Scope 3 calculations, and for understanding what your footprint looks like without any procurement strategy.

Use the market-based figure to demonstrate the impact of your energy procurement decisions. It is what SBTi uses to assess progress, what CDP reads as your “clean energy ambition,” and what a strong renewable energy story is built on. If your market-based number is identical to your location-based number, it tells stakeholders you have done nothing in the energy market to differentiate your procurement.

The gap between them is a strategic signal, not just a reporting artifact. A large gap, with the market-based figure substantially lower, indicates aggressive renewable procurement. A zero gap indicates either that you operate in a fully renewable grid already, or that you have no contractual instruments in place. Both scenarios look the same on the location-based line; they look very different on the market-based line.

Regulatory and Framework Requirements at a Glance

CSRD’s ESRS E1 standard requires companies to disclose both Scope 2 figures under its climate change standard. Mandatory CSRD reporting now applies to companies with more than 1,000 employees and annual turnover exceeding €450 million, following the EU Omnibus simplification package, though Wave 1 companies already reporting under NFRD continue on their existing timelines.

CDP raises the stakes further: to achieve an A score in 2026, organisations must demonstrate 100% third-party verification of Scope 1 and Scope 2 emissions. That verification requirement applies to both the location-based and market-based figures, meaning your underlying data, EAC documentation, and residual mix sources must be audit-ready.

For ISO 14067 product carbon footprints and Environmental Product Declarations, the standard does not mandate either method over the other but requires transparency about which factor was applied and why. Consistency across reporting periods is essential for credible trend claims.

Frequently Asked Questions

What is the main difference between market-based and location-based Scope 2 emissions? The location-based method applies the average emissions intensity of the electricity grid where a company operates, treating all grid users equally. The market-based method instead uses the emissions factor from the specific energy product a company has contractually purchased, such as a Power Purchase Agreement or an Energy Attribute Certificate. The key practical difference is that market-based reporting can reflect zero emissions for electricity covered by qualifying renewable certificates, while the location-based figure always reflects the physical grid mix.

Why do companies need to report both market-based and location-based Scope 2 figures? Dual reporting is required by the GHG Protocol Scope 2 Guidance and flows into CDP, CSRD’s ESRS E1, and SBTi frameworks. Reporting only one figure hides important information: the location-based number shows grid-level exposure, while the market-based number reflects procurement choices. Together they give investors and auditors a complete view of both physical reality and strategic action on clean energy.

How does Scope 2 methodology affect a product carbon footprint calculation? When calculating a product’s lifecycle emissions under ISO 14067 or producing an EPD, the emissions factor applied to manufacturing electricity comes directly from your Scope 2 methodology. A market-based factor, if backed by qualifying EACs for that specific facility, will typically produce a lower manufacturing phase footprint than the grid-average location-based factor. For energy-intensive manufacturing processes, this choice can meaningfully shift the product’s total CO₂e figure and its benchmark grade.

What happens if a company has no contractual instruments for its electricity supply? Without qualifying instruments like PPAs, GOs, or RECs, a company defaults to using the residual mix factor for its market-based calculation. The residual mix is the emissions intensity of the grid after all renewable energy claims have been deducted by other buyers, and it is typically higher than the raw national grid average. This means a company that buys no renewable certificates may actually report a higher market-based figure than its location-based figure in markets with active renewable procurement by other companies.

---

For sustainability teams who need defensible, auditor-ready Scope 2 numbers embedded directly in their product footprints, Devera maps ISO 14040/44 methodology to your own bill of materials and applies the right emission factors, location-based or market-based, at the facility level. See how Devera handles Scope 2 allocation inside product LCAs, or explore pricing for your portfolio.