Scope 2 Market-Based vs Location-Based: Key Differences Explained

Quick Comparison

What is the Location-Based Method?

The location-based method calculates Scope 2 emissions using average grid emission factors for the region where electricity consumption occurs. If your facility is in Texas, you use the ERCOT grid emission factor. If it's in France, you use the French grid factor. The method reflects the physical reality of the electricity grid—what mix of generation sources actually delivers power to your location.

Grid emission factors are published by agencies like the EPA (eGRID in the United States), the International Energy Agency (IEA), and national environment agencies. They represent the average carbon intensity of electricity generation in a defined area, typically expressed in kg CO₂e per kWh. A facility on a coal-heavy grid will report higher location-based emissions than an identical facility on a hydro-dominated grid.

The location-based method is straightforward and universally applicable. It requires no contractual instruments, no special procurement arrangements, and no market participation. Every organization that consumes grid electricity can calculate a location-based figure. The GHG Protocol Scope 2 Guidance (2015) requires all reporters to disclose location-based results, making it the non-negotiable baseline for Scope 2 accounting.

What is the Market-Based Method?

The market-based method calculates Scope 2 emissions using emission factors derived from contractual instruments that the company has purposefully chosen. These instruments include energy attribute certificates (such as Renewable Energy Certificates in North America or Guarantees of Origin in Europe), power purchase agreements (PPAs) with specific generators, green tariffs offered by utilities, and direct contracts with renewable energy suppliers.

When a company buys RECs equivalent to its electricity consumption, the market-based method allows it to claim the emission factor associated with those RECs—typically zero for wind or solar—instead of the grid average. If no contractual instrument exists for a portion of consumption, the company applies a "residual mix" factor, which represents the grid emissions remaining after all contractual claims have been removed.

The market-based method exists to reward and incentivize clean energy procurement. Without it, a company investing millions in a solar PPA would report the same Scope 2 emissions as a competitor doing nothing—the grid average doesn't change based on individual procurement decisions. However, this method has drawn criticism for enabling "paper decarbonization" when companies buy cheap, unbundled RECs that don't drive new renewable capacity.

The GHG Protocol is revising these rules. Its public consultation on a revised Scope 2 standard, which ran from October 2025 to January 2026, proposed hourly matching and deliverability requirements for market-based reporting, with feasibility measures such as exemption thresholds and a legacy clause for existing contracts. In July 2026, the GHG Protocol said it would rework the draft and fold it into a joint corporate standard with ISO, with a consultation planned for the second quarter of 2027 and publication for the fourth quarter of 2028. Until then, the 2015 Scope 2 Guidance applies.

Key Differences

1. What they measure. Location-based captures the physical emissions profile of the grid. Market-based captures the contractual choices a company makes about its electricity supply. Neither is wrong; they answer different questions.

2. Data sources. Location-based uses published grid-average emission factors. Market-based uses supplier-specific factors, contractual instrument factors, or residual mix factors, in a defined hierarchy specified by the GHG Protocol.

3. Sensitivity to procurement. Switching to a renewable energy contract reduces market-based emissions immediately but has no effect on location-based emissions. Conversely, grid decarbonization (new renewables displacing coal) reduces location-based emissions for all consumers but doesn't change market-based figures unless contractual arrangements change.

4. Residual mix. The market-based method introduces the concept of a residual mix—the emission factor of the grid after all tracked contractual instruments are removed. In Europe, the Association of Issuing Bodies (AIB) publishes residual mix factors annually. In many regions, reliable residual mix data doesn't yet exist, complicating market-based calculations.

5. Reporting requirements. The GHG Protocol requires dual reporting from any company with operations in markets where contractual instruments or supplier-specific emission rates are available: location-based must always be disclosed, with market-based alongside it. Frameworks differ in what they use: SBTi's current criteria let companies use either method for targets, applied consistently, and IFRS S2 requires the location-based figure plus information about any contractual instruments.

6. Impact on targets. Under its current criteria, the SBTi accepts market-based accounting for Scope 2 target tracking, meaning companies can demonstrate progress through renewable energy procurement; certificates must be bought and used in the same market. Version 2.0, which opens for validation in February 2027, bases target ambition on the location-based figure and recognizes clean-power contracts separately when they meet integrity criteria, such as sourcing from the same deliverability region and from plants up to 15 years old.

7. Regional availability. Market-based accounting requires functioning certificate markets. In North America and Europe, robust systems exist (RECs, GOs). In parts of Asia, Africa, and Latin America, certificate markets are nascent or nonexistent, limiting the applicability of market-based methods.

Which One Do You Need?

You need both. The GHG Protocol Scope 2 Guidance mandates location-based disclosure for all reporters. If you operate in markets where contractual instruments or supplier-specific emission rates are available, you report market-based alongside it.

Under SBTi's current criteria, you can set and track a Scope 2 target on the market-based method, which reflects the impact of renewable energy procurement decisions. If your strategy centers on buying clean energy—through PPAs, green tariffs, or RECs—market-based accounting is how you demonstrate progress today. SBTi's Version 2.0, available for validation from February 2027, instead bases target ambition on the location-based figure and recognizes clean-power contracts separately.

If your organization is early in its sustainability journey and hasn't yet procured renewable energy instruments, your location-based and market-based figures will likely be similar (using grid average or residual mix, which are close in many regions). As you invest in clean energy procurement, the two figures will diverge.

For operations in regions without established certificate markets, location-based will be your primary metric. Focus advocacy efforts on grid decarbonization, energy efficiency, and on-site generation, which reduce both location-based and market-based emissions simultaneously.

Can You Use Both?

You must use both—that's the GHG Protocol's requirement. The dual-reporting mandate exists precisely because each method tells a partial story. Location-based shows the emissions physically associated with your electricity consumption. Market-based shows how your procurement choices differ from the grid default.

Sophisticated reporters use the gap between the two figures analytically. A large gap (low market-based, high location-based) indicates heavy reliance on contractual instruments without physical grid impact. A small gap suggests either minimal clean energy procurement or operation on an already-clean grid. Stakeholders increasingly scrutinize both numbers, and companies that report only a market-based zero while operating on coal-heavy grids face credibility questions.

The most robust Scope 2 strategies reduce both figures: procure additional renewable energy (market-based improvement) in a way that drives new capacity on the grid where you operate (location-based improvement). Time-matched, locally sourced PPAs with new-build renewables achieve this dual objective.

Council Fire's Perspective

We advise clients to treat both methods as essential, not competing. The location-based figure is your physical footprint reality check—it keeps you honest about the grid you're actually drawing from. The market-based figure reflects the intentional choices you've made to shift the energy market. Reporting only one number, whichever looks better, is a transparency failure.

The quality of your market-based instruments matters enormously. Buying cheap certificates from a decade-old wind farm in another country, as long as it sits in the same certificate market, is allowed under current rules, but it's not driving decarbonization and sophisticated stakeholders know it. We push clients toward time-matched, geographically relevant procurement from new-build projects—instruments that reduce both your market-based figure and, over time, the grid emission factor for everyone.

Frequently Asked Questions

Can my Scope 2 emissions be zero under the market-based method?

Yes. If you procure enough renewable energy certificates or contract enough zero-emission electricity to cover 100% of your consumption, your market-based Scope 2 figure can be zero. However, your location-based figure will still reflect the grid average, and you must report both.

Which method does the SBTi use for target tracking?

Under its current criteria (Corporate Net-Zero Standard V1.3.1), SBTi lets companies set and track Scope 2 targets on either method, as long as they use one consistently, and requires renewable energy certificates to be bought and used in the same market. Version 2.0, which opens for validation on February 1, 2027, bases target ambition on the location-based figure. It recognizes contracts such as PPAs and certificates separately if they meet integrity criteria, including sourcing from the same deliverability region, matching within 12 months, and plants up to 15 years old, and it encourages hourly matching.

What is the residual mix, and why does it matter?

The residual mix is the emission factor of the electricity grid after all tracked contractual instruments (RECs, GOs, PPAs) have been removed. It's used in market-based accounting when a company hasn't procured instruments for all its consumption. The residual mix is typically higher than the grid average because clean energy attributes have been claimed by others, leaving a "dirtier" unclaimed remainder.

Do on-site solar panels count under both methods?

Yes. On-site generation that you own reduces emissions under both location-based and market-based methods because the electricity never comes from the grid. It's one of the few measures that improves both figures simultaneously.