Scope 2 emissions look simple on the surface: take purchased electricity, apply an emissions factor, and report the result. In practice, Scope 2 accounting is one of the most misunderstood parts of greenhouse gas reporting, especially for mid-market companies operating across multiple sites, utilities, landlords, and renewable energy arrangements.
The core challenge is that companies often need to report Scope 2 emissions using two different methods: location-based and market-based. These numbers can differ significantly, and leadership teams, auditors, customers, and investors increasingly expect companies to understand why.
If your team is preparing an inventory, building a decarbonization plan, or responding to ESG disclosure requests, getting Scope 2 right matters. It affects target setting, renewable energy claims, year-over-year comparisons, and the credibility of your broader sustainability program.
This guide explains the difference between market-based and location-based Scope 2 emissions, when each method applies, what data you need, where companies make mistakes, and how to create a reporting process that stands up to scrutiny.
What Scope 2 emissions actually cover
Scope 2 emissions are the indirect greenhouse gas emissions from the generation of purchased or acquired energy that your company consumes. In most cases, that means purchased electricity, but it can also include purchased steam, heat, or cooling.
Under the GHG Protocol, Scope 2 reflects emissions that occur at the facility where energy is generated, even though your company does not own or directly control that generation source.
Common Scope 2 sources include:
- Electricity used in offices, warehouses, and manufacturing sites
- Purchased electricity in leased spaces
- District heating or cooling in multi-tenant buildings
- Electricity for data centers or other outsourced operations, where contractual arrangements determine reporting treatment
Scope 2 is often the first category companies can influence meaningfully through efficiency measures, procurement choices, and renewable electricity contracts. That is why the accounting method matters so much: it shapes how your emissions profile appears and how credible your reduction claims are.
Market-based vs location-based: the key difference
The two Scope 2 methods answer different questions.
Location-based method explained
The location-based method reflects the average emissions intensity of the electric grid where energy consumption occurs. It shows the emissions associated with your electricity use based on the physical grid serving the site.
In simple terms, this method asks: What are the average emissions of the grid where we consumed electricity?
This approach is useful for understanding operational exposure to regional energy systems and the decarbonization of the grid itself.
Market-based method explained
The market-based method reflects emissions from the electricity that a company has purposefully chosen through contractual instruments, such as supplier-specific emission rates, green tariffs, power purchase agreements, or renewable energy certificates where allowed by the applicable accounting rules.
This method asks: What emissions are associated with the electricity products and contracts we purchased?
The market-based method is designed to reflect the impact of procurement decisions. If your company buys renewable electricity through valid contractual instruments, your market-based emissions may be lower than your location-based emissions.
Why both numbers matter
Neither number is more “real” than the other. They serve different reporting objectives.
- Location-based helps stakeholders understand your demand on the grid where you operate.
- Market-based helps stakeholders evaluate your electricity purchasing choices.
For many companies, especially those following widely used reporting standards or preparing for assurance, reporting both is the most transparent approach. Teams using ESG reporting software can track both methods in parallel and preserve the underlying assumptions, factors, and documentation needed for review.
When you need to report both methods
If your company reports Scope 2 emissions in markets where product- or supplier-specific electricity data is available, dual reporting is often expected. This is especially relevant for organizations aligning with the GHG Protocol Scope 2 Guidance and for companies disclosing under broader ESG frameworks or responding to customer and investor questionnaires.
Many sustainability teams discover late in the reporting cycle that a single Scope 2 total is no longer sufficient. Customers may ask whether renewable energy claims are reflected in a market-based figure. Auditors may want to see factor selection logic. Finance may want a clearer explanation of why electricity use increased while reported emissions decreased.
Dual reporting helps resolve these issues by separating:
- Changes caused by electricity consumption
- Changes caused by grid emission factors
- Changes caused by renewable procurement decisions
Companies working toward more robust reporting under frameworks such as GRI or the ISSB also benefit from this clarity, because stakeholders increasingly expect transparent methodology disclosure alongside emissions totals.
Data you need for accurate Scope 2 accounting
Accurate Scope 2 reporting starts with complete, well-structured activity data. The challenge is not just collecting utility bills. It is connecting site-level energy consumption to the right organizational entities, reporting periods, emission factors, and procurement instruments.
Core activity data
At minimum, teams should collect:
- Electricity consumption by site and month, typically in kWh or MWh
- Purchased steam, heat, or cooling where applicable
- Facility addresses and countries or grid regions
- Start and end dates for leases, acquisitions, closures, or operational changes
- Ownership or operational control details for boundary setting
Market-based supporting data
For market-based reporting, you may also need:
- Utility supplier-specific emission factors
- Green tariff documentation
- Renewable energy certificate records
- Power purchase agreement details
- Residual mix factors where required and available
- Evidence of contractual instrument quality criteria and retirement timing
This is where manual reporting often breaks down. The more sites and electricity products your company has, the more important it becomes to standardize document collection and calculations in a central system. A platform like GreenScore features can help teams structure facility data, manage evidence, and reduce spreadsheet version-control issues.
Common Scope 2 reporting scenarios
Most companies do not have a single, clean electricity procurement model. They have a mix of direct utility accounts, landlord-provided electricity, bundled renewable products, and facilities in different countries. The table below shows how common scenarios typically affect Scope 2 treatment.
| Scenario | Location-based treatment | Market-based treatment | Key documentation |
|---|---|---|---|
| Standard grid electricity from utility | Use grid-average factor for the site region | Use supplier-specific factor if eligible; otherwise default hierarchy applies | Utility bills, supplier factor evidence |
| Electricity in leased office included in rent | Report if within organizational boundary and data is estimable | Usually limited unless landlord provides contractual electricity data | Lease terms, landlord statements, estimation method |
| Green tariff from utility | Grid-average factor still applies | May use qualified product-specific factor if criteria are met | Tariff contract, supplier emissions information |
| Renewable energy certificates purchased separately | Grid-average factor still applies | Can affect market-based result if certificates are valid and properly matched | Certificate records, retirement proof, matching period and geography |
| On-site solar consumed on-site | Typically reduces purchased electricity volume | Typically reduces purchased electricity volume | Generation records, meter data |
| District heating or cooling | Use relevant average factor for the network or fuel mix | Use supplier-specific data if available and eligible | Provider statements, invoices, emissions methodology |
These scenarios illustrate a critical point: your market-based number depends heavily on documentation quality and factor selection rules, not just on good intentions or broad claims about “green power.”
The most common errors mid-market companies make
Scope 2 mistakes are usually process problems, not math problems. Mid-market teams are often dealing with fragmented invoices, inconsistent site ownership records, and limited visibility into energy contracts signed by procurement, facilities, or landlords.
Using one factor for all sites
Applying a single national or global factor across all locations may seem efficient, but it can materially distort emissions. Scope 2 factors often vary by country, utility territory, or subnational grid region.
Confusing renewable claims with accounting eligibility
Not every renewable electricity claim automatically qualifies for market-based accounting. Teams need to confirm that contractual instruments meet quality criteria, are matched to the reporting period, and are properly retired where required.
Ignoring landlord-supplied energy
Leased offices are often omitted because the company does not receive direct utility bills. But if the energy use falls within your organizational boundary, it may still need to be estimated and reported.
Failing to maintain an audit trail
Even when calculations are reasonable, companies struggle if they cannot show where the consumption data came from, which factors were used, why they were selected, and who approved methodology changes. If your reporting maturity is still developing, starting with a structured ESG readiness assessment can help identify these gaps early.
Mixing annual and monthly data inconsistently
Annual utility summaries, partial-year invoices, and estimated accruals can create double counting or omissions when they are combined without a clear cut-off process. Finance-aligned reporting controls are essential here.
How to build a defensible Scope 2 process
The most effective Scope 2 reporting processes are repeatable, documented, and designed for change. They can handle new sites, new utility providers, updated emissions factors, and evolving disclosure requirements without forcing the team to rebuild the inventory every year.
1. Standardize site-level data collection
Create a master facility list with unique site IDs, addresses, reporting ownership, utility account details, and reporting status. This prevents duplicate counting and makes factor assignment easier.
2. Define factor selection rules
Document the hierarchy your team will use for location-based and market-based factors. This should cover what happens when supplier-specific data is unavailable, when landlord data is incomplete, or when certificates do not meet quality requirements.
3. Capture contractual evidence centrally
Store renewable contracts, utility statements, certificate records, and methodology memos in one place. The objective is simple: anyone reviewing the inventory should be able to trace the result back to source evidence.
4. Align with finance reporting calendars
Use monthly or quarterly cut-off rules that mirror your financial close process where possible. This reduces reconciliation issues and supports more reliable year-over-year comparisons.
5. Separate consumption and procurement analysis
Leadership should be able to see whether changes in Scope 2 emissions came from lower energy use, cleaner grids, or renewable procurement choices. Combining everything into a single figure limits decision usefulness.
6. Use software to reduce manual risk
As reporting complexity grows, spreadsheets become harder to govern. Purpose-built carbon accounting tools and reporting workflows can improve version control, approvals, and factor management. For companies moving beyond ad hoc reporting, a centralized ESG platform helps connect carbon data to broader sustainability disclosures.
How Scope 2 accounting affects targets and decarbonization
Scope 2 methodology is not just a reporting issue. It shapes strategy.
If your company sets emissions targets without understanding the difference between market-based and location-based performance, you may overstate progress or miss operational opportunities. For example, a strong market-based reduction driven by renewable procurement does not necessarily mean your facilities are using less electricity. On the other hand, a location-based reduction may reflect grid decarbonization rather than internal action.
The most effective decarbonization programs track both dimensions:
- Operational efficiency: reducing electricity consumption through equipment upgrades, controls, and process improvements
- Procurement strategy: improving electricity sourcing through renewable contracts or lower-emission suppliers
This dual lens gives CFOs and sustainability leaders a more realistic picture of cost, risk, and impact. It also supports better external communication. Customers and investors increasingly want to know not just whether emissions went down, but how they went down.
Good Scope 2 reporting does more than produce a number. It helps a company distinguish between reduced consumption, cleaner grids, and credible renewable purchasing decisions.
What to disclose alongside your Scope 2 numbers
Publishing a Scope 2 total without methodology context invites confusion. At minimum, companies should be prepared to disclose:
- Organizational boundary used for the inventory
- Reporting period and any estimation methods
- Whether both location-based and market-based emissions are reported
- Types of purchased energy included
- Emission factor sources and selection logic
- Use of renewable contracts, certificates, or supplier-specific factors
- Material changes in methodology from prior years
This level of transparency is increasingly important whether you are preparing a sustainability report, completing a customer questionnaire, or supporting broader framework-aligned disclosure. Tools like a sustainability report generator can help ensure methodology notes are consistent across outputs, rather than recreated manually each cycle.
Conclusion
Scope 2 emissions accounting is no longer a back-office calculation exercise. For mid-market companies, it is a strategic reporting capability that affects compliance readiness, renewable energy claims, target credibility, and stakeholder trust.
The distinction between market-based vs location-based Scope 2 emissions is essential. Location-based reporting shows the emissions intensity of the grids where you operate. Market-based reporting shows the effect of your electricity purchasing choices. Both matter, and both require stronger data discipline than many teams initially expect.
If your organization is still managing Scope 2 reporting through disconnected spreadsheets, unclear factor rules, or incomplete utility data, now is the right time to improve the process. Take GreenScore’s free ESG readiness assessment to identify your biggest reporting gaps and build a more defensible carbon accounting workflow before the next reporting cycle.