Scope 2 Emissions

Scope 2 Emissions: Definitions and Sources

Scope 2 emissions include the indirect greenhouse gases (GHG) that result from a reporting company’s activity, which represent the largest source of GHG emissions worldwide. These include the purchased electricity, heating, and cooling that the company does not directly control. For example, the air conditioning used to cool a manufacturing building and the steam used for CHP facilities are included in Scope 2 emissions. Essentially, these emissions represent energy produced by third parties, but that is consumed by the company. Figure 1 below provides a comprehensive view of GHG scope emissions as defined by the Greenhouse GasProtocol (GHGP), for more discussion on Scope 1 emissions read our article here.

Scope 2 Emission Measurement and Calculation

The GHGP outlines a thorough and widely accepted approach for computing Scope 2 emissions. It contains five steps: identify GHG emissions, select a calculation approach, collect data and choose emission factors, apply calculator tools, and roll up data to the corporate level. The following sections discuss and adapt each step for Scope 2 emissions below.

Step 1: Identify GHG Emission Sources

Scope 2 includes purchased heat, electricity, and cooling. A great starting point for organizations to identify Scope 2 emissions is looking at the company’s utility bill statements, which detail the energy the company has purchased but does not directly control.

Step 2: Select a Calculation Approach

According to the model published by the GHGP, there are two different methods for calculating Scope 2 emissions: location-based and market-based. The main distinguishing factor between these approaches is the presence of contractual instruments of differentiated energy products. Contractual instruments of energy products represent agreements that companies make with third parties to purchase energy at predetermined amounts and prices that include Power Purchase Agreements (PPAs), supplier-specific contracts, and Energy Attribute Certificates (EACs). If such contracts are present in the company, the market-based method is applied. Otherwise, the location-based method is applied and represents all other forms of purchased energy.

Step 3: Collect data and Choose Emission Factors

The emission factor used to measure GHG emissions depends on the method employed. Location-based takes the average emissions intensity of the grid for regions where energy is consumed. Since different locations have varying environmental circumstances that affect GHG emissions, the average grid emission for an area is used in the location method. Market-based Scope 2 will further analyze the emissions to see if there is product or supplier-specific data that discloses an emission factor unique to the company. These are often more precise and offer more reliable data since the supplier tracks their emission rates. If there are disclosures provided by the supplier, the company will calculate emissions using those factors. If there is no information, the average grid emission factor used in location-based modeling will be applied.

Step 4: Apply Calculation Tools

The standard procedure for totaling emissions applies to both methods:

Multiply activity data by the emission factor for each applicable greenhouse gas (out of the seven).
Multiply totals calculated in Step1 by global warming potential value to get CO2 equivalent total.
Report the final metric tons of each greenhouse gas and metric tons of CO2.

Step 5: Roll-up Data to Corporate Level

The GHGP emphasizes similar reporting principles as the SEC: relevance, completeness, consistency, transparency, and accuracy of disclosed emissions. Other than this, the GHGP encourages disclosures on calculated emissions, grid emission factors, supplier-specific emissions factors, and other notable assumptions from contracts or purchases. The GHGP emphasizes the importance of consistency by encouraging the use of the same calculation methods and reporting approaches year to year to enhance comparability.

Challenges in reporting Scope 2 emissions include ambiguous data and potential double counting. The measurement of Scope 2 emissions uses average grid emission factors that reflect a broad category of data points of GHG emissions from facilities located within a certain area. Essentially, it is an estimate of emissions from the local area. Additionally, renewable energy products that a company purchases are included in Scope 2 reporting, whether or not they are used. This means a company may continue using non-renewable energy sources while still reporting the purchase of renewable options. This can misrepresent the actual sustainable efforts of the company to reduce carbon emissions.

add

Market-Based & Location-Based Emissions Data

Market-Based

Company A has several contracts with third parties for the purchase of electricity. This constitutes the market-based method for accounting for Scope 2 emissions. The chart below shows the contract type and the emission factor disclosed for each agreement.

Facility	Energy Consumed	Contractual Agreement Type	Contractual Agreement Emission Factor	Total Calculations
US Facility – Florida FRCC	2500 MWh	PPA (Power purchase agreement)	100 lb/MWh	113.39 mt CO2
US Facility – New York NYUP	1500 MWh	EAC (Electricity attribute certificate)	500 lb/MWh	340.19 mt CO2
US Facility – California CAMX	2750 MWh	REC (Renewable energy)	0 lb/MWh	0 mt CO2
Total Emissions				453.58 mt CO2

Location-Based

Company B does not have any contractual energy agreements with suppliers and therefore applies the location-based method for all reported purchased electrical energy use. The chart below summarizes its energy consumption and related GHG emission calculations. Following the GHGP, eGRID emission rates are taken from the GHGP charts. Conversion calculations from pounds to kilograms and kilowatts to megawatts are not shown.

Facility	Energy Consumed	CO2 Emission Factor	CH4 Emission Factor	N2O Emission Factor	Total Calculations
US Facility – eGRID WECC California	2000 MWh	497.44 lb/MWh	30 lb/GWh	4 lb/GWh	450.68 mt CO2 27.22 kg CH4 3.63 kg N2O
US Facility – eGRID WECC Northwest	3000 MWh	602.09 lb/MWh	56 lb/GWh	8 lb/GWh	819.30 mt CO2 76.2 kg CH4 10.89 kg N2O
Foreign – Taiwan	1750 MWh	0.495 kg/kWh	N/A	N/A	866.25 mt CO2
EU – UK	2500 MWh	0.20496 kg/kWh	0.000032 kg/kWh	0.0000046 kg/kWh	512.4 mt CO2 80 kg CH4 1.28 kg N2O
Total Emissions					2648.63 mt CO2 183.42 kg CH4 15.8 kg N2O

Challenges in Reporting Scope Emissions

One of the biggest challenges in reporting on scope emissions is the lack of enforcement and standardization. For companies filing in the United States with the SEC, as of 27 March 2025, there is no requirement for disclosing GHG emissions. The board voted to end the movement to require company disclosures on climate risks and greenhouse gases. This means diversity in practice will continue to exist and will limit the competitive advantages of reporting on emissions. Without mandated reporting, there is no assurance of accuracy of disclosures and thereby no way to compare the sustainability of one company to another, which can lead to increased greenwashing. Greenwashing is when a business represents itself as more socially or environmentally friendly than it is. Eliminating the competitiveness of sustainability reporting can discourage companies from incorporating sustainability policies and practices into their business model. The lack of sustainability efforts by a company can negatively impact the environment and profitability. Overall, the lack of standardization and transparency of sustainability efforts in US reporting creates barriers to accountability and real environmental change.

Although the SEC does not mandate reporting, US companies can still be subject to reporting on climate-related events. Enforced guidance that may affect certain US companies includes foreign regulations such as IFRS, California-mandated disclosures, and the 2010 interpretive guidance issued by the SEC. The statement released in 2010 by the SEC was to define material risks and events related to climate change that would trigger disclosure for US companies. It does not serve as a mandate to report sustainability efforts. To read more information on California and foreign regulations, read our article here (note: the SEC proposed standards in the article are no longer relevant).

add

CenterPoint Energy Example

Why Report on Scope 2 and Other Emissions

Why would voluntary reporting and tracking of Scope 2 emissions benefit a company? The answer lies in the bottomline and market demand. As years pass, investors and the public are more interested in companies that promote sustainability. Research from Grant Thornton shows that more than 6 in 10 businesses believe sustainability to be as important or more important than financial success. As investors and consumers look to sustainable efforts, we see that demonstrating environmental stewardship and thoughtful decision-making can strengthen a company’s brand reputation and financial success.

Furthermore, reporting on Scope 2 emissions is especially important for measuring sustainability efforts and developing a more versatile strategy to reduce environmental impact. Since one of the core challenges of sustainability is its measurement, tracking and analyzing scope emissions can help mitigate risks of generalized claims and inaction. Scope 2 emissions make up most of a company’s scope mix of GHG and are one of the easiest GHG emissions to reduce as they pertain to purchased energy. It is conveniently also one of the easiest scopes to adjust and find alternative solutions.

As for the bottom line, all businesses rely upon natural capital (the world’s stock of natural resources such as water, soil, and minerals). Without natural capital management, the longevity of a business can be threatened through the degradation of the environment it primarily relies upon. As production costs rise or additional environmental liabilities from damage grow, businesses may face declining revenues. If remediations to the environment are needed as a result of the operations of a company, its expenses could increase and thereby decrease its bottom line.

Concerning scope emissions, seeking to reduce emissions can lower input costs and improve operational efficiency. Investing in GHG research can not only reduce the carbon footprint but also educate the company on market trends and risks, allowing a company to potentially avoid major costs. Lastly, it encourages innovation and can lead the industry to pursue better solutions, which in turn can direct a company towards profitable investment opportunities.

Conclusion

The GHGP has been influential in the accounting industry for measuring and reporting Scope 2 emissions. It establishes clear guidance on classifications of GHG emissions and how to calculate their impact on the environment. Specifically, in measuring Scope 2 emissions, companies can validate their claims of sustainable improvement and discover innovative and cost-effective solutions to their energy use. This enables a company to accurately trace its carbon footprint and take distinctive action to improve. However, because the GHG Protocol is not mandated for U.S. companies, it can negatively impact company reporting and contributes to a lack of transparency and consistency across industries. Providing standardized guidance on GHG emissions and other sustainable efforts is important not only for environmental responsibility but for the resulting long-term value it adds to companies. In total, measuring and staying informed on climate-related issues can position companies to lead and compete in the ever-changing global market.