Location-based vs market-based Scope 2: what the two methods mean and why you report both

Location-based Scope 2 emissions use the average emissions intensity of the grid your facilities sit on, so they reflect the physical electricity mix in your region. Market-based Scope 2 emissions reflect the electricity you have contractually chosen through renewable energy certificates, green tariffs or power purchase agreements. The GHG Protocol requires you to report both, because each answers a different question: location-based shows the grid you actually draw from, market-based shows the choices you paid for.

The two numbers are usually different, and the gap between them is the whole point. If you buy clean power, your market-based figure is lower than your location-based one, and that difference is the emissions your contracts are claimed to avoid. Here is how each method works, what changes the market-based number, and which figure regulators and standards actually want.

How the location-based method works

The location-based method multiplies the kilowatt-hours you consumed at each site by the average emission factor for that grid. In the United States the standard source is EPA eGRID, which publishes an emissions intensity for each subregion. A facility in a coal-heavy subregion gets a high factor; one in a hydro-heavy subregion gets a low one, regardless of what either company bought. Location-based numbers are objective and comparable, because they depend only on where you are and how much you used, not on any contract.

This is the number that reflects physical reality. It tells you the emissions associated with the actual electrons flowing into your building, which is why it is the baseline that cannot be lowered by paperwork. If two identical factories sit on the same grid, they report the same location-based Scope 2, even if one has bought certificates and the other has not.

How the market-based method works

The market-based method uses emission factors tied to the specific electricity products you have purchased. If you hold renewable energy certificates (RECs), sign a green tariff with your utility, or buy power through a power purchase agreement, those instruments carry a low or zero emission factor that you apply to the matching kilowatt-hours. Any electricity not covered by a specific contract is assigned a residual mix factor, which represents the grid after everyone else's clean-power claims have been subtracted out.

This is the number that reflects your choices. It rewards companies that procure clean power and lets them show progress toward a target as they sign more contracts. It is also the number that is easiest to get wrong, because a certificate only counts if it meets the GHG Protocol's quality criteria: it has to be a credible instrument, retired on your behalf, and matched to the right market and period.

Why you report both numbers

The GHG Protocol Scope 2 Guidance introduced dual reporting so that neither method could hide something the other reveals. Location-based stops a company from claiming its grid is clean when it is not; market-based lets a company get credit for genuine clean-power purchases. Reporting only the market-based number would let a firm buy cheap certificates and disappear its real grid exposure; reporting only location-based would ignore real investment in renewables. Together they give a full picture, so standards and disclosure frameworks ask for both.

	Location-based	Market-based
What it reflects	The physical grid you draw from	The electricity products you contracted
Factor source	Grid average (EPA eGRID subregion)	Contract instruments, then residual mix
Changed by clean-power contracts?	No	Yes
Main use	Objective baseline, comparability	Tracking procurement progress to a target
Required by GHG Protocol?	Yes, both are required	Yes, both are required

What counts toward the market-based number?

Only contractual instruments that meet the Scope 2 quality criteria: RECs and their international equivalents, green retail tariffs from your utility, direct power purchase agreements, and supplier emission rates where the supplier can document them. The instrument has to convey the attributes of a specific quantity of generation, be retired so no one else can claim it, and match your consumption in the same market and period. Certificates bought from a different grid or an unrelated year do not legitimately lower your market-based figure, and an auditor will say so.

Which number do regulators and customers want?

Usually both, with the location-based number as the one they trust as a baseline. California SB 253 requires Scope 1 and Scope 2 reporting to the GHG Protocol, which means dual Scope 2 reporting where you hold clean-power contracts. CSRD and CDP likewise expect both figures. When a customer questionnaire asks for a single Scope 2 number without specifying, give the location-based figure and note the market-based one, because location-based is the conservative, comparable answer that cannot be challenged as creative accounting.

Getting both numbers from the same data

The good news is that both figures come from the same input: the kilowatt-hours on your utility bills. You calculate location-based by applying the eGRID factor to those kilowatt-hours, and market-based by applying your contract factors first and the residual mix to the rest. That is how our carbon accounting software handles Scope 2: it reads the kilowatt-hours from your utility data, applies the eGRID subregion factor for the location-based number, and lets you attach RECs, tariffs or PPAs to produce the market-based number alongside it, keeping the factor and the contract document attached to each figure. Both numbers, from one dataset, ready for the GHG inventory checklist and for assurance. You can try the classification on your own lines in the demo, before any email address changes hands.