Scope 2: market-based vs location-based, which to report

The marketing material for an electricity contract says “100% renewable energy,” yet the auditor still proposes a Scope 2 figure of several hundred tonnes under the market-based method. This situation is familiar to many, because Scope 2 accounting is rarely straightforward. The GHG Protocol Scope 2 Guidance (2015) requires two parallel figures, and the difference between them can be an order of magnitude.

Why Scope 2 has two calculation methods

Until 2015, Scope 2 was generally calculated using the national grid’s average emission factor. The problem was that purchasing agreements for renewable electricity did not show up in the figure at all.

In 2015, the GHG Protocol published the Scope 2 Guidance supplement, which requires companies to report Scope 2 using two methods in parallel:

Location-based reflects physical reality: how many emissions are generated in the regional electricity grid from which the electricity is drawn.
Market-based reflects contractual reality: which generation source the company has chosen through its purchasing agreements.

Both figures are reported. SBTi, CDP, and most verifiers require this.

In principle, it is the same electricity coming from the same wall socket. The difference lies in the starting point: location-based answers the question “where do the emissions physically occur,” while market-based answers the question “which generation source has the company contracted for.” When tracking an SBTi target, it is the latter that the company can practically influence in the short term.

Location-based: what it measures

Location-based accounting uses the average emission factor of the regional electricity grid. In Finland, the source is the national factor published annually by Finnish Energy (Energiateollisuus ry), or the Nordic NORDIC factor.

Finland’s grid emission factor is typically low (below 100 g CO2/kWh), because hydropower, nuclear, and wind make up a large share of generation. Sweden is lower still; Germany and Poland are several times higher.

The formula is straightforward:

Electricity consumed (kWh) × grid emission factor (kg CO2/kWh) = emissions (kg CO2e)

Example: 500,000 kWh × 0.080 kg CO2/kWh = 40,000 kg CO2e (40 tCO2e).

Location-based is a good indicator of how a company’s operations physically affect the grid. It does not respond to contractual choices.

Market-based: what it measures

Market-based accounting uses the factors associated with the company’s purchasing agreements. The hierarchy is defined in the Scope 2 Guidance:

Supplier-specific contractual factor (e.g. a PPA or company-specific green electricity product)
Guarantees of Origin, certified renewable electricity with a factor close to zero
Supplier residual mix, if the company has a contract but no Guarantees of Origin
Country residual mix, all other electricity for which Guarantees of Origin have not been sold to someone else

This is the point where surprises arise. If a company has not procured Guarantees of Origin, the market-based figure is based on the residual mix, which is always higher than the location-based average.

Residual mix: the often-overlooked component

The Association of Issuing Bodies (AIB) publishes the European residual mix factor for each country annually. It indicates the emission factor of remaining electricity after certified renewable electricity backed by Guarantees of Origin has been removed from a country’s total generation.

Finland’s residual mix is typically 200–350 g CO2/kWh, because a large share of Finland’s renewable generation is sold as Guarantees of Origin to other parts of Europe. The grid’s location-based factor is often below 100 g CO2/kWh.

The practical consequence: if a company makes no contractual choices, its market-based figure can be 2–4 times higher than its location-based figure.

How each method affects the report and decisions

A simple example. A company consumes 1,000,000 kWh of electricity in Finland, with no Guarantees of Origin.

Location-based: 1,000,000 × 0.080 = 80 tCO2e
Market-based (residual mix): 1,000,000 × 0.250 = 250 tCO2e

If the same company procures Guarantees of Origin for the full volume:

Location-based: 80 tCO2e (unchanged, the physics are the same)
Market-based: close to 0 tCO2e

SBTi and CDP primarily use the market-based figure for target tracking, because it responds to the company’s decisions. The location-based figure is retained for transparency.

In CSRD reporting, both figures are presented in accordance with the requirements of ESRS E1. For more on the standard, see the article GHG Protocol in a nutshell.

Practical decisions on reduction measures depend on which figure is being tracked. If market-based is the target metric, procuring Guarantees of Origin can bring the reported figure close to zero without any change in physical electricity consumption. This is a standards-compliant approach, but it does not reduce the company’s impact on grid emissions. For this reason, most guidance (including SBTi) recommends Guarantees of Origin alongside energy efficiency and PPAs, not as a substitute for them.

Practical recommendations: where to start

1. List all electricity contracts. By site: who is the supplier, whether Guarantees of Origin are included, and for what volume.

2. Request written confirmation of Guarantees of Origin. Marketing text saying “green electricity” is not sufficient. You need certificate numbers or the seller’s confirmation of the quantity of guarantees in megawatt-hours.

3. Obtain the location-based factor for the correct year. Use the Finnish Energy publication or IEA country-specific factors.

4. Obtain the residual mix factor from the AIB publication. Several variants exist (production mix, supply mix, residual mix). Use the residual mix for the remainder in market-based calculations.

5. Document your choices. Exactly which contract, how many MWh are covered by Guarantees of Origin, which factor was used, and for which year. This is a key focus area in verification.

The same principle applies separately to district heat: if the supplier sells “green district heat” backed by Guarantees of Origin, the market-based factor may be lower than the grid average. In Finland, the Guarantee of Origin system for district heat is still developing.

Common errors in Scope 2 accounting

Only one method is reported. This is the most common observation in verifications. Dual reporting is a fundamental requirement of the standard, not an option.

The grid average is used in the market-based calculation. When contractual factors have not been obtained, the location-based factor is incorrectly used for market-based as well. The correct factor is the residual mix.

The volume of Guarantees of Origin does not match consumption. If fewer guarantees have been procured than the total consumption, the residual mix applies to the remainder. This split should be verified at the certificate level.

An outdated factor applied to a new year. AIB and Finnish Energy publish factors retrospectively. Use the factor for the correct financial year, not the previous year.

Missing site-level breakdown. If a company has sites in multiple countries, the factors are country-specific. Using a single average figure is an error.

Frequently asked questions

Do both figures have to be reported?

Yes. The GHG Protocol Scope 2 Guidance (dual reporting) requires both the location-based and the market-based figure to be presented. SBTi, CDP, CSRD, and most verifiers follow this requirement.

Is a green electricity contract always zero in market-based?

Only if the contract includes Guarantees of Origin for the full volume and those guarantees can be traced via certificates. “Green electricity” as a marketing term alone is not sufficient for a standards-compliant zero.

What is Finland’s residual mix for 2025?

AIB publishes residual mix factors annually, typically around late spring or early summer for the previous year. Check the latest version at aib-net.org. Finland’s residual mix is typically well above the grid average.

Does district heat affect Scope 2?

Yes. Purchased heat and cooling fall under Scope 2 under both the location-based and market-based methods. Factors are obtained from the supplier or from national sources.

Can a green electricity default be assumed in market-based without documentation?

No. Without certified Guarantees of Origin or a documented PPA, the factor is the residual mix. This is one of the most common audit observations in verification.

Unsure which figure to put in your report?

We calculate Scope 2 using both methods and ensure Guarantees of Origin are correctly allocated. The result is a report you can stand behind.

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