Market-Based vs. Location-Based Electricity Emissions
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Learn More about CBCO 22-1Why your market-based electricity emissions might be higher than location-based emissions
Greenhouse gas (GHG) emissions accounting for purchased electricity is a critical component of corporate sustainability reporting. The Greenhouse Gas Protocol, the widely accepted global standard for GHG accounting, defines two methods for calculating electricity-related emissions: location-based and market-based. While companies often assume that market-based emissions should be lower due to renewable energy purchases, that is not always the case. Understanding the nuances of these two approaches can help organizations make informed decisions about energy procurement and emissions reduction strategies.
What Are Location-Based and Market-Based Emissions?
When reporting Scope 2 emissions—those from purchased electricity—organizations can calculate their footprint using two distinct methods:
Location-Based Method
The location-based method estimates emissions based on the average carbon intensity of the electricity grid serving an organization’s geographic location. This approach reflects the regional energy mix, including the proportion of electricity generated from fossil fuels, renewables, and other sources. It does not consider specific energy purchasing decisions made by a company; rather, it provides an emissions estimate based on the broader energy landscape of the grid.
Market-Based Method
In contrast, the market-based method accounts for emissions based on the specific electricity a company chooses to purchase. This approach considers contractual instruments such as:
- Renewable Energy Certificates (RECs) (U.S.)
- Guarantees of Origin (REGOs) (Europe)
- Power Purchase Agreements (PPAs)
- Supplier-Specific Emissions Rates
These mechanisms allow organizations to claim emissions reductions when they procure energy from renewable sources. However, they can also lead to unexpectedly high market-based emissions if companies purchase electricity from suppliers with a high carbon footprint.
“Market-based emissions may be higher than location-based emissions under several circumstances.”
Johanna Soerbom, Manager, Climate Services
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Why Market-Based Emissions Can Be Higher Than Location-Based Emissions
While the use of AI in sustainability shows promise in increasing efficiency and potentially solving previously unsolvable problems, there are inherent downsides and challenges organizations should consider before using this technology in their sustainability strategies. Some of the more common ones are listed below.
- Procurement of High-Carbon Electricity Contracts: If an organization sources electricity from a supplier with a carbon-intensive generation mix, its market-based emissions will reflect those emissions—even if the local grid mix is cleaner. For example, a company purchasing electricity from a fossil fuel-heavy supplier in a region with abundant renewable energy generation could see higher market-based emissions.
- Absence of Renewable Energy Contracts or RECs: If a company has not secured renewable energy through direct procurement mechanisms such as PPAs or RECs, its market-based emissions will be calculated based on the emissions intensity of its electricity supplier. This could result in higher emissions compared to the location-based approach, which includes cleaner grid resources.
- Supplier Emissions Intensity: Many organizations purchase electricity from retail suppliers, and not all suppliers provide low-carbon or renewable electricity. If a company’s supplier has a generation portfolio that is more carbon-intensive than the local grid, the market-based emissions will be higher.
- Unbundled RECs and Double Counting Risks: Unbundled RECs—those purchased separately from electricity—are commonly used to claim renewable energy usage. However, if RECs are not properly accounted for or are double-counted within a market, they may not effectively reduce an organization’s market-based emissions.
- Residual Mix Emission Factors: When applying the market-based approach, any electricity that is not explicitly covered by RECs, PPAs, or other contractual instruments is assigned a residual mix emission factor. Residual mix factors are location-based grid average emission factors, but with all renewable energy attributes removed from the market boundary. This can often make residual mix factors more greenhouse gas-intensive than location-based factors, leading to higher reported market-based emissions.
Conclusion
While it is often assumed that purchasing renewable energy lowers an organization’s emissions, market-based emissions accounting can reveal higher emissions if procurement strategies are not aligned with regional energy availability. By understanding the relationship between location-based and market-based emissions, organizations can refine their energy procurement strategies, enhance transparency in reporting, and make more effective decisions toward achieving decarbonization goals.
If your organization needs guidance in optimizing energy procurement and emissions reporting, we’re here to help. Contact us today to learn more.
Market-based emissions can be higher if your electricity supplier has a high carbon intensity, if you haven’t procured renewable energy through mechanisms like PPAs or RECs, or if your residual mix factor is more emissions-intensive than the local grid. Unlike location-based emissions, which reflect the average grid mix, market-based emissions depend on your specific energy procurement choices.
To reduce market-based emissions, organizations should source electricity from suppliers with lower carbon intensity, secure renewable energy contracts like PPAs, or purchase high-quality RECs that align with sustainability goals. Ensuring that RECs are properly accounted for and not double-counted can also improve accuracy in emissions reporting.
Residual mix factors account for electricity not explicitly covered by RECs, PPAs, or other contractual instruments. These factors remove renewable energy attributes from the grid mix, often resulting in higher emissions intensities than standard location-based calculations. This can lead to unexpectedly high market-based emissions.
Unbundled RECs are certificates purchased separately from the electricity itself, while PPAs involve directly procuring renewable energy. PPAs typically provide stronger claims for emissions reductions because they directly support renewable generation. Unbundled RECs can be useful but may present risks of double counting if not properly tracked.
CarbonBetter provides expert guidance in optimizing energy procurement strategies, ensuring accurate emissions accounting, and aligning sustainability initiatives with business goals. Our team helps clients navigate the complexities of the carbon market, renewable energy procurement, and emissions reporting to support decarbonization efforts.
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