What are the two methods for calculating scope 2 emissions?

In summary, a market-based calculation of scope 2 emissions represents the impact of the electricity that an organisation has specifically chosen, whereas a location-based calculation accounts for the reality of the energy they consume from the grid.
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A huge driver in the move to a net zero world is organisations choosing green energy over fossil fuels which drives investment in renewable energy projects - and these choices must be rewarded. However, for almost all organisations, even if you choose green energy this doesn’t necessarily mean that you are using green energy.
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Why is this the case? You may be purchasing wind power from an offshore wind farm on the other side of the country. As electricity flows to the closest point where it is used, and as there is a coal power plant next to your organisation's location on your side of the country, the reality is that whilst you are purchasing wind energy, you are using energy from the coal power plant.
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Furthermore, even if your location was nearest to the wind farm, what happens when the wind stops? Your electricity doesn’t stop - you pull from the grid, and from the coal power plant further away. In this regard, even if you pay for 100% renewable energy you are almost always still consuming some energy from fossil fuels.
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This problem applies to almost all renewable energy apart from nuclear - tides vary in strength, wind is unreliable, and the sun is subject to clouds. All of these are in part technical problems that the world is solving through better batteries and storage of energy from times of surplus (in a storm!) to then release in times of shortage - but we are not there yet.

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Market-based

Making the choice of a green energy provider is extremely important, and the market-based calculation for scope 2 takes into consideration the actual energy contracts your organisation has with the market. It uses the emissions factors of the specific supplier you purchased your energy from.

If you have specifically selected green energy, the emissions computed through market-based calculation will likely be lower than the actual emissions caused by the actual energy you are using because you are still receiving energy from the grid.

In order to achieve a 100% guaranteed green energy supply, companies can build a micro-grid connected directly to their facilities and circumvent the grid.

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Location-based

To account for this, all organisations are also required to report their location-based emissions from energy consumption, which is derived from the regional or national grid emissions factors.

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Interestingly, if you are not specifically choosing green energy, your market-based calculation will likely be higher than the location based calculation, as the green energy that on average is reducing the emissions intensity of the energy you consume, if being purchased by others, leaving you with the above grid-average high-intensity sources!

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Residual-mix emissions factor

Companies must be careful about “claiming” renewable energy usage which comes from a public grid used by others. If one company claims their energy is 100% renewable, even though it comes from the grid, another company with grid energy cannot also see that benefit which is usually baked into the grid’s emissions factor.

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This leads to using the residual-mix emissions factor which are available on a regional or nationally level. This takes account of all the supplier-specific emissions factors, renewable certificates and contracts that have been claimed. The residual mix therefore excludes these claims, meaning its emissions factor is higher.

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Ultimately, for two companies in the same location with equal energy consumption, the market-based reporting is likely to show a lower emissions figure for the company on a green tariff compared with the company on a standard tariff and therefore using the residual-mix emissions factor.

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How Consequence helps

In the first instant, Consequence automatically aggregates all of your relevant scope 2 energy contracts into the right place in a full GHGP-compliant calculation. Furthermore, it instantly and automatically generates location and market based estimates of your emissions based on your location.

Most importantly, Consequence provides an index of the work you might choose to do to increase the accuracy of your reporting, by investigating each energy bill to check the MWhs consumed, and the exact energy mix and location - if you have multiple premises.