What is Scope 2?

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.

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.

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.

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.

This problem applies to almost all renewable energy apart from nuclear - tides vary in strength, the 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 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 important, and the market-based calculation for Scope 2 takes into consideration the actual energy contracts your organisation has in place.

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.
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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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Residual-mix emissions factor

This emissions factor is used for market-based calculations. 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.

This leads to using the residual-mix emissions factor which is available on a regional or national 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.

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.

Electricity: Emissions generated from purchased electricity

Summary

The Scope 2 standard on Electricity requires you to account for the greenhouse gas emissions associated with your company’s purchased electricity. This refers to the emissions generated at the power plant to produce the electricity you purchase for your business.

If the electricity used is produced by company-owned operations/equipment, the Scope 2 emissions would be 0 as the emissions arising from electricity generation are already accounted for in Scope 1.

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Examples

Common:
using purchased electricity to charge your laptops at the office, run your printers or coffee machines
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Service and software companies:
This section is relevant for any service or software company that purchases electricity to run its operations.

Such companies may use the purchased electricity to run computers, for example, and air conditioning in offices and data centre cooling systems, if any.

If you have no offices or data centres, you may well have 0 for scope 2 emissions.
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Physical product and other companies:
This section is relevant for any physical product and other company that purchases electricity to run its operations.

A car manufacturer, for example, must allocate emissions from electricity purchased to run their engines, pumps, water treaters, etc., in their manufacturing facilities under this category of Scope 2.

Heat and cooling: Emissions generated from purchased heating/cooling

Summary

The Scope 2 standard on heat requires you to account for the greenhouse gas emissions associated with your company’s purchased heating/cooling, i.e., the emissions generated at the thermal power station to produce the heated water or air or the emissions generated at the third-party chiller you purchase chilled water from.

Note that the heat may be generated from electricity and other non-electrical processes like the combustion of coal, etc.

If the heat used is produced by company-owned equipment like boilers, the Scope 2 emissions would be 0 as the emissions arising from heat generation are already accounted for in Scope 1.
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Examples

Common:
using heat from a district heat network for heating your office buildings
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Service and software companies:
This section is relevant for service and software companies that purchase heating/cooling to run their operations.

Such companies may use the purchased heating/cooling for space heating they use in their office, for example, and their data centre cooling system, if any.
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Physical product and other companies:
This section is relevant for physical product and other companies that purchase heating/cooling to run their operations.

A soft-drink manufacturer, for example, must allocate emissions from heating/cooling purchased that is used to meet certain temperature criteria for industrial buildings, storage facilities, etc., under this category of Scope 2.

Steam: Emissions generated from purchased steam

Summary

The Scope 2 standard on Steam requires you to account for the greenhouse gas emissions associated with your company’s purchased steam. This means accounting for emissions generated at the power plant or a third-party boiler to produce steam you purchase for your business.

If steam used is produced by company-owned operations/equipment, the Scope 2 emissions would be 0 as the emissions arising from steam generated are already accounted for in Scope 1.
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Examples

Common:
using steam from a third-party supplier for office heating and pressure control in your manufacturing plant
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Service and software companies:
This section is relevant for service or software companies that purchase steam for their operations.
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Such companies may use the purchased steam for heating their offices and their data centres, if any.
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Physical product and other companies:
This section is relevant for physical product and other companies that purchase steam for their operations.

A cosmetics manufacturer, for example, must allocate emissions from steam purchased to use in heat exchangers, dryer equipment, etc., under this category of Scope 2.

Further information

You can read more in the overall guidance from the Greenhouse Gas Protocol on Scope 2 here.