Scope 2 electricity emissions reporting explained

Measuring your carbon footprint means getting to grips with how your electricity use is reported, and there are two ways to do it. If you've come across the terms location-based and market-based reporting and aren't sure what they mean or why they matter, you're not alone. For many SMEs, this is one of the most confusing parts of carbon measurement.

Both approaches are recognised under the Greenhouse Gas Protocol, the most widely used international standard for measuring and reporting greenhouse gas emissions. Understanding the difference between them doesn't just improve the accuracy of your reporting, it helps you make more informed decisions about your energy procurement, demonstrate credibility to clients and investors, and avoid the kind of greenwash claims that can seriously damage trust.

In this post, we're breaking down what each method involves, how to choose the right emissions factor, and what SMEs need to know about green tariffs before making any claims about their electricity emissions.

Dual reporting: what is it and why does it exist?

Emissions reporting schemes that follow the Greenhouse Gas Protocol allow businesses to disclose their electricity-related emissions in two ways: on a location, or a market, basis. This is known as dual reporting, and it exists to give a more complete picture of your electricity emissions - both what you're actually consuming from the grid, and the impact of the purchasing decisions you're making.

• Location-based reporting reflects the average emissions intensity of the grid from which consumption is drawn, usually the national grid in the country where your electricity is consumed. Regardless of your contract, most businesses are drawing from the same national fuel mix - so this figure represents the average carbon intensity of that grid.

• Market-based reporting reflects the emissions intensity of the electricity your organisation has actually purchased. This can take into account your supplier's fuel mix, your specific tariff, or certificates like Renewable Energy Guarantees of Origin (REGOs) or Renewable Energy Certificates (RECs).

Together, these two approaches give stakeholders transparency around both the reality of grid consumption and the choices your business is actively making.

How do you select the right market-based emissions factor?

The Greenhouse Gas Protocol sets out a hierarchy for selecting market-based emissions factors, from most to least precise:

1. Power Purchase Agreements (PPAs) or certificates such as REGOs which meet certain quality criteria: the most precise option, providing direct evidence of renewable electricity procurement.

2. Supplier-specific emissions factors: a tariff-specific factor is preferable to a supplier-average factor where available.

3. Residual mix factor: used when your supplier can't provide fuel mix information; note that this often carries a higher carbon intensity than the national average, as it excludes green electricity already allocated to specific tariffs.

4. National average grid factor: the least preferable option because it's the least precise, using the same figure as location-based reporting.

The more precise your factor, the more credible and meaningful your market-based disclosure. If you're unsure which applies to your business, our carbon footprinting service can help you work through it.

Are all green energy tariffs actually green?

This is one of the most important questions SMEs can ask, and the answer is: not always.

Many electricity suppliers offer green tariffs, and it is possible to claim zero market-based emissions from purchasing a green product. However, the certificates used to back these tariffs vary significantly in quality, particularly REGOs.

• Unbundled REGOs are purchased separately from the renewable electricity generated. A supplier can use them to claim a green fuel mix while continuing to deliver fossil-fuel derived electricity to customers. Historically, they've also been bought and sold cheaply, contributing little to new renewable energy investment.

• Bundled REGOs (where the certificate is sold alongside the actual renewable energy supply) are considered more genuine, as the green electricity and the certificate stay together.

• PPAs (Power Purchase Agreements) offer the strongest confidence. They represent direct agreements between generators and suppliers, improving traceability and, because of their higher value, providing greater financial incentive for new renewable generation.

Understanding what makes your green tariff green is an important step towards reporting your emissions with integrity and avoiding greenwash.

Where does on-site renewable energy fit in?

If your business generates its own electricity, through solar panels for example, it's worth knowing how this is treated in emissions reporting.

Scope 2 emissions are, by definition, indirect emissions arising from the generation of purchased energy. On-site generation which is owned by the business falls under Scope 1, direct emissions from your own premises and assets.

The good news is that on-site renewables like solar photovoltaics produce no emissions during generation, so they contribute zero Scope 1 emissions. They also reduce your Scope 2 emissions by lowering the amount of electricity you need to draw from the grid.

For SMEs exploring ways to reduce their footprint, on-site generation can be a meaningful part of the picture, particularly when combined with a clear understanding of what your remaining grid consumption looks like.

What does this mean for your emissions reporting in practice?

Dual reporting isn't just a technical requirement, it's a transparency tool. It allows your business to demonstrate both the reality of your grid consumption and the active choices you're making around procurement.

For SMEs, the key practical takeaways are:

• Use the most precise market-based factor available to you. Ask your supplier for fuel mix information if you don't already have it.

• Understand how your green tariff is backed before claiming zero market-based emissions.

• If you have on-site generation, make sure it's being reported under Scope 1, not Scope 2.

• Be transparent about your methodology: stakeholders and certifiers increasingly scrutinise how electricity emissions are calculated, not just what the number is.

Getting this right protects your credibility and ensures your emissions data holds up to scrutiny, whether that's for a tender, a certification, or investor due diligence.