A Comprehensive, Technical, and Assurance-Ready Approach

Dual-Method Scope 2 Audit Implementation – A Comprehensive, Technical, and Assurance-Ready Approach to Scope 2 GHG Verification

1. Introduction: Why Dual-Method Scope 2 Auditing Matters

As corporate decarbonization matures from voluntary disclosure to regulatory obligation, Scope 2 emissions present a unique technical challenge in greenhouse gas (GHG) accounting. These emissions—originating from purchased electricity, heating, cooling, or steam—are classified as indirect, yet they remain a direct consequence of the reporting entity’s consumption behavior.

Unlike Scope 1, where emissions occur within the operational perimeter, Scope 2 emissions arise externally but must be reported internally—creating a dual-layered responsibility. The GHG Protocol, the global standard for corporate carbon accounting, mandates that Scope 2 emissions be disclosed through two distinct methodologies: the Location-Based Method and the Market-Based Method. This dual-reporting construct is not merely an accounting nuance—it reflects both the physical realities of grid emissions and the strategic choices organizations make regarding energy procurement.

The implementation of a rigorous, auditable dual-method Scope 2 framework is essential for:

• Ensuring data integrity in ESG reporting
• Enabling consistency across internal carbon pricing and target tracking
• Complying with CDP, SBTi, TCFD, ISSB, and assurance standards
• Minimizing reputational and regulatory risk in third-party assurance

This guide offers a technically comprehensive, audit-ready framework to ensure Scope 2 emissions are quantified, reviewed, and disclosed with both methodological depth and operational rigor.

II. Conceptual Foundation: Understanding the Dual-Method Requirement

The Location-Based Method attributes emissions based on the average emission intensity of the local or national grid where electricity is consumed. This method is inherently physical—it quantifies emissions based on the actual carbon intensity embedded in the grid-supplied power, regardless of any contractual procurement strategies. It is especially important for system-level benchmarking, regulatory emissions inventories, and systemic climate risk modeling.

In contrast, the Market-Based Method reflects emissions tied to contractual energy procurement instruments—such as Power Purchase Agreements (PPAs), Energy Attribute Certificates (RECs, I-RECs, GoOs), or utility-specific emission factors. It represents an organization’s ability to influence its Scope 2 footprint through proactive energy choices.

While both methods aim to measure the same underlying activity—electricity consumption—they answer two different questions:

• Location-Based:What emissions are embedded in the grid electricity you used?
• Market-Based:What emissions are associated with the specific electricity product you chose to purchase?

Both must be calculated and disclosed to reflect the physical and contractual emissions exposure of the reporting entity.

III. Technical Architecture of a Dual-Method Scope 2 Audit

A Scope 2 audit involves validating both the activity data (i.e., electricity consumed) and the emission factors applied under each methodology. To build a defensible and auditable architecture, the following components must be addressed with technical precision and evidence-based documentation.

1. Boundary Definition and Facility Mapping

The first and most critical step is to define the organizational and operational boundaries according to the GHG Protocol’s consolidation approach—either equity share, financial control, or operational control. These boundaries must be consistent with Scope 1 and 3 reporting, and across all sustainability disclosures.

All energy-consuming facilities must be mapped in a comprehensive facility inventory, categorized by:

• Ownership/lease status
• Location (to assign appropriate emission factors)
• Energy supply arrangement (grid, private PPA, shared utility)
• Metering status (direct billing, submetering, estimation)

Where facilities are part of joint ventures or leased from third parties, the auditor must confirm whether the entity holds operational control over energy consumption and billing.

2. Activity Data Collection and Validation

The core input for both methods is quantified energy consumption, usually expressed in kilowatt-hours (kWh), megawatt-hours (MWh), or gigajoules (GJ). The collection process must prioritize:

• Primary data: Utility invoices, smart meter logs, submetered systems
• Temporal alignment: Calendar year or fiscal year aligned with reporting cycle
• Completeness: Data for all reporting entities and operational sites
• Quality: Digitally retrievable, timestamped, and verifiable against billing records

Where data gaps exist (e.g., shared office space or non-metered utilities), a consistent estimation methodology must be applied—based on floor area, occupancy, or historical consumption. These estimates should be disclosed and flagged as lower confidence in the data quality assessment.

The auditor must also validate:

• Unit consistency (e.g., MWh vs GJ)
• Currency of the data (no outdated records)
• Meter calibration and data logging integrity

3. Location-Based Emissions Calculation

Under this method, each facility’s consumption must be multiplied by the grid average emission factor of the jurisdiction in which it operates.

Key technical considerations:

• Grid-specific factors must reflect Scope 2 emissions only, excluding transmission losses (which are Scope 3).
• Emission factors must include CO₂, CH₄, and N₂O, converted using GWP values (typically IPCC AR6).
• The source of emission factors must be disclosed and traceable—preferably from national GHG inventories, regional energy agencies, or international databases (e.g., IEA, IPCC, eGRID).

Formula:
Emissions (kg CO₂e) = Electricity Consumption (kWh) × Grid Emission Factor (kg CO₂e/kWh)

For multinational organizations, emission factors must be applied per jurisdiction, not globally averaged, unless a harmonized global factor is justified and disclosed.

4. Market-Based Emissions Calculation

This step introduces a more complex variable: contractual energy instruments. The auditor must distinguish between different electricity procurement categories:

1. Unbundled Certificates(RECs, I-RECs, GoOs): Emission factor = 0 kg CO₂e/kWh, only if the certificate is:

• Retired in the correct year
• Geographically aligned (jurisdictional integrity)
• Not double-counted in national carbon registries

2. PPAs and VPPAs:

• Facility-specific emission factors required
• Generation profile must align with consumption profile (temporal matching)
• Metered output must correspond to contracted volume

3. Supplier-specific Emission Factors:

• Must be provided by the utility
• Must be independently verified or published
• Emission factor must exclude upstream emissions (Scope 3 of generator)

Where no instrument is applied, emissions must be calculated using the residual mix—i.e., grid factor excluding renewable claims retired via EACs.

Formula: Emissions (kg CO₂e) = Electricity (kWh) × Contractual EF (kg CO₂e/kWh)

All instruments must be fully traceable, serialized, and accompanied by registries or assurance statements.

5. Reconciliation and Assurance Preparation

Once both methods have been calculated, results should be tabulated in an audit-ready disclosure sheet, with each site, energy source, contract, and emission factor clearly documented.

A robust audit process includes:

• Internal QA/QC logs showing data checks, formula audits, and cross-verifications
• Evidence of reconciliations with utility payments or metering software
• Source references for all emission factors
• Commentary on assumptions, estimates, and exclusions

If third-party assurance is being pursued (under limited or reasonable assurance), all documentation must be digitally archived and accessible by verification teams—including contracts, certificates, meter logs, and calculation workbooks.

Integrating Controls and Governance

A sound Scope 2 audit framework also requires institutional controls, including:

• Defined roles for energy data collection, validation, and approval
• Automated flagging of anomalies (e.g., kWh spikes, negative entries)
• Periodic internal audits of meter data and energy contracts
• Cross-functional oversight from finance, sustainability, and procurement teams

Some organizations establish an Internal GHG Emissions Committee, which reviews location-based vs market-based variance trends and aligns findings with internal carbon pricing models or SBTi targets.

1. Reporting and Strategic Use

Post-audit, dual-method Scope 2 figures must be integrated into:

• Annual ESG/sustainability reports
• Climate-related financial disclosures (TCFD/ISSB)
• SBTi Net Zero target assessments
• Internal dashboards for decarbonization planning

Where market-based emissions are significantly lower than location-based (due to high REC or PPA coverage), transparency on procurement strategy and certificate quality becomes essential to avoid greenwashing perceptions.

2. Conclusion: Beyond Compliance, Toward Control

A technically sound, audit-verified Scope 2 disclosure is not just a reporting artifact—it is a foundational input to an organization’s climate risk governance, sustainable procurement, and strategic positioning in ESG-linked capital markets.

By implementing dual-method auditing with methodological rigor, organizations demonstrate not only data transparency, but also energy accountability. This dual-layered view empowers more credible science-based targets, stronger investor confidence, and clearer insights into energy procurement decisions in a carbon-constrained world.

You may not generate the electricity—but how you buy it, track it, and report it is entirely under your control.