Navigating Emissions from Purchased Energy!

Introduction

As the global push toward net zero intensifies, understanding the full spectrum of an organization’s carbon footprint is no longer optional—it is a critical operational, financial, and reputational imperative. While Scope 1 emissions receive much of the focus due to their direct association with organizational activities, Scope 2 emissions demand equal attention for their strategic complexity and potential for high-impact mitigation.

Scope 2 emissions are defined as the indirect greenhouse gas emissions resulting from the generation of purchased or acquired electricity, steam, heating, or cooling consumed by the reporting entity. Unlike Scope 1, where the emissions physically occur within the organization’s boundary, Scope 2 emissions originate externally—at the site of energy generation—but are directly attributable to the entity consuming the energy.

This distinction is subtle but vital. While the emissions are physically released by the utility or third-party energy provider, the consumer remains responsible under the GHG Protocol Corporate Standard, as their demand drives the upstream emission activity. In practice, Scope 2 emissions reflect an organization’s indirect operational footprint—and its ability to influence energy supply chains.

Technical Scope: What Falls Under Scope 2?

The operational boundary of Scope 2 includes:

Grid electricity(AC power delivered through the national or regional grid)
Purchased steam(commonly used in industrial operations or large campuses)
Purchased chilled water or cooling(often found in district cooling networks or shared real estate developments)
Purchased heating(e.g., from centralized thermal utilities or co-generation plants)

All these forms of energy, when consumed by the reporting organization, carry embedded emissions related to the fuel mix and generation technology used by the provider. These embedded emissions must be quantified, disclosed, and managed as part of the organization’s total GHG inventory.

A key operational consideration is that Scope 2 emissions are calculated based on consumption—not on energy expenditure or billing structures. Thus, accurate metering, smart grid integration, and utility-level transparency become essential for precise GHG accounting.

Dual Methodology: Location-Based vs Market-Based Accounting

The GHG Protocol requires Scope 2 emissions to be reported using two distinct but complementary methodologies: the location-based method and the market-based method. Understanding the technical structure and rationale of these two approaches is central to accurate reporting and effective mitigation planning.

1, Location-Based Method

This method calculates Scope 2 emissions based on the average emission intensity of the local electricity grid where consumption takes place. It reflects the real-time grid mix in the physical location and includes all generation sources feeding into that grid—coal, gas, hydro, nuclear, wind, solar, etc.—weighted by their share.

From a technical standpoint, the location-based method answers the question:

“If you drew electricity from the local grid today, what would be your proportional share of the total emissions generated?”

This method is particularly useful for understanding systemic decarbonization over time. As national and regional grids integrate more renewables, their location-based emission factors improve, leading to lower Scope 2 intensity for consumers—regardless of contractual procurement choices.

Emission Calculation Example (Location-Based):

Electricity Consumed: 2,000,000 kWh
Local Grid Emission Factor: 0.60 kg CO₂e/kWh
Location-Based Emissions = 1,200,000 kg CO₂e

Market-Based Method

In contrast, the market-based method reflects the emissions associated with the specific electricity purchased or contracted by the organization, using mechanisms such as:

Power Purchase Agreements (PPAs)
Renewable Energy Certificates (RECs)
Guarantees of Origin (GoOs)
Supplier-specific emission factors

This method answers a different question:

“What is the carbon intensity of the electricity I have chosen to buy, regardless of the physical grid?”

The market-based approach provides a platform for organizations to actively influence their Scope 2 emissions through procurement behavior—supporting renewable energy development, engaging in green tariffs, and driving supplier transparency.

Emission Calculation Example (Market-Based):

Electricity Consumed: 2,000,000 kWh
Emission Factor via PPA: 0.08 kg CO₂e/kWh
Market-Based Emissions = 160,000 kg CO₂e

Both methods must be disclosed simultaneously. This dual reporting ensures stakeholders can distinguish between systemic emissions intensity and voluntary mitigation actions taken by the organization.

Scope 2 in Complex Operational Structures

In multinational or multisite organizations, Scope 2 emissions vary significantly depending on local grid mixes and energy contracts. Consider a technology company operating data centers in three different countries:

One site is connected to a hydro-dominated grid
Another operates in a coal-dependent region
A third uses 100% renewable electricity through a corporate PPA

In such cases, each facility’s Scope 2 footprint must be calculated independently under both accounting methods. Centralized reporting systems must then aggregate and contextualize the data across the enterprise level. Advanced GHG management software or ERP-integrated modules are often required for this purpose, especially under mandatory assurance standards such as CSRD or ISSB.

Instrument Quality and Regulatory Compliance

Under the market-based method, the integrity of the energy attribute certificates (EACs) used is paramount. These instruments must be:

Legally recognizedin the jurisdiction of use
Additional and not double-counted
Time- and location-matchedwith consumption periods
Third-party verifiedthrough registries (e.g., I-REC, EKOenergy, Green-e)

Failure to meet these criteria may result in invalid market-based reporting, reputational risk, and potential regulatory non-compliance. Moreover, certificates must represent renewable generation, not low-carbon (e.g., nuclear or gas), if the intent is to meet science-based targets under SBTi or similar frameworks.

Advanced Scope 2 Considerations: Temporal Matching and Real-Time Emissions

An emerging frontier in Scope 2 disclosure is the integration of temporal granularity—accounting for the carbon intensity of electricity at hourly intervals rather than annual averages. This is especially relevant in markets with dynamic grid emissions, where the carbon intensity fluctuates based on time of day (e.g., solar during daylight vs coal at night).

Corporations with access to real-time grid data are beginning to align their energy consumption patterns (load shifting, battery storage, demand response) with periods of lower grid carbon intensity. This approach, known as 24/7 carbon-free electricity, is supported by initiatives such as the UN’s 24/7 CFE Compact and Google’s Energy Stack optimization.

While not yet mandatory, this methodology is likely to be included in next-generation ESG frameworks and national-level climate compliance instruments.

Scope 2 Mitigation Strategies: Decarbonizing Indirect Operations

Mitigating Scope 2 emissions involves both consumption reduction and procurement transformation. Technically mature organizations often follow a hybrid strategy:

1. Energy Efficiency

Smart metering, load management, and building automation reduce kWh consumption.
Industrial organizations adopt ISO 50001-certified energy management systems (EnMS).

Onsite Renewable Deployment

Rooftop or ground-mounted solar PV, wind turbines, and co-generation units can directly offset grid electricity demand.

Green Procurement

PPAs and virtual PPAs (VPPAs) secure access to low-carbon electricity with traceability.
RECs or I-RECs provide flexible compliance in international operations.

Grid-Interactive Buildings

Demand response strategies and behind-the-meter storage synchronize consumption with low-emission periods.

Policy Advocacy

Engaging with utilities and regulators to green the grid benefits entire industries and supply chains.

Disclosure Frameworks and Assurance Standards

The accurate disclosure of Scope 2 emissions is central to compliance with:

CDP Climate Change Questionnaire
Task Force on Climate-related Financial Disclosures (TCFD)
IFRS S2 / ISSB Climate Standard
EU CSRD (Corporate Sustainability Reporting Directive)
US SEC Climate Disclosure Rule
Science-Based Targets initiative (SBTi)

Each framework has specific expectations regarding dual-method reporting, data quality, and mitigation disclosures. Companies pursuing ESG ratings or sustainability-linked loans must ensure that Scope 2 emissions are auditable, complete, and consistent with reported targets.

Conclusion: The Strategic Relevance of Scope 2

Scope 2 emissions represent far more than a utility bill line item—they reflect an organization’s strategic posture on energy, climate risk, and corporate responsibility. By measuring, managing, and mitigating these emissions with precision, organizations gain not only regulatory alignment but also strategic leverage in stakeholder dialogues, supply chain positioning, and financial markets.

In a decarbonizing global economy, the ability to claim, prove, and disclose low Scope 2 emissions is becoming a differentiator in ESG maturity. As reporting expectations evolve, Scope 2 will increasingly serve as the barometer of an organization’s readiness for a low-carbon future.

You may not own the power plant—but you own the decision to demand better energy.

About ESG Nexus

ESG Nexus is a nationally recognized sustainability think-tank and consulting consortium, uniting SECP-registered ESG experts, data analysts, and regulatory advisors to lead Pakistan’s ESG transformation. With deep domain expertise, multi-sectoral insight, and access to global reporting frameworks, ESG Nexus helps organizations decode emissions, operationalize ESG strategy, and align with global net-zero and disclosure expectations.