Difference between Market-based and Location-based Scope 2 Emissions

By Richard Howard

When reporting on their carbon emissions organisations commonly breakdown their emissions using the scope framework:

  • Scope 1: Direct emissions
  • Scope 2: Indirect emissions from the purchase energy
  • Scope 3: Other indirect emissions

In brief: scope 1 relates to emissions which “occur from sources that are owned or controlled by the company” [1], scope 2 relates to the purchase and use of energy (electricity, heat, steam and/or cooling) from an external supplier, and scope 3 covers everything else. See our guide for an overview of scopes 1, 2, and 3 emissions.

There is plenty of nuance, however, when it comes to the calculation of the different sources of emissions.

Scope 2 Dilemma: How to Include Renewable Energy Purchases

Consider this example, datacentres.com are a provider of data services who run several large data centres in the UK. These data centres consume electricity day and night, all year round. Let’s say 10TWh of energy per year, which is a potentially very carbon intensive operation.

As a result datacentres.com have purchased 100% of its energy needs from two UK renewable energy companies: Wind power from Gusty Plc; and solar power from Sunny Ltd.

But what happens on a still night? When there is no wind or solar power available? datacentres.com still needs electricity.

In that case the data centres will be powered by whatever is powering the grid in their location – be that natural gas, hydro, nuclear, coal, etc.

What datacentres.com actually bought from Gusty Plc and Sunny Ltd is the equivalent to the amount of energy they would consume in a given year. That is, 10TWh of renewable energy guarantees, in the UK these are known as Renewables Obligation Certificates (ROCs) [2]. Elsewhere they are known by other names such as: Renewable Energy Certificates; or Guarantees of Origin.

Scope 2 emissions take these differences into account by distinguishing between location-based and market-based emissions. And organisations are able to demonstrate their green credentials by calculating both types of emissions.

Copyright Philip Howard

Location-based Scope 2 Emissions

Location-based emissions do not take into account the ROCs. They simply depend on the energy consumed by the company and the carbon intensity of the local electricity grid (this can be extended to heat/steam/cooling networks as well).

This method, therefore, takes into account still nights when no solar power or wind power is available yet datacentres.com are still drawing power from the UK electricity grid.

In the case of datacentres.com their location-based scope 2 emissions would depend on the UK grid’s annual carbon intensity. So for 2020 the UK grid had a carbon intensity of 181gCO2/kWh [3]. Therefore, their overall location-based scope 2 emissions from electricity would be 1,810 tCO2.

NB – this example presumes datacentres.com demands a constant electricity supply throughout the year. If they were able to match their electricity demand to renewable energy output then the location-based emissions would be lower. 

Market-based Scope 2 Emissions

Market-based emissions take into account the ROCs. Therefore, companies are able to reduce their scope 2 emissions by incorporating the renewable energy they have purchased and the associated lower carbon intensity. As a result datacentres.com’s market-based scope 2 electricity emissions would be close to zero.

NB – it is unlikely to be zero as there is still a non-zero carbon intensity associated with renewable energy. Although it is significantly lower than any fossil fuel source.

References

  1. The Greenhouse Gas Protocol, A Corporate Accounting and Reporting Standard, 2004
  2. Ofgem, Renewables Obligation (RO)
  3. Power Technology, UK electricity generation records its greenest year in 2020, 2021

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