Authors: Josh Pitts, Suchi Gopal, Matthew Fishman, Andrew Little
What Are Scope 2 Emissions?
“Scope 2” emissions cover greenhouse gas (GHG) emissions attributable to purchased energy services like electricity, steam, heat, and cooling. Otherwise known as indirect or purchased emissions, Scope 2 emissions are the various GHGs energy providers emit at offsite facilities, typically many miles away from where energy is consumed. Scope 1 emissions, on the other hand are direct emissions from the facility itself, such as in producing aluminum and other materials.
Scope 2 emissions generally apply to facilities, buildings and other assets but are also more rarely applied to regions and municipalities. Understanding and calculating scope 2 emissions is a key step in measuring and reporting an overall GHG footprint.
Further, tracking emissions from power generation can inform business operators on environmental impact, carbon credit decision-making, and power-purchasing decisions. While regulatory obligations vary by locale, many cities and countries have set guidelines around total emissions targets for businesses.
Why are Scope 2 emissions important?
So, why are Scope 2 emissions important? Electricity generation accounted for 42% of global sectoral CO2emissions in 2021.[i] To effectively reduce electricity consumption-related emissions at the level of individual firms, it is essential that they are measured accurately.
Global world electricity generation data in 2023 is shown in Exhibit 1.[ii] Renewables account for % of total electricity generated. If a country or a company were to be carbon neutral by 2030, its electricity has to be all renewable.
Measuring Scope 2 Emissions
The GHG Protocol guides and includes a framework for calculating Scope 2 emissions. Methods can involve adaptations of IPCC guidelines, focusing on cross-boundary emissions.[iii] In the GHG Protocol, Scope 2 emissions refer to indirect greenhouse gas (GHG) emissions that result from the consumption of purchased electricity, heat, or steam.
The two general methods for calculating Scope 2 emissions are location-based accounting and market-based accounting. Location-based accounting uses average grid emissions factors to calculate a company’s Scope 2 emissions. This method assumes that the emissions factor for the grid where the company operates is representative of the emissions associated with the electricity it purchases. Location-based accounting does not consider any specific purchases of renewable energy certificates (RECs), but rather calculates emissions based on the average emissions intensity of the grid.
Market-based accounting on the other hand, considers the specific sources of electricity that a company purchases from the market. This method uses RECs or guarantees of origin (GOs) to assign emissions factors to the purchased electricity. RECs and GOs represent proof that a unit of electricity was generated from renewable sources, and they can be purchased separately from electricity. Companies can use RECs or GOs to offset their purchased electricity emissions, essentially reducing their Scope 2 emissions to zero. Market-based accounting is often seen as a way to incentivize growth for renewable energy.
Both market-based accounting and location-based accounting have advantages and disadvantages. Market-based accounting can be more accurate and allows companies to support the growth of renewable energy, but it can be more complex to implement. Location-based accounting is simpler but may not accurately reflect a company’s actual emissions profile if it has purchased a significant amount of renewable energy certificates.
Ultimately, the choice of accounting method depends on a company’s specific circumstances and goals. Sometimes, the ‘market-based’ method fails to meet reporting standards and can lead to a misallocation of climate change mitigation efforts. The two interrelated problems with the market-based method are: (1) purchasing contractual emission factors is very unlikely to increase the amount of renewable electricity generation; and (2) the method fails to provide accurate or relevant information in GHG reports. This amounts to a sort of greenwashing.
Floodlight’s Approach to Scope 2 Emissions
Following these two primary approaches, Floodlight follows the GHG Protocol and ISO 14064 approach for Scope 2 measurement, calculation, and reporting. The approach is outlined below:
- Asset is assessed by using high spatial resolution satellite imagery. Machine learning algorithms identify and spatialize each building located within the asset. Analysts will validate these results and the boundaries. Part of this validation includes verifying building height, structure, and age of the building.
- Building usages are identified, such as storage, office, manufacturing, etc.
- Energy consumption is measured or estimated based on the asset and customer.
- When using the location-based approach, we cross reference the asset locations using electric grid data by specific locale. The weighted CO2e coefficient is used for the data.
- These are combined to provide a total energy utilization for the asset and ultimately a total emissions report.
In this manner, Floodlight assesses indirect emissions analysis of the assets in question. By incorporating a data centric approach that consists of a mix of data and proprietary technology, Floodlight enables its customers the most precise data allowing full transparency between the asset owner and the asset evaluator.
[i] Liu, Z., Deng, Z., Davis, S. et al. Monitoring global carbon emissions in 2022. Nat Rev Earth Environ 4, 205–206 (2023). https://doi.org/10.1038/s43017-023-00406-z
[ii] https://www.worldenergydata.org/world-electricity-generation/[iii] Kennedy, C., Ramaswami, A., & Carney, S. (2012). Greenhouse Gas Emission Baselines for Global Cities and Metropolitan Regions. . https://doi.org/10.1596/9780821384930_ch02.