Location Vs Market-Based Carbon Reporting

In this article, we’ll break down the differences between location-based and market-based methods, explain how offsite renewable energy plays a role, and show you how purchased electricity and renewable energy certificates (RECs) fit into the picture.

Renewable Energy Certificates: Their Role in Carbon Reporting

If your organisation wants to cut its greenhouse gas emissions from electricity use, Renewable Energy Certificates (RECs) and Guarantees of Origin (REGOs) play a crucial role.

In the US, companies use RECs, while in the UK and Europe, REGOs are used. These certificates verify that electricity was generated from offsite renewable energy sources like wind or solar. By purchasing RECs or REGOs, companies can claim they’re using renewable energy—even if the actual electricity consumed comes from the regular grid.

These certificates are key to market-based carbon reporting, allowing companies to report zero emissions for the electricity they’ve sourced from renewables. Understanding how RECs and REGOs work can help you make stronger sustainability claims and improve your company’s environmental impact.

What’s the Difference Between Market-Based and Location-Based?

There are two methods of reporting the greenhouse gas emissions related to purchased electricity: these are location-based and market-based reporting, as defined by the Greenhouse Gas Protocol.

• Location-based reporting calculates emissions based on the average emission intensity of the power grid your company is physically connected to. It doesn’t matter which electricity contracts your company holds.
• Market-based reporting reflects emissions from the specific electricity your company purchases. It takes into account RECs, REGOs, or other energy contracts you’ve made.

💡 In short, location-based reporting shows the emissions tied to your physical electricity consumption, while market-based reporting shows the emissions linked to your purchasing decisions, like renewable energy contracts.

Location-Based Reporting

With the location-based method, you calculate emissions using the carbon intensity of your local power grid. This means the emissions depend on the energy mix in the region where your business operates.

For example, in the UK, you’d use the grid emission factor published by DEFRA. This factor reflects the carbon intensity of the grid, which might include coal, natural gas, nuclear, and renewable energy sources.

If you're interested, you can see a live view of the UK grid emissions here.

Market-Based Reporting

The market-based method looks at the specific energy contracts your company has in place. If you’ve purchased renewable energy through RECs or signed a Power Purchase Agreement (PPA), your emissions will be lower than if you were just using grid electricity.

This method highlights how your purchasing decisions—like choosing a green energy tariff—can help you reduce your carbon footprint. It uses your electricity supplier’s emissions factor rather than the general grid emissions factor.

💡 Why is this important? For many companies, especially SMEs, it’s not always possible to install solar panels or generate renewable energy on-site. But by switching to a renewable energy tariff, you can make a positive environmental impact with ease. The market-based method rewards businesses for making smart energy choices.

Calculating Market and Location-Based Emissions

Let’s walk through how these methods differ using an example of a company that buys renewable energy through a REGO or REC.

Under the market-based method, the Scope 2 emissions from purchased electricity would be zero, but under the location-based method, the location-based emissions would be the same as a company that does not have a REGO or REC.

Location-Based Example

Even if your company uses a green tariff, location-based reporting is based on the average emissions of the grid.

🔥 Example: If your company consumes 100,000 kWh of electricity in the UK, with a grid emission factor of 0.21233 kgCO₂e/kWh, the calculation would be:

100,000 kWh x 0.21233 kgCO₂e/kWh = 21,233 kgCO₂e or 21.23 tCO₂e.

This represents your company’s location-based emissions based on the average UK grid mix.

Market-Based Example

With the market-based method, it’s a bit more complex as your emissions depend on your contract emission factor or whether your electricity is 100% renewable. We’ll help you figure this out by reviewing your energy bills.

If your company purchases renewable energy (e.g., through a REC), your emissions factor will be 0 kgCO₂e/kWh.

🔥 Example:
If your company consumes 100,000 kWh of electricity but buys 100% renewable energy through a REC, the emissions factor is 0 kgCO₂e/kWh. Your Scope 2 emissions would be:
100,000 kWh x 0 kgCO₂e/kWh = 0 kgCO₂e.

This means you can report zero emissions under the market-based method.

Company Without a REC‍

If you don’t purchase renewable energy, you’ll need to use the residual fuel mix factor. In the UK, this is 0.316 kgCO₂e/kWh.

🔥 Example:
100,000 kWh x 0.316 kgCO₂e/kWh = 31,600 kgCO₂e or 31.60 tCO₂e.

This represents your emissions if you haven’t invested in renewable energy.

‍Understanding Renewable Energy in Reporting

Renewable energy plays a critical role in market-based carbon reporting. When companies choose to invest in renewable energy—like wind or solar—they can claim emissions reductions even if the electricity they physically use comes from the regular grid. This is where Renewable Energy Certificates (RECs) and Guarantees of Origin (REGOs) come in.

These certificates are proof that a company has invested in renewable energy, whether or not the electricity they use on-site comes directly from a renewable source. By purchasing RECs or REGOs, businesses can lower their reported emissions under the market-based method, as these certificates represent a company's contribution to the generation of clean energy.

For example, if your business uses grid electricity but purchases RECs from wind farms in Scotland, you can report lower emissions based on your investment in renewable energy—even if the electricity you actually consume includes fossil fuels. The market-based method allows you to reflect your environmental choices in your emissions reports.

This flexibility, supported by the GHG Protocol, means companies have a simple way to make a positive impact on their carbon footprint, even if they can’t generate renewable energy on-site.

Why Dual Reporting Matters

The GHG Protocol requires companies to report their Scope 2 emissions using both location-based and market-based methods. This dual reporting approach gives a full picture of your company’s environmental impact:

• Location-based reporting shows the actual emissions from the local power grid.
• Market-based reporting highlights how your energy purchasing decisions reduce your emissions.

Conclusion: Zevero Simplifies Carbon Reporting

Calculating Scope 2 emissions can be tricky, especially when you need to navigate both location-based and market-based methods. However, understanding these approaches is key to accurate carbon accounting and demonstrating your company’s commitment to sustainability. Read more about Scope 1, 2, and 3 emissions in our guide here.

Zevero can simplify this process by automating the calculation of your Scope 1, 2, and 3 emissions. Whether it’s reviewing your energy contracts or ensuring your emissions reporting complies with the GHG Protocol, we’ve got you covered. Learn more about how Zevero’s AI-powered emission engine can support your sustainability efforts.