As businesses and organizations strive to reduce their environmental impact, carbon accounting has become an essential tool for tracking and managing greenhouse gas (GHG) emissions. Carbon accounting helps organizations measure, report, and mitigate their emissions across various activities. A key framework for categorizing these emissions is the Greenhouse Gas Protocol (GHGP), which classifies emissions into three scopes:

Each scope presents unique challenges and opportunities for reduction. Among them, scope 2 emissions are particularly significant because they stem from purchased energy, which is often generated using fossil fuels. However, numerous reduction mechanisms exist today to help organizations eliminate these emissions, such as improving energy efficiency in order to use less energy, and transitioning to renewable energy sources through market-based mechanisms. Understanding scope 2 emissions is crucial for businesses looking to contribute meaningfully to the global energy transition and achieve sustainability goals.

What are scope 2 emissions?

Scope 2 emissions refer to indirect greenhouse gas emissions associated with the consumption of purchased energy. Unlike scope 1 emissions, which result from direct fuel combustion, scope 2 emissions arise from the generation of electricity, steam, heat, or cooling that a company procures from external sources.

The primary sources of scope 2 emissions include:

• Purchased electricity: When businesses buy electricity from a utility provider, the emissions from power plants that generate this electricity are classified under scope 2.

• Purchased heat, steam, and cooling: Some companies purchase heat, steam, or cooling services instead of generating them on-site. These services often come from centralized facilities that may rely on fossil fuels, thereby contributing to scope 2 emissions.

What sets scope 2 emissions apart from other scopes is the presence of market-based mechanisms that offer multiple pathways for organizations to reduce their carbon footprint. Unlike scope 1, where emissions reductions often require technological shifts or operational changes, scope 2 reductions can be achieved through strategic procurement decisions. The transition to renewable energy sources is an essential component of sustainability strategies, setting the stage for a broader energy transition across industries and economies.

How are scope 2 emissions measured today?

The GHG Protocol currently outlines two primary approaches for calculating scope 2 emissions: the location-based method and the market-based method.

Location-based method

The location-based method calculates emissions for electricity consumption based on the average emissions intensity of the grid where the energy consumption occurs. This approach is mandatory under various reporting frameworks and does not take into account a company’s procurement choices.

• Relies on grid averages: Emissions are calculated based on regional grid emissions factors rather than specific energy purchases.

• Time-delayed data: Since grid emissions factors are typically updated annually, this method may not reflect real-time energy sourcing changes.

• Limited control: Companies using this method have less direct influence over their reported emissions, as they depend on the overall energy mix of their region.

Market-based method

The market-based method, on the other hand, reflects an organization’s actual procurement decisions and energy-sourcing strategies. It accounts for specific contracts, such as Power Purchase Agreements (PPA), Renewable Energy Credits (REC), and green tariffs, which allow businesses to claim lower emissions from their purchased electricity.

• Reflects company choices: Emissions calculations take into account contractual agreements for renewable energy purchases.

• Mechanism for electricity transition: Encourages organizations to invest in low-carbon electricity options and actively support the transition to renewables.

• Multiple reduction options: Companies can reduce their scope 2 emissions through a portfolio of mechanisms like PPAs, RECs, and green tariffs, making this method a flexible and strategic tool for decarbonization.

While market-based mechanisms provide flexibility in reducing scope 2 emissions, they also highlight the need for more precise and updated carbon accounting methodologies. For example, some decarbonization strategies, such as time-shifting energy consumption to better match renewable generation, are not given credit under these methods. This and other limitations mean that the traditional methods outlined in the GHG Protocol are increasingly seen as outdated in an era of rapid changes in energy generation and grid dynamics. As a result, the market is shifting toward more advanced power emission accounting methodologies that provide a more accurate reflection of emissions associated with electricity use.

Anticipated changes to the GHG Protocol 

The current GHG Protocol’s Scope 2 Guidance market-based instrument methodology, originally designed in the early 2000s, allows companies to procure renewable energy at any point within a year from anywhere in North America (US-based) and apply it to any of its annual electricity consumption within that same year. This methodology, as written, allows for a potentially significant mismatch of ‘emissions caused’ (by consuming electricity) versus ‘emissions avoided’ (by generating renewable electricity) in that it does not account for any of the realities of the electric grid and generators, which vary significantly over different regions, seasons, and time of day. 

Figure 1: Power matching versus carbon matching methodologies for advanced power emission accounting, as applied to annual and hourly tracking. Source: Carbon Direct. 

In response to this, the GHG Protocol Scope 2 Guidance is currently undergoing a revision process, which will include how emissions associated with electricity consumption are calculated. A focus of the revision process is on how to better account for the real emissions associated with a corporate’s electricity consumption, and more impactful ways of mitigating them through market-based instruments and other approaches. Advanced power emission accounting methodologies, such as 24/7 power matching and carbon matching, are being explored as ways to better represent the GHG emissions associated with electricity consumption. 

• 24/7 Power matching emphasizes matching electricity consumption with an equivalent amount of renewable energy production on an hourly basis.

• Carbon matching emphasizes measuring the emissions impact of incremental electricity consumption or production at a specific time.

These emerging methodologies propose a shift toward more granular temporal and region-specific matching, which could require companies to rethink their emissions reporting approach and explore more advanced tracking tools. They may also introduce new strategies beyond market-based instruments for reducing scope 2 emissions, such as time-shifting energy consumption.

As power grids continue to decarbonize and new digital tools emerge, businesses will need to adapt to these evolving methodologies to remain compliant, enhance sustainability strategies, and achieve meaningful reductions in emissions. Companies that proactively integrate advanced power emission tracking into their carbon accounting strategies will be better positioned to lead in the transition to a low-carbon economy.

How to reduce scope 2 emissions

The GHG Protocol provides multiple mechanisms for reducing scope 2 emissions, allowing organizations to shift their energy consumption toward lower-carbon alternatives. These include:

• Reducing energy consumption: Improving energy efficiency in operations can significantly lower electricity use. In some cases, this involves capital investments in more energy-efficient equipment, but in other cases, it can be based on operational changes such as reducing unnecessary lighting, HVAC, and other services during non-working hours. (Electrification efforts, such as shifting from fossil fuel-powered systems to electric alternatives, may actually increase scope 2 emissions, but this can ultimately reduce overall emissions by correspondingly decreasing scope 1 emissions and allowing for renewable energy procurement.) 

• RECs: Companies can purchase unbundled RECs (emissions “attributes” separated from the actual electricity product) to offset emissions associated with purchased electricity. While there has been criticism of RECs due to their significant range in quality, high-quality RECs are available, which may include ensuring regional matching, financial additionality, on-line date additionality, or tighter temporal generation to consumption matching. The use of high-quality unbundled RECs is the most accessible and realistic option for most smaller-scale companies to address scope 2 emissions. 

• On-site generation and co-location: Installing on-site renewable energy generation, such as solar panels, allows companies to directly offset their electricity consumption from the grid. In some commercial settings, such as companies using leased real estate or co-located data centers, partnering with facilities that prioritize renewable energy procurement can help reduce scope 2 emissions for the facility owner while the facility occupant reduces scope 3 emissions. 

• Power Purchase Agreements (PPAs): Entering into long-term contracts with renewable energy providers ensures companies receive electricity from clean energy sources while supporting the expansion of renewable generation capacity. PPAs are available with standardized contract terms, and some service providers will aggregate demand from multiple smaller companies to reach the minimum required amount for typical PPA contracts. Hedging products are also available to reduce market risks.

• Green tariffs: Many utilities offer green tariffs that enable businesses to purchase renewable energy directly through their electricity provider, often at a premium but with lower emissions impact. For many smaller companies, this is a more viable approach than a PPA with a single renewable generator.

There are several pathways to reducing scope 2 emissions that are not yet recognized by the GHG Protocol. One example, zero-emission credits (ZECs) which incorporate nuclear power into a REC-like framework, are already permitted in certain jurisdictions, such as New York State. Similarly, carbon capture retrofits on existing power plants can significantly reduce emissions, and this would be reflected in the scope 2 location-based methodology. Both nuclear power and carbon capture are viable technical solutions for decarbonizing electricity generation and would benefit from greater clarity and explicit inclusion in the GHG Protocol.

Why does reducing scope 2 emissions matter?

Reducing scope 2 emissions is the underpinning of decarbonizing the power sector and enabling the global energy transition. S&P reported that corporate buyers contracted for 9.1 GW of renewable capacity in the US in 2024, illustrating the growing impact of the corporate sector on the electricity grid. A cleaner grid translates to lower emissions for all energy users. Organizations that actively reduce their scope 2 emissions can contribute to decreasing demand for fossil fuel-based electricity and accelerate the deployment of renewable energy infrastructure.

For companies that own and operate data centers, this transition is especially important. Data centers consume large amounts of electricity, and their reliance on purchased power makes them a significant source of scope 2 emissions. Since many businesses rely on third-party data center services, reducing emissions from these facilities also helps lower scope 3 emissions across industries. Corporates can influence data centers by requiring that they have a clear and explicit low-emission power strategy in place before procurement.

Beyond direct corporate benefits, reducing scope 2 emissions has a tangible long-term impact on the power grid. Increased investment in renewable energy procurement sends a strong market signal, encouraging utilities and developers to expand clean energy projects. As more companies commit to sourcing renewable energy, the overall mix of grid power shifts, making low-carbon electricity more accessible and reducing reliance on fossil fuel-based generation. Ultimately, widespread corporate action in scope 2 emissions reduction supports the broader decarbonization of power markets and strengthens global climate commitments.

Learn how Carbon Direct can assist your organization in measuring, reducing, and offsetting scope 2 emissions with our comprehensive carbon management services for data centers.