Scope 2 market-based vs. location-based: a guide for businesses
Direct answer
Scope 2 covers the indirect emissions from purchased energy, mainly electricity. The Greenhouse Gas Protocol prescribes two calculation methods: location-based uses the average emissions of the electricity grid, market-based uses the electricity you contractually purchase, evidenced by Guarantees of Origin. Companies reporting under the protocol disclose both figures side by side.
- Clear definition
- Data-driven assessment
- Risks and opportunities visible
- Practical next steps
Scope 2 market-based vs. location-based: scattered information versus Energy Intelligence
Anyone compiling a carbon footprint immediately faces a choice for electricity. Suppose your company consumes one million kilowatt hours and buys Dutch wind power. Does that electricity count as nearly zero, or do you include the coal and gas plants feeding the same grid? In 2015 the GHG Protocol turned both answers into a method of their own and made both mandatory. Facility managers, controllers and sustainability leads encounter the two methods in the CSRD, the Dutch CO2 Performance Ladder and customer questionnaires.
- Location-based uses the average emissions of all electricity production in the Netherlands; your energy contract does not change this figure.
- Market-based follows what you buy: green electricity backed by Guarantees of Origin counts low, purchases without proof of origin get the grey electricity factor or the residual mix.
- The gap between the two figures is exactly the effect of your procurement choices; European CSRD reporting therefore also requires both methods.
Insight
Traditional approach
Information is scattered across portals, documents, invoices or separate spreadsheets.
Modern approach
Data, context and interpretation are brought together into a clear decision picture.
Decision-making
Traditional approach
Choices are made based on averages, assumptions or occasional analyses.
Modern approach
Scenarios, KPIs and current measurement data make the trade-off more concrete and repeatable.
Follow-up
Traditional approach
Actions often stay non-committal or disappear into separate reports.
Modern approach
Follow-up actions, monitoring and reporting are linked to the same energy data.
How do the two methods work?
The location-based method multiplies every kilowatt hour you consume by the average emission factor of the grid you are connected to. For the Netherlands that is the average of total Dutch electricity production; the current factor is published on CO2emissiefactoren.nl. Your contract is irrelevant in this method: two neighbours with the same meter reading get the same figure. The market-based method calculates with what you contractually purchase. The evidence is the Guarantee of Origin: a certificate for one megawatt hour of renewable electricity, issued in the Netherlands by VertiCer. If you buy wind power with GOs, you use the low factor for wind power. Without proof of origin, you do not use the regular grid mix but the residual mix: the mix that remains after all claimed GOs have been removed.
- Location-based: one average factor for everyone on the grid, regardless of the energy contract.
- Market-based: the factor follows your electricity label and your Guarantees of Origin.
- One GO represents one megawatt hour and proves the origin of the electricity.
- Purchases without proof of origin get the residual mix, so the same green power is not counted twice.
- The GHG Protocol sets eight quality criteria for contractual instruments in the market-based method.
When do you use which method?
You do not choose between the methods. The GHG Protocol requires reporting both outcomes wherever a functioning market for proofs of origin exists, and it does in the Netherlands. European CSRD reporting also requires scope 2 both ways, through standard ESRS E1. The two figures answer different questions. Location-based shows the emissions physically associated with the grid you run on and makes companies comparable. Market-based shows what your contracts change and is therefore the method most companies steer their reduction targets on: this is the figure you can lower yourself by buying differently. The location-based figure only falls when the entire Dutch electricity mix becomes greener. Each May, your supplier publishes an electricity label showing the origin of the power delivered over the previous year.
- Reporting under the GHG Protocol or the CSRD means disclosing both figures side by side.
- Use location-based for comparability and the physical reality of the grid.
- Use market-based to steer reduction targets through your procurement contracts.
- Your supplier's electricity label appears in May, covering the previous calendar year.
What is the criticism of the market-based method?
The main criticism is that a GO enables greening on paper without adding renewable production. Foreign GOs in particular, for example from existing hydropower plants, are so cheap that the revenue barely encourages producers to invest. Dutch accounting practice therefore often counts foreign green electricity simply as grey; the Dutch CO2 Performance Ladder even requires this approach. Dutch GOs do provide producers with a meaningful contribution and thus support the growth of renewable electricity in the Netherlands. Double counting is a second risk. The system addresses it with the residual mix from certificate association AIB and with a hard rule: solar power you feed back to the grid cannot be netted against purchased grey electricity if the GO was sold along with it. The GHG Protocol is working on a revision of the Scope 2 Guidance; a public consultation ran until early 2026.
- Cheap foreign GOs give producers little incentive for new renewable projects.
- The Dutch CO2 Performance Ladder requires counting foreign green electricity as grey.
- The residual mix prevents the same megawatt hour from counting as green at two companies.
- Solar power you feed back does not green your purchased electricity if the GO was sold with it.
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