Key Points
- Location-based uses grid-average emission factors; market-based uses factors from contractual instruments such as Guarantees of Origin.
- ESRS E1 paragraph 49 requires entities to report Scope 2 using both methods separately.
- The market-based figure can be 30% to 80% lower than the location-based figure when renewable energy certificates cover most consumption.
- Use the location-based method to show physical grid dependency and the market-based method to show procurement decisions.
Side-by-side comparison
| Dimension | Location-based | Market-based |
|---|---|---|
| Emission factor source | Grid-average factor for the region where electricity is consumed (national or sub-national) | Factor from a contractual instrument: GO, REC, PPA, green tariff, or (as fallback) the residual mix |
| What it measures | Physical carbon intensity of the grid supplying the entity | The entity's energy purchasing decisions and their emission consequences |
| When the figure is zero | Never (unless the grid itself is zero-carbon) | When contractual instruments cover 100% of consumption with zero-emission sources |
| Sensitivity to procurement action | None; switching to a green tariff does not change the location-based figure | Direct; every GO or PPA certificate reduces the market-based total |
| Residual mix fallback | Not applicable | Required for any consumption volume not covered by a qualifying instrument (AIB European Residual Mixes or equivalent) |
| GHG Protocol hierarchy | Single factor source: grid-average from national or regional authority | Tiered: direct contracts first, then certificates, then supplier-specific factors, then residual mix |
Decision rule: Report location-based Scope 2 to show the physical carbon intensity of the grid the entity depends on. Report market-based Scope 2 to show the emission consequence of the entity's energy procurement choices. Under ESRS E1 and the GHG Protocol, both figures are mandatory.
What is Location-Based vs Market-Based Emissions?
The two methods produce different Scope 2 totals for any entity that holds renewable energy certificates or operates under a green tariff. That divergence creates a concrete assurance problem. If the entity sets its GHG reduction target against market-based Scope 2 (common because the figure is lower and responds to procurement action), the assurance provider must verify that every contractual instrument is valid, matches the reporting period, and covers the claimed consumption volume. ESRS E1 paragraph 44 requires disclosure of total GHG emissions, and paragraph 49 specifies that the Scope 2 component must appear as both location-based and market-based figures.
An entity that reports only the market-based figure (a frequent shortcut) produces an incomplete sustainability statement. The CSRD assurance provider performing a limited assurance engagement flags the omission because the disclosure requirement is explicit.
Worked example: Henriksen Shipping A/S
Client: Danish maritime logistics company, FY2025, revenue EUR 140M, IFRS reporter, first-time CSRD reporter. Henriksen operates a corporate headquarters in Copenhagen, two warehouse terminals (Aarhus and Hamburg), and a fleet of owned vessels. Scope 2 covers the shore-side electricity at all four sites (vessels burn fuel directly, which falls under Scope 1).
Location-based calculation
Step 1 — Collect consumption data: Copenhagen HQ consumed 1,400 MWh, Aarhus terminal 6,200 MWh, and Hamburg terminal 4,800 MWh. Total purchased electricity: 12,400 MWh. No district heating or cooling is purchased.
Step 2 — Apply grid-average emission factors: Denmark grid factor (Energinet, 2024 publication): 0.108 kg CO2e/kWh. Germany grid factor (UBA, 2024 publication): 0.380 kg CO2e/kWh. Copenhagen and Aarhus: 7,600 MWh x 0.108 = 821 tonnes CO2e. Hamburg: 4,800 MWh x 0.380 = 1,824 tonnes CO2e. Total location-based Scope 2: 2,645 tonnes CO2e.
Market-based calculation
Step 3 — Identify contractual instruments: Henriksen holds Guarantees of Origin covering 8,000 MWh of Danish wind power for the Copenhagen and Aarhus sites. The Hamburg terminal has no contractual instrument.
Step 4 — Calculate market-based Scope 2: GO-covered consumption (Denmark): 7,600 MWh x 0 = 0 tonnes CO2e (the GOs cover the full Danish consumption of 7,600 MWh, with 400 MWh of unused certificates). Remaining GOs (400 MWh) cannot be applied to the Hamburg site because the GHG Protocol Scope 2 Guidance requires instruments to match the market boundary. Hamburg (no instrument, residual mix): 4,800 MWh x 0.601 kg CO2e/kWh (AIB German residual mix, 2024) = 2,885 tonnes CO2e. Total market-based Scope 2: 2,885 tonnes CO2e.
Conclusion: Henriksen's location-based Scope 2 is 2,645 tonnes CO2e and its market-based figure is 2,885 tonnes CO2e. The market-based figure is higher in this case because the Hamburg residual mix factor (0.601) exceeds the German grid average (0.380), illustrating that the market-based method does not always produce a lower number. If the practitioner had applied the grid-average factor instead of the residual mix for the uncovered Hamburg volume, the market-based figure would be understated by 1,061 tonnes.
Why it matters in practice
- Entities frequently apply the grid-average emission factor to uncovered consumption when calculating the market-based figure. The GHG Protocol Scope 2 Guidance Chapter 7 specifies that the residual mix factor (which strips out energy already claimed via contractual instruments) must be used for any consumption not backed by a qualifying instrument. Using the grid average instead of the residual mix double-counts the renewable energy claimed by certificate holders elsewhere on the same grid.
- Teams sometimes apply Guarantees of Origin or RECs across national borders without checking whether the instrument matches the market boundary. The GHG Protocol Scope 2 Guidance defines market boundaries as the geographic area within which a contractual instrument can be reasonably claimed. Applying Danish GOs to German consumption violates this boundary rule and inflates the market-based emission reduction.
Related terms
Frequently asked questions
What is the difference between location-based and market-based Scope 2 emissions?
Location-based Scope 2 multiplies energy consumed by the grid-average emission factor for the region, reflecting the physical carbon intensity of the local electricity supply. Market-based Scope 2 uses emission factors from contractual instruments (Guarantees of Origin, RECs, PPAs, or green tariffs) to reflect the entity's purchasing choices. The GHG Protocol Scope 2 Guidance (2015) and ESRS E1 paragraph 49 require both.
Do I have to report both methods under the CSRD?
Yes. ESRS E1 Disclosure Requirement E1-6 paragraph 49 explicitly requires disclosure of gross Scope 2 GHG emissions using both the location-based and the market-based method. Reporting only one method produces an incomplete sustainability statement that the assurance provider will flag as a missing mandatory datapoint.
Will the revised GHG Protocol Scope 2 standard change how I calculate market-based emissions?
The GHG Protocol's public consultation (October 2025 to January 2026) proposed requiring hourly matching of certificates to consumption and limiting contractual instruments to deliverable sources on the same grid. A second consultation is expected in 2026, with the final standard targeted for 2027. Entities should monitor the revision but continue reporting under the 2015 Guidance until the new standard takes effect.