Key Points
- Scope 2 covers only indirect energy emissions from purchased electricity, steam, heating, and cooling consumed within the entity's operations.
- ESRS E1 (Disclosure Requirement E1-6) requires reporting of Scope 2 using both the location-based and the market-based method.
- For many service-sector and office-based companies, Scope 2 represents 40% to 60% of combined Scope 1 and Scope 2 totals.
- Choosing the wrong emission factors or omitting one of the two methods creates a data gap that the assurance provider will flag.
What is Scope 2 Emissions?
The GHG Protocol Corporate Standard defines Scope 2 as all indirect emissions from the generation of purchased or acquired energy that the entity consumes. The distinction from Scope 1 emissions is straightforward: if the entity burns the fuel on its own premises, that is Scope 1; if a utility or district heating provider generates the energy and the entity buys it, the resulting emissions are Scope 2.
The GHG Protocol Scope 2 Guidance (2015) introduced a dual-reporting requirement. The location-based method applies grid-average emission factors to the quantity of energy consumed, reflecting the carbon intensity of the local electricity grid. The market-based method uses emission factors derived from contractual instruments (energy attribute certificates, green tariff contracts, or power purchase agreements) to reflect the entity's purchasing decisions. Both figures must appear in the entity's GHG inventory. ESRS E1 Disclosure Requirement E1-6 mirrors this dual requirement for CSRD-reporting entities, mandating separate disclosure of location-based and market-based Scope 2 totals in the sustainability statement.
The GHG Protocol opened a public consultation on a revised Scope 2 standard in October 2025. A second consultation is expected in 2026, with a final standard targeted for 2027. Until the revision is adopted, the 2015 Guidance remains the operative reference.
Worked example: Rossi Alimentari S.p.A.
Client: Italian food production company, FY2025, revenue EUR 67M, IFRS reporter. Rossi operates two manufacturing plants (one in Emilia-Romagna, one in Puglia) and a refrigerated distribution centre near Milan. The company is a first-time CSRD reporter preparing its ESRS E1 disclosures.
Step 1 — Collect energy consumption data
Rossi's facilities team compiles electricity invoices from all three sites. The Emilia-Romagna plant consumed 8.2 GWh, the Puglia plant consumed 5.1 GWh, and the Milan distribution centre consumed 2.4 GWh. Total purchased electricity: 15.7 GWh. The Puglia plant also purchases district heating equivalent to 1,200 MWh per year.
Step 2 — Calculate location-based Scope 2 emissions
The team applies the Italian national grid emission factor of 0.257 kg CO2e per kWh (ISPRA, 2024 publication for reporting year 2023). Electricity: 15,700 MWh x 0.257 = 4,035 tonnes CO2e. District heating: 1,200 MWh x 0.198 kg CO2e per kWh (district heating factor for the Puglia network) = 238 tonnes CO2e. Total location-based Scope 2: 4,273 tonnes CO2e.
Step 3 — Calculate market-based Scope 2 emissions
Rossi holds Guarantees of Origin (GOs) covering 10,000 MWh of renewable electricity for the Emilia-Romagna plant and distribution centre. The remaining 5,700 MWh (Puglia plant) has no contractual instrument and defaults to the residual mix factor for Italy (0.466 kg CO2e per kWh, AIB residual mix 2024). GO-covered electricity: 10,000 MWh x 0 = 0 tonnes CO2e. Residual electricity: 5,700 MWh x 0.466 = 2,656 tonnes CO2e. District heating (no contractual instrument): 238 tonnes CO2e (same as location-based). Total market-based Scope 2: 2,894 tonnes CO2e.
Step 4 — Disclose both figures under ESRS E1-6
Rossi reports location-based Scope 2 of 4,273 tonnes CO2e and market-based Scope 2 of 2,894 tonnes CO2e. The difference of 1,379 tonnes reflects the renewable electricity procurement for two of three sites.
Conclusion: Rossi's dual Scope 2 disclosure is defensible because each figure traces to verifiable consumption data and documented emission factors, and the GO allocation follows the GHG Protocol Scope 2 Guidance hierarchy of contractual instruments.
Why it matters in practice
- Teams frequently report only the market-based Scope 2 figure (which tends to be lower when renewable energy certificates are held) and omit or bury the location-based figure. The GHG Protocol Scope 2 Guidance requires both methods to be reported. ESRS E1 Disclosure Requirement E1-6 reinforces this by mandating separate disclosure of each. Reporting only one method is incomplete under both frameworks.
- Guarantee of Origin certificates are sometimes applied to consumption volumes that exceed the certificate quantity or that fall outside the certificate's vintage year. The GHG Protocol Scope 2 Guidance specifies that contractual instruments must match the reporting period and the geographic market boundary. Mismatched certificates overstate the market-based reduction and produce a Scope 2 figure that the assurance provider cannot verify against the certificate registry.
Scope 2 emissions vs. Scope 1 emissions
| Dimension | Scope 2 | Scope 1 |
|---|---|---|
| Source | Indirect: generated by a third-party energy provider | Direct: generated from sources the entity owns or controls |
| Typical examples | Purchased electricity, district heating, purchased steam and cooling | On-site combustion (boilers, furnaces), company vehicles, process emissions |
| Calculation method | Dual: location-based and market-based required | Single: direct measurement or emission factor applied to fuel consumed |
| Reduction levers | Switch to renewable tariffs, purchase GOs or RECs, install on-site generation | Fuel switching, electrification, process efficiency |
| ESRS disclosure | E1-6 requires both methods reported separately | E1-6 requires total Scope 1 in tonnes CO2e |
The distinction matters on an engagement because misclassifying on-site cogeneration or captive solar output between Scope 1 and Scope 2 changes both figures. If the entity generates electricity on-site and consumes it, those emissions are Scope 1. If the entity sells excess generation to the grid and buys back from the grid, the bought-back portion is Scope 2.
Related terms
Frequently asked questions
What is the difference between location-based and market-based Scope 2?
The location-based method multiplies energy consumed by the grid-average emission factor, reflecting the physical carbon intensity of the local electricity supply. The market-based method uses emission factors from contractual instruments (such as Guarantees of Origin or power purchase agreements) to reflect the entity's purchasing choices. The GHG Protocol Scope 2 Guidance (2015) requires reporting both.
Do I include Scope 2 emissions in my GHG reduction target under ESRS E1?
Yes. ESRS E1 paragraph 44 requires the entity to state whether the Scope 2 figure in its reduction target uses the location-based or market-based method. The choice affects the target baseline and the measured reduction, so the method must be disclosed and applied consistently across reporting periods. Switching methods mid-target without restating the baseline creates a comparability gap.
Does the GHG Protocol Scope 2 Guidance apply to district heating and steam?
Yes. Scope 2 covers all purchased or acquired energy, not only electricity. District heating, district cooling, and purchased steam all fall within Scope 2. The entity applies the same dual-method approach: a location-based factor for the heating network and (where available) a market-based factor from any contractual instrument tied to the heat supply.