What are Scope 2 emissions?

Scope 2 emissions are indirect greenhouse gas (GHG) emissions from the generation of purchased energy that an organization consumes. This includes electricity, heat, or steam produced by a third party, like a utility company. These emissions are calculated using either a "location-based" method (based on the local grid's average) or a "market-based" method (based on specific energy contracts, like renewable energy purchases).

Measuring and reporting greenhouse gas emissions has become an essential component of corporate environmental, social, and governance (ESG) strategies. In particular, Scope 2 emissions are a critical area for companies to focus on when it comes to corporate responsibility in carbon accounting.

How Are Scope 2 Emissions Calculated? (Location vs. Market-Based)

Scope 2 emissions can be split into two calculation categories:

• Location-based emissions: These are calculated using the average emissions factor of the electricity grid where the company operates. This method reflects the carbon intensity of the local energy supply.
• Market-based emissions: This method considers the specific electricity an organization has chosen to buy, often through contractual instruments like Renewable Energy Certificates (RECs). It allows a company to get credit for actively choosing low-carbon energy.

What Are Some Examples of Scope 2 Emissions?

Scope 2 emissions include the indirect GHG emissions that result from the purchase of energy used in operations. Common examples include:

• Purchased Electricity: Most businesses purchase electricity from utility companies to power their offices, factories, and data centers. The emissions generated to produce this electricity are Scope 2.
• Purchased Heat or Steam: Some businesses purchase heat or steam from external district heating or co-generation plants. The emissions from generating this thermal energy are also Scope 2.

Why Is It Important to Track Scope 2 Emissions?

Reporting on Scope 2 emissions is important for several key business reasons:

• Regulatory Compliance: Many jurisdictions now require companies to report their GHG emissions, including Scope 2. Accurate tracking ensures compliance and avoids potential penalties.
• Stakeholder Expectations: Investors and customers increasingly demand transparency on sustainability. Reporting Scope 2 emissions meets these expectations and builds trust.
• Cost Savings: Tracking energy use to calculate Scope 2 emissions helps identify opportunities for efficiency improvements, leading to lower energy bills and long-term cost savings.
• Competitive Advantage: A demonstrated commitment to reducing Scope 2 emissions can differentiate a company, appealing to environmentally-conscious customers and investors.