Scope 2 Location-Based vs Market-Based: Which Method to Use (and When)
The GHG Protocol Corporate Standard requires both methods to be reported wherever market-based instrument data is available. Most practitioners can recite the definitions but get stuck the moment a CSRD auditor asks why the two numbers diverge — or whether their REGOs would survive an additionality test, or why their market-based figure is higher than their location-based one despite no procurement changes.
This page resolves the decision, not just the difference. It surfaces the design intent each method optimises for, the four divergence patterns auditors recognise on sight, and the diagnostic table that tells you what your delta actually means.
Location-based uses the average grid emission factor for your geography; market-based uses supplier-specific factors driven by EACs, PPAs or the residual mix. Under the GHG Protocol you report both wherever market instruments exist.
The one-line definitions — and what each method optimises for
Both methods quantify the same physical electricity consumption. They diverge on which emission factor they apply to that consumption — and they exist in parallel because they answer two distinct accounting questions, neither of which is more correct than the other.
- Location-based — applies the average emission factor of the grid your facility is connected to. Sources: Ember national factors, DEFRA conversion factors, US EPA eGRID subregions. Optimises for physical-grid honesty: you cannot offset your way out of a coal grid. The figure moves only when the underlying grid decarbonises, when you reduce consumption, or when you relocate operations.
- Market-based — applies a supplier-specific factor reflecting the contractual instruments you have purchased: EACs (RECs, GOs, REGOs, I-RECs), PPAs, green tariffs, or — when none of those cover a unit of consumption — the residual mix factor for that grid. Optimises for procurement signal: you can move corporate money toward clean generation, and the figure responds. The figure moves with EAC retirements, PPA contracts, and supplier switching — not with grid evolution.
The 2015 Scope 2 Guidance recognised that where your electrons come from physically (location) and what you have contracted to buy (market) are two legitimate but distinct accounting questions. Both must be answered. The dual-reporting rule is not redundancy — it is the regulator’s way of preventing companies from picking the more flattering number while concealing the other.
Side-by-side comparison
| Dimension | Location-based | Market-based |
|---|---|---|
| What it optimises for | Physical-grid honesty | Procurement signal |
| Data source | Grid average (Ember, DEFRA, EPA eGRID) | Supplier EACs, PPAs, residual mix |
| What changes the number | Grid decarbonisation, consumption reduction, site relocation | EAC retirement, PPA contracts, supplier switching |
| GHG Protocol requirement | Always required | Required where instrument data is available |
| Default when no EAC? | — | Residual mix factor (typically higher than grid average) |
| Can show zero emissions? | No | Yes, if EACs meet quality criteria (vintage, geography, additionality) |
| SBTi target setting | Acceptable as baseline; less manipulable | Acceptable with quality-criteria evidence (additionality scrutinised) |
| CSRD / ESRS E1 | Required (Datapoint E1-6) | Required (Datapoint E1-6) |
| CDP Climate Change | Required (C6.3) | Required (C6.3 and C6.5 EAC disclosure) |
| ISO 14064-1 | Acceptable | Acceptable; auditor preference for dual |
| Audit difficulty | Low — public factor sources | High — instrument provenance required |
| UK SECR primary basis | Yes | Disclosed alongside |
When the two numbers diverge — four patterns
Location-based and market-based produce identical numbers only when no EACs are held and no residual mix is published for the grid — at which point the market-based factor collapses to the location-based one for that share of consumption. Every other case produces divergence. Auditors recognise four patterns on sight, and they correspond to four very different procurement realities.
The cards below use a fixed annual consumption of 1 GWh (1,000,000 kWh) to make each pattern concrete. All location-based factors render live from the MasterBrain.
Market-based ≈ 0, Location-based moderate
LB: ~177 tCO₂e per GWh.
MB with 100% valid REGOs covering full load: potentially ~0 tCO₂e — only if REGOs meet vintage, geography, and additionality criteria. The headline-friendly case, but the one auditors scrutinise hardest.
Market-based > Location-based
LB: ~177 tCO₂e per GWh.
MB with no EACs, residual mix applied: ~200 tCO₂e per GWh. The Ofgem residual mix is structurally higher than the grid average because cleaner generation has been EAC-claimed by other parties. Doing nothing makes your market-based figure worse, not equal.
Both numbers low, small delta
LB-equivalent: ~41 tCO₂e per GWh — already among the cleanest grids in Europe (~70% nuclear).
MB with EACs: the additional reduction is small. EAC procurement in France is rarely the highest-impact decarbonisation lever; consumption reduction usually beats certificates.
Maximum divergence with bundled PPA
LB-equivalent: ~670 tCO₂e per GWh.
MB with bundled solar PPA covering full load: potentially near zero. The delta — up to 670 tonnes per GWh — is what makes Indian PPA disclosure such a high-stakes item under CSRD and the deepest additionality-test territory.
The pattern is consistent across the Ember dataset: divergence scales with grid carbon intensity. Companies operating in coal-heavy grids (Poland at 0.591 kg CO₂e/kWh lifecycle [GreenCalculus grid.pol.electricity.lifecycle_intensity · EMBER 2025] intensity) or India see the largest market-based reductions from EAC procurement. Companies in Norway (0.028 kg CO₂e/kWh [GreenCalculus grid.nor.electricity.lifecycle_intensity · EMBER 2025], ~99% hydro) or Switzerland already operate near the floor — there is little room for market-based to move the number further. Pattern 2 is the underrated case: any company in any market that holds no EACs and reports market-based equal to location-based is silently mis-stating. The correct fallback is the residual mix factor, which is always at or above the grid average.
For the full national factor set, see Grid Electricity Emission Factors. For UK-specific detail, see DEFRA Emission Factors.
Diagnostic: what your delta actually means
Once both numbers are calculated, the relationship between them is itself a signal. The table below is the diagnostic instrument auditors and assurance teams use mentally — and the one most internal sustainability teams reconstruct from first principles every reporting cycle.
| What you observe | What it means | What to check next |
|---|---|---|
| LB went down YoY, MB unchanged | Underlying grid decarbonised. Your procurement portfolio is unchanged. | Confirm DEFRA / Ember / EPA factor refresh. Re-state baseline if material per restatement policy. |
| MB went down YoY, LB unchanged | Procurement changed — new EACs, new PPA, supplier switch. Grid hasn’t moved. | Verify EAC retirement records and quality criteria. Check additionality narrative for any new instruments. |
| MB > LB by 10–15% most common audit flag | You hold no EACs (or fewer than your consumption) and residual mix is being applied to the uncovered portion. Mathematically expected, not an error — but commonly mis-reported as MB = LB. | Confirm residual mix factor source (Ofgem / AIB / Green-e) and vintage. Document why no EACs are held if a procurement decision. |
| MB ≈ 0, LB substantially > 0 | EACs cover ≥1 MWh per MWh consumed. The headline-friendly case. | Stress-test additionality: are EACs from new-build assets or pre-2010 hydro? Auditors increasingly distinguish. |
| MB and LB differ by >50% | Either deep procurement coverage (legitimate) or methodology error (frequent). The size of the delta itself triggers extra scrutiny. | Walk through every Tier 1–4 instrument with retirement evidence. Confirm geographic-market match per Quality Criterion 4. |
| MB = LB exactly | Methodology error 9 times out of 10 — defaulting to grid average instead of residual mix when no EACs are held. The honest “MB = LB” case (no EACs, no residual mix published) is rare. | Apply the §5 hierarchy strictly. If you fall to Tier 5 with no published residual mix, document this in the methodology narrative. |
The single most common Scope 2 audit finding is row 6: companies reporting market-based equal to location-based without any EAC instruments held, on the assumption that “no contract = use the grid factor.” The correct fallback is the residual mix factor, which is always at or above the grid average in any market with EAC retirement activity. This silently understates emissions and is caught at first independent verification.
The GHG Protocol hierarchy of evidence
The 2015 Scope 2 Guidance defines a five-tier quality hierarchy for market-based factors. Practitioners should apply factors in this order, falling back only when the higher tier is unavailable:
- Energy attribute certificates or equivalent (RECs, GOs, REGOs, I-RECs) — the supplier-specific instrument. Must satisfy the Scope 2 Guidance quality criteria below.
- Contracts — direct procurement contracts (PPAs, green tariffs) where instrument transfer is contractually bundled.
- Supplier-specific emission rate — utility-published rate for your specific tariff or product, where the supplier has retired EACs on your behalf.
- Residual mix factor — the grid-average factor with all sold EACs subtracted out. Used for any consumption not covered by a higher-tier instrument.
- Other grid-average factor — only when no residual mix is published for the relevant market. This collapses market-based to the location-based number for that share of consumption.
The hierarchy is the reason “buying RECs” without scrutiny is no longer defensible. CSRD auditors increasingly check that EACs meet the Scope 2 Guidance quality criteria — vintage, geography, instrument-and-claim-not-double-counted, and (for any sustainability claim) additionality. See EAC quality criteria and residual mix factor for the underlying definitions.
Regulatory requirement matrix
Compliance officers need to know exactly which framework requires which method, and whether dual reporting is mandatory or optional. The matrix below resolves the six frameworks practitioners encounter most.
| Framework | Location-based | Market-based | Dual disclosure? |
|---|---|---|---|
| GHG Protocol Corporate Standard | Required | Required where instrument data exists | Mandatory |
| CSRD / ESRS E1 | Required | Required | Mandatory (E1-6) |
| CDP Climate Change | Required (C6.3) | Required (C6.3 + C6.5 EAC disclosure) | Mandatory; AR6 GWP from 2023 cycle |
| SBTi Corporate Net-Zero Standard v1.1 | Acceptable as baseline | Acceptable with quality-criteria evidence | Both submitted at validation |
| ISO 14064-1 | Acceptable | Acceptable | Auditor-preferred |
| UK SECR | Primary disclosure basis | Optional supplementary | Encouraged, not mandated |
Under CSRD/ESRS E1, dual disclosure is not optional. Datapoint E1-6 (gross GHG emissions) explicitly requires both location-based and market-based gross Scope 2 figures in tCO₂e for in-scope undertakings. CDP C6.3 has required dual since the 2017 cycle. A company reporting only one method is non-compliant regardless of which method is more flattering — and CDP scoring penalises selective disclosure directly.
Decision: which method should you lead with?
Both methods get reported. The practical question is which one anchors your headline disclosure, your internal target, and your investor narrative. The decision tree below resolves the four common cases.
Valid EACs ≥1 MWh per MWh consumed
Lead with market-based. Your contracted supply is the more accurate representation of your procurement decisions. Report location-based alongside per GHG Protocol. Stress-test EAC additionality before the assurance engagement.
No EACs / no functioning EAC market in jurisdiction
Location-based only is acceptable. The GHG Protocol explicitly allows location-based-only disclosure where instrument data is absent. Document the carve-out in the methodology narrative; reassess annually as EAC schemes expand.
Filing under CSRD
Both required. ESRS E1-6 is non-negotiable. Internal narrative leads with whichever the board has set as the disclosed metric — but both numbers appear in the disclosure, with the EAC quality narrative for any market-based claim.
Setting an SBTi target
Either acceptable; choose with intent. SBTi v1.1+ accepts both methods for baseline-setting and progress tracking, with quality-criteria checks on market-based instruments and an additionality overlay on EAC-backed targets. Many practitioners still default to location-based for the baseline because it is harder to manipulate and survives EAC market shifts — but this is best-practice convention, not SBTi requirement. Pick deliberately and document the choice.
What auditors actually check
Any company can claim “we use 100% renewable energy.” Surviving an assurance engagement is a different exercise. The three checks below are what a Big-4 verifier will run on your market-based disclosure under ISAE 3410 or AA1000AS — and what CSRD reasonable assurance is moving toward.
- Vintage matching. EACs must be retired in the same reporting year as the consumption they offset. A 2024-vintage REGO retired against 2025 consumption fails. Auditors check the registry retirement date against the consumption period.
- Geographic matching. EACs must come from the same market boundary as the consumption — REGO scheme for UK, AIB area for EU member states, NERC region for US RECs. A French Guarantee of Origin cannot be used to offset UK consumption (REGO and AIB are separate schemes since UK departure from the EU energy market). The Scope 2 Guidance defines markets by certificate-scheme boundary, not physical proximity.
- Additionality evidence. For any “100% renewable” or zero-emissions sustainability claim, auditors now ask whether the underlying generation would have occurred without your purchase. Standalone unbundled EACs from existing hydro frequently fail this check. PPAs from new-build, post-2015-commissioning assets typically pass.
Companies that lose market-based figures during assurance usually lose them on point three — additionality. The conservative response is to disclose market-based as “with retired instruments” rather than “renewable” until the additionality test is documented per GHG Protocol and ESRS E1 requirements.
Common mistakes
Treating REGOs as zero-carbon without checking additionality or residual mix. Buying unbundled REGOs from existing UK hydro and reporting market-based emissions as zero is exactly the practice CSRD assurance is designed to flag. The instruments are real; the claim of additional renewable generation is not.
Five other failure modes appear repeatedly in inventory reviews:
- Defaulting to location-based when no EAC is held. The market-based fallback is the residual mix factor — not the grid average. UK residual mix is structurally higher than the DEFRA grid factor (illustratively ~0.200 vs 0.131 kg CO₂e/kWh [GreenCalculus grid.gbr.electricity.location_based]) because cleaner generation has been EAC-claimed elsewhere. Reporting MB = LB on uncovered consumption silently understates emissions.
- Reporting market-based only. Non-compliant with GHG Protocol Corporate Standard wherever instrument data exists. CSRD auditors will issue a qualified opinion; CDP will penalise the score.
- Using location-based factors inside a market-based inventory. Mixing the two methods within a single Scope 2 figure produces a number that is neither location nor market — and is not auditable. Each method must be calculated separately, then both reported.
- Confusing Scope 2 market-based with Scope 3 Category 3. Upstream transmission and distribution losses are Scope 3 Category 3 (Fuel- and Energy-Related Activities), not Scope 2. The market-based instrument addresses the generation factor, not the T&D loss factor.
- Applying EACs across markets. Cross-border EAC use without explicit interconnector evidence is rejected under CSRD reasonable assurance. The Guidance is moving toward stricter geographic granularity — country-of-issuance match for material claims.
Calculate yours
Run both methods on your actual consumption.
Our Scope 2 Electricity Calculator returns both location-based and market-based figures for any country or US eGRID subregion, using live Ember, DEFRA, and EPA factors from the MasterBrain.
FAQ
No. Market-based optimises for procurement signal — it shows the impact of your contractual decisions. Location-based optimises for physical-grid honesty — it shows your physical exposure to grid carbon and does not respond to certificates. The two answer different questions and the GHG Protocol requires both wherever instruments are available. Location-based is preferred for SBTi baselines by convention because it is harder to manipulate and survives EAC market shifts, but SBTi v1.1+ accepts either with quality-criteria evidence.
The residual mix is the grid-average emission factor recalculated after subtracting all generation that has been sold via EACs. It is the correct factor to apply to any unit of consumption not covered by a higher-tier market instrument — and it is structurally higher than the grid-average factor because the cleaner generation has already been claimed by other parties. Published annually by AIB for AIB-member countries, by Ofgem for the UK, and by Green-e for the US voluntary market. Where no residual mix is published, market-based collapses to the location-based factor for that share of consumption.
You hold no EACs (or fewer EACs than your consumption) and the residual mix factor has been correctly applied to the uncovered portion. The residual mix is always at or above the grid average in any market with active EAC retirement, because the cleaner generation has been EAC-claimed by other parties. This is the single most common source of confusion among first-time dual-disclosure preparers — and it is mathematically expected, not an error. The fix is not to revert to the grid average; it is to either acquire EACs or accept the residual mix figure as the honest market-based number.
Only if the PPA includes contractual transfer of the EACs. A “virtual” or financial PPA without EAC transfer does not change your Scope 2 market-based figure — the underlying generator’s certificates may have been sold to someone else. Verify the EAC retirement record before claiming the PPA reduction. Additionality scrutiny under SBTi target validation is tightening for PPAs from existing assets; new-build, post-2015-commissioning PPAs typically pass.
You report both under both. CSRD/ESRS E1-6 requires dual disclosure. SBTi v1.1+ accepts either method for baseline and progress, with quality-criteria evidence on market-based and additionality overlay at validation. Common practice: set absolute targets on location-based (harder to manipulate, survives EAC market shifts), track procurement progress on market-based, disclose both under CSRD. There is no choice between frameworks — they overlap in scope.
Annually for most jurisdictions. DEFRA updates UK conversion factors each summer; the IEA refreshes its national grid factors in its annual Global Energy Review; the US EPA publishes eGRID subregion factors on a biennial cycle with an 18-month data lag. Year-on-year changes can be material: the DEFRA UK grid factor fell 15% in one cycle (DEFRA 2024 = 0.20705 → DEFRA 2025 = 0.177 kg CO₂e/kWh) reflecting cleaner grid mix. The Scope 2 Quality Criterion on vintage match is binding; failing to update annually is a verification finding regardless of which direction the factor moves. Factors on this site update automatically when the underlying source publishes — see Grid Electricity Emission Factors for the current dataset.