Location-Based Method (Scope 2)

Definition and GHG Protocol Basis

The location-based method is one of two methods defined by the GHG Protocol Scope 2 Guidance (2015) for quantifying Scope 2 emissions — the indirect greenhouse gas emissions from purchased electricity, steam, heat, and cooling consumed by the reporting company. Where the market-based method reflects emissions from electricity the company has contractually purchased through instruments such as EACs, PPAs, supplier-specific tariffs, or residual mix, the location-based method reflects emissions from electricity that physically flowed through the grids serving the company’s facilities.

The defining principle is grid-average attribution: every megawatt-hour consumed in a given grid region in a given year is assigned the same emissions intensity, regardless of who paid for which generation source. The factor is a population average — kilograms of CO₂-equivalent per kilowatt-hour generated within the geographic boundary, divided across all consumption inside that boundary. A site running on rooftop solar in California receives the same WECC-CAMX subregion factor as the warehouse next door drawing exclusively from a coal-heavy contract. The method is deliberately blind to procurement.

The location-based method covers all seven Kyoto Protocol gases — CO₂, CH₄, N₂O, HFCs, PFCs, SF₆, NF₃ — captured in upstream generation and converted to a common reporting unit using Global Warming Potential at AR6 GWP-100. Most regulator-published grid factors (DEFRA, EPA eGRID, IEA) ship as a single CO₂e value with the gas mix already aggregated; companies do not need to apply GWP conversion separately when using these published factors.

The Dual Reporting Requirement

The GHG Protocol Scope 2 Guidance (2015) introduced what it calls the dual reporting requirement: every reporting company that uses any market-based instrument — EACs, RECs, REGOs, GOs, PPAs, supplier-specific tariffs, green tariffs — must report both a location-based Scope 2 figure and a market-based Scope 2 figure. The location-based figure is the universal baseline; the market-based figure is the contractual overlay. Reporting one without the other for a company that participates in market-based instruments is non-compliant with the Scope 2 Guidance.

The rule has a narrow carve-out: a company operating exclusively in a market with no commercially available contractual instruments — and making no green-tariff or PPA claim — may report the location-based figure alone. In practice, this exception is shrinking; almost every major market (EU AIB, UK REGO, US REC, Asia-Pacific I-REC) supports tradable certificates, and the carve-out is rarely the right answer for a multinational reporter.

Factor Hierarchy — Which Grid Factor to Use

The GHG Protocol Scope 2 Guidance defines a factor selection hierarchy for the location-based method. The principle is geographic specificity first: use the most localised credible factor available, then fall back upward through the hierarchy as data thins. This applies one decision rule consistently across geographies — and prevents the silent over- or under-statement that occurs when a national average is used where a sub-national factor is published.

The four-tier hierarchy

1. Sub-national / regional grid factor — preferred where published. EPA eGRID subregions for the US (e.g. US_NYUP at 0.110 kg CO₂e/kWh vs US_SRMW at 0.566 kg CO₂e/kWh — a 5× difference inside one country). AIB residual mix factors for individual EU member states. State or provincial averages where the grid operator publishes them. Use this tier whenever a credible sub-national factor exists for the consumption location.
2. National grid average — the standard tier for most countries. DEFRA for the UK (0.131 kg CO₂e/kWh, DEFRA 2025). Ember Yearly Electricity 2025 country averages for everywhere else (0.330 for Germany, 0.670 for India, 0.041 for France). EPA national average for the US where subregion is unknown (0.350 kg CO₂e/kWh). National factors are the default for cross-country corporate inventories.
3. Regional / multi-country grid average — for synchronised areas where national-level data is missing or unreliable. ENTSO-E European average for cross-border EU consumption where supplier sourcing is opaque. African Power Pool averages for sub-Saharan operations not covered by IEA country data.
4. Default global factor — last-resort fallback for sites in countries with no published grid data. The IEA global average is used here, with explicit documentation that no better factor was available. This tier should appear only in screening exercises and edge cases, never as the default for material consumption.

Factor source by geography

Core Formula and Worked Examples

Every location-based Scope 2 calculation reduces to the same multiplication.

Worked examples — same load, different geography

The same 50,000 kWh annual office consumption produces a 70× emission delta depending on where it is consumed. This is why geographic factor selection dominates every other calculation decision in Scope 2.

MasterBrain v2025.6 factors throughout. Norway (1.40 tCO₂e) vs Poland (29.45 tCO₂e) on identical consumption demonstrates a 70× delta from grid mix alone — no procurement, no efficiency, no consumption change. The two US rows demonstrate the same point inside one country: NYUP vs SRMW differ by 5× because the US-national average masks underlying subregion variance. The district heating row applies the location-based method to purchased thermal energy under DEFRA’s blended UK heat-network factor.

T&D Losses — The Scope 3 Cat 3 Boundary

Grid factors published by regulators (DEFRA, EPA eGRID, IEA) are typically expressed at the generation gate, not at the meter. Between the power station and the consumer’s meter, electricity is lost as heat in transmission lines, transformers, and distribution networks. UK grid losses average approximately 8% of net consumption; US losses average 5–7%; some emerging-market grids exceed 15%. These losses are real emissions — generated to deliver the power that made it through — but they are not Scope 2 for the consumer.

Under the GHG Protocol, transmission and distribution losses associated with purchased grid electricity are Scope 3 Category 3 (Fuel- and energy-related activities) for the consuming company. The generator emitted them; the consumer’s Scope 2 captures the gross-generation factor; the gap between gross generation and net consumption is a Scope 3 Cat 3 sub-item.

Location-Based vs Market-Based — Critical Distinction

The two methods answer different questions about the same kilowatt-hours. The table below summarises the structural differences that drive the dual-reporting requirement.

Boundary and Classification Traps

Four configurations cause the majority of location-based misclassification errors at third-party verification. Each is symmetrical — the same emission can be assigned wrongly in either direction.

Trap 1 — On-site generation is Scope 1, not Scope 2

Electricity generated on-site by a company-owned source — diesel genset, gas turbine, on-site solar with no grid export — produces emissions that belong to Scope 1 (combustion or, for solar, zero) rather than Scope 2. Scope 2 is exclusively for purchased energy that crossed the company’s site boundary from an external grid. A common error: lumping the genset’s diesel combustion into Scope 2 because the output is electricity. The correct treatment is fuel input × fuel combustion factor → Scope 1; the resulting electricity is not double-counted in Scope 2.

Trap 2 — Behind-the-meter renewables reduce purchased kWh, not the grid factor

An on-site PV array supplying 30% of a site’s annual electricity consumption reduces the kWh purchased from the grid by 30% — the location-based Scope 2 figure falls proportionally. The remaining 70% is calculated at the unchanged grid factor. The error is to apply a “blended” lower factor to the full consumption figure, treating the PV as an emissions discount on grid power. The PV produces zero Scope 2 directly (it is on-site generation, see Trap 1); the grid-supplied portion uses the unmodified grid factor.

Trap 3 — Purchased steam, heat, and cooling are Scope 2, not Scope 1

Companies that buy district heating, district cooling, or process steam from a third-party utility frequently misclassify the consumption as Scope 1 because it “feels like fuel use”. It is not. Scope 1 covers fuel combusted by the company itself; purchased thermal energy is Scope 2 even though no fuel ever crossed the company’s boundary. The DEFRA UK district-heating factor (0.193 kg CO₂e/kWh thermal) and equivalent factors for steam and cooling apply on a per-kWh-thermal basis, multiplied by the consumed thermal energy — same multiplication structure as the electricity case, different unit and factor.

Trap 4 — Leased buildings and the operational control boundary

For a leased building, whether the electricity consumption is the lessee’s Scope 2 or the lessor’s depends on the organisational boundary approach — equity share, financial control, or operational control — chosen for the inventory as a whole. Under operational control (the most common choice), if the lessee company sets the energy procurement and pays the electricity bill, the consumption is the lessee’s Scope 2. If the lease is “all-in” with the lessor procuring electricity and recovering it through rent, the consumption is the lessor’s Scope 2 and the lessee’s Scope 3 Cat 8 (upstream leased assets). The boundary cannot diverge from the Scope 1 approach; the same building cannot be Scope 1 + Scope 2 under one lens and Scope 3 Cat 8 under another.

Regulatory and Framework Relevance

The location-based method is required by every major corporate disclosure framework. The market-based method is required wherever market-based instruments are claimed. The two together — dual reporting — is the unifying compliance thread.

Five Common Calculation Mistakes

1. Using a stale grid factor. Grid factors decarbonise year-on-year as renewable generation grows. The DEFRA UK grid factor fell from 0.20705 kg CO₂e/kWh (DEFRA 2024) to 0.177 kg CO₂e/kWh (DEFRA 2025) — a 15% reduction in one annual cycle, reflecting the cleaner UK grid mix. Companies still using the 2024 factor in their 2026 disclosure overstate Scope 2 by 17% (the inverse delta). The Scope 2 Quality Criteria require the most recent published factor for the consumption year; failing to update annually is a verification finding.
2. Reporting market-based only after signing renewable contracts. Once a company signs a PPA or starts retiring EACs, the market-based figure drops dramatically — often to near-zero. The temptation is to publish only that headline number. Dual reporting is non-negotiable: CSRD/ESRS E1, CDP, and SBTi all require both figures wherever market-based instruments are claimed. Publishing only the market-based number is a structural compliance failure, not a presentation choice.
3. Double-counting T&D losses inside Scope 2. Published grid factors (DEFRA, EPA eGRID, IEA) are gross-generation factors — they already capture upstream T&D-related emissions inside the supply mix. Grossing-up Scope 2 by an additional 8% for “transmission losses” double-counts. The correct treatment: Scope 2 uses the published factor unchanged; the T&D fraction of consumption is reported separately under Scope 3 Category 3b — not stacked onto Scope 2.
4. Applying a national factor where a sub-national factor exists. Using the US national average (0.350 kg CO₂e/kWh) for a site in Upstate NY (0.110) overstates emissions ~3×. Using the same national average for a site in the SERC Midwest (0.566) understates ~62%. Both errors trip the geographic-specificity Quality Criterion. Where EPA eGRID, AIB, ECCC, or another regulator publishes a sub-national factor, the sub-national factor is required.
5. Treating on-site generation as Scope 2 emissions reductions. A 100 kW rooftop PV array does not “reduce” Scope 2 by displacing grid electricity at the grid factor — it reduces the kWh purchased from the grid (which then × grid factor produces a smaller Scope 2 number). The PV’s own emissions are zero (or near-zero embodied in Cat 1). Companies that double-count by claiming both “PV generation × grid factor” as a reduction and the lower Scope 2 figure inflate their claimed reductions by exactly the PV output × grid factor.

Related Terms, Standards, and Tools

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