Electricity is the largest energy purchase for most manufacturers, and the Scope 2 calculation that follows from it looks deceptively simple: take the kilowatt-hours consumed, multiply by an emission factor, express the result in tonnes CO2 equivalent. The complication arrives when a company has purchased renewable energy certificates or entered a green tariff agreement. At that point, two valid and distinct emission factors could apply to the same kWh figure, and the GHG Protocol Corporate Standard requires reporting under both. Most companies report one. This is the most common root cause of Scope 2 discrepancies flagged during third-party verification.
What the Location-Based Method Actually Measures
Location-based Scope 2 uses the average emission factor for the electrical grid serving the facility. For a manufacturer in Singapore connected to the NEMS (National Electricity Market of Singapore), the relevant factor is the grid emission factor published annually by the Energy Market Authority. This factor reflects the actual mix of generation on the Singapore grid for the reporting period: predominantly natural gas combined cycle, with a smaller share of fuel oil and a growing contribution from solar imports and rooftop generation.
The calculation is straightforward: total electricity consumed in kWh, per billing period, per facility, multiplied by the applicable grid emission factor. The result is the Scope 2 figure as if no specific contractual arrangement existed. Every manufacturer in Singapore can produce this number from billing data alone. No certificate tracking is needed. No additional procurement records are required.
The limitation of the location-based method is that it does not reflect any purchasing decisions the company has made. A manufacturer that has spent several years procuring I-RECs (International Renewable Energy Certificates) looks identical to one that has not, under the location-based calculation.
What the Market-Based Method Actually Measures
Market-based Scope 2 takes a different premise. The method exists because electricity markets in many countries issue tradeable certificates representing the environmental attributes of a unit of renewable generation. By purchasing and retiring these certificates, a company makes a documented claim that it has financially supported the production of renewable electricity equivalent to its consumption.
In the Asia-Pacific region, the most common instrument is the I-REC. Each I-REC represents 1 MWh of electricity generated from a qualifying renewable source: solar PV, wind, small hydro, or others depending on registry rules. When a company retires I-RECs corresponding to its annual electricity consumption, it can report a market-based emission factor of zero for the covered portion.
For electricity not covered by any contractual instrument, the market-based method requires using the residual mix factor for the region. The residual mix represents the grid after removing environmental attributes already claimed by certificate holders. In most markets, the residual mix factor is higher than the simple grid average. This means companies that procure no instruments face a worse outcome under market-based accounting than under location-based, which is the economic signal the certificate market is designed to create.
When the GHG Protocol Requires Both
The GHG Protocol Scope 2 Guidance (2015) requires companies to report both figures when the two methods produce materially different results. The practical test is whether the difference would affect a user's understanding of the company's emissions profile. For a manufacturer holding I-RECs covering most of its electricity consumption, the market-based figure could be near zero while the location-based figure represents a substantial share of total footprint. These numbers tell very different stories about the same physical consumption.
CDP's climate questionnaire (question C8.2a) explicitly requests both market-based and location-based figures. If a company submits only one, CDP flags the response as incomplete. IFRS S2, effective for reporting periods beginning 1 January 2024, requires disclosure of Scope 1, 2, and 3 using measurement approaches consistent with the GHG Protocol Corporate Standard. Dual reporting for Scope 2 follows from that requirement wherever the distinction is material.
If a company holds no contractual instruments, both methods produce the same number. In that case, reporting a single figure is technically correct, with a note stating that market-based and location-based results are identical.
Instruments That Qualify for Market-Based Accounting
The critical question is whether the instrument actually transfers the environmental attribute. Not every arrangement labeled "green electricity" qualifies.
Instruments that qualify include:
- I-RECs retired in the company's name for the specific vintage year matching the consumption period, as evidenced by a retirement certificate from the APX TIGR registry or an equivalent recognized registry
- Green tariff agreements from utilities where the utility explicitly documents which certificates are being retired on the customer's behalf, with evidence of the retirement transaction
- Corporate power purchase agreements (PPAs) with renewable generators where the contract includes explicit attribute transfer and is supported by corresponding certificate retirement documentation
Instruments that do not qualify include:
- A utility's general statement that a percentage of its generation mix is renewable, without per-customer certificate documentation
- RECs purchased but not yet retired in the company's name
- RECs from a prior year applied retroactively to a different consumption period
- Paying a "green premium" on a utility invoice when no underlying certificate retirement has been documented
The test a verifier applies is direct: can the company produce retirement documentation showing the specific certificates, the retirement date, the beneficiary entity name, and the quantity? If not, the market-based reduction claim does not hold and the verifier reverts the figure to the location-based calculation.
Practical Data Requirements for Dual Reporting
Supporting both Scope 2 calculations requires two separate data streams flowing into the emissions accounting process.
For the location-based calculation, billing data is sufficient: meter identifier, consumption in kWh, billing period start and end dates, and the facility identifier. The emission factor comes from the published grid average for the relevant period.
For the market-based calculation, certificate documentation is required alongside the billing data. This means I-REC retirement records (or the equivalent for other instrument types), the vintage year of the certificates, the technology type, and the quantity retired. For each billing period, the calculation then separates: consumption covered by certificates uses the instrument factor; consumption not covered uses the residual mix factor.
For manufacturers with multiple facilities, certificates need to be allocated to specific meter accounts rather than applied as a company-wide total. A certificate purchased for "the whole company" needs to be distributed across sites to produce per-facility market-based figures. This allocation is a documented judgment that affects the per-site disclosure numbers.
The data collection gap that creates most Scope 2 reporting problems is not the billing data, which usually arrives reliably from the utility, but the certificate documentation. I-REC retirement records are managed through separate registries, on different timelines from the billing cycle, and often by a different person (procurement or legal, not the sustainability team). Building a process that collects both data streams together, before reporting season, resolves most dual-reporting failures before they start.
What This Does Not Resolve
Market-based Scope 2 accounting describes a financial and contractual choice. It does not reduce the physical carbon content of the electricity flowing through the grid. The grid emission factor stays the same regardless of how many manufacturers purchase I-RECs in a given year. Third-party verifiers accept market-based reductions when documentation is in order, but some disclosure reviewers are beginning to ask for both figures routinely, making the "market-based tells a better story" logic less automatic than it once was.
The decision to procure I-RECs, the choice of vintage year and technology type, the communication strategy around what the market-based number represents, and the determination of whether the residual mix factor is available for a given region: these are judgment calls that sit with sustainability and procurement teams. What accounting software can do is ensure that whichever instruments are procured, their documentation flows cleanly into the Scope 2 calculation and both numbers are produced from the same underlying data. The procurement strategy itself is a separate decision.