Scope 2 emissions

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. 

What are scope 2 emissions?

Scope 2 emissions refer to indirect greenhouse gas (GHG) emissions that result from the generation of purchased electricity, heat or steam. These emissions are produced by sources that are owned or controlled by another entity, but are consumed by the reporting entity. They can be split into two categories; location-based and market-based emissions: 

Location-based emissions

These are calculated based on the average emission factor of the electricity grid where the organization operates. It takes into account the emissions associated with the generation of electricity in a specific geographical area. This approach assumes that organizations are responsible for emissions corresponding to the average grid emissions in their location.

Market-based emissions

These take into consideration the specific contractual instruments used by an organization to procure electricity. It accounts for the emissions associated with the electricity generated specifically for the organization, including any renewable energy certificates (RECs). This approach allows organizations to take credit for the environmental attributes of the specific electricity sources they choose.

Examples of scope 2 emissions

Scope 2 emissions are those that include the indirect greenhouse gas (GHG) emissions that result from the purchase of electricity, heat, or steam used in their operations. These emissions can come from a variety of sources, including:

• Purchased electricity: Many businesses purchase electricity from utility companies, which is often generated using fossil fuels like coal or natural gas - it can also include renewable sources too. The emissions associated with this electricity consumption are considered Scope 2 emissions.
• Purchased heat or steam: Some businesses purchase heat or steam from external sources, which can also result in Scope 2 emissions. For example, a company might use steam to power its manufacturing processes, and the emissions associated with the production of that steam would be considered Scope 2 emissions.

Overall, understanding and managing Scope 2 emissions is an important part of any business's sustainability strategy

Why tracking scope 2 emissions matters

Accounting and reporting scope 2 emissions will highlight opportunities to improve performance and business operations. From a business perspective, reporting on Scope 2 emissions is important for several reasons:

1. Regulatory compliance: Many countries and jurisdictions have regulations that require companies to report on their greenhouse gas emissions, including Scope 2 emissions. By accurately reporting on their Scope 2 emissions, companies can ensure compliance with these regulations and avoid potential legal or financial penalties.
2. Stakeholder expectations: Investors, customers, and other stakeholders are increasingly interested in the sustainability practices of the companies they work with or invest in. By reporting on their Scope 2 emissions and demonstrating a commitment to reducing their environmental impact, companies can meet stakeholder expectations and build trust with their stakeholders.
3. Cost savings: Reporting on Scope 2 emissions can also help companies identify opportunities to reduce their energy consumption and costs. By measuring and tracking their energy use, companies can identify areas where they can improve efficiency and reduce their energy bills, leading to cost savings over the long term.
4. Competitive advantage: In today's business environment, sustainability is increasingly becoming a competitive differentiator. By reporting on their Scope 2 emissions and demonstrating a commitment to sustainability, companies can differentiate themselves from their competitors and appeal to environmentally-conscious customers and investors.

Overall, reporting on Scope 2 emissions is important for companies from a regulatory compliance, stakeholder expectations, cost savings, and competitive advantage perspective. By managing and reducing their Scope 2 emissions, companies can drive positive environmental outcomes while also improving their bottom line and building trust with their stakeholders.

Minimum helps organizations measure, report and reduce their emissions across Scope 1, 2 and 3. Speak to one of our experts to learn more.

FAQs about scope 2 emissions

What’s the difference between scope 1 and scope 2 emissions?

Scope 1 and Scope 2 emissions are two different categories of greenhouse gas (GHG) emissions, as defined by the Greenhouse Gas (GHG) Protocol, which is a widely recognised global standard for accounting and reporting GHG emissions.

• Scope 1 emissions refer to direct emissions from sources that are owned or controlled by a company, such as emissions from combustion in boilers or vehicles, or from chemical reactions during manufacturing processes.
• Scope 2 emissions refer to indirect emissions from the consumption of purchased electricity, heat, or steam. These emissions are generated by the production of the electricity or heat that a company purchases from a utility or supplier.

How should renewable energy be accounted for in scope 2 reporting?

Renewable energy should be accounted for in Scope 2 reporting using the market-based method, which involves the use of contractual instruments such as Renewable Energy Certificates (RECs) to represent the environmental attributes of renewable energy.

What is included as a renewable energy purchase?

A renewable energy purchase is the acquisition of electricity generated from renewable sources such as solar, wind, geothermal, hydroelectric, and biomass. Renewable energy purchases can take many forms, including purchasing renewable energy directly from a renewable energy project, buying Renewable Energy Certificates (RECs), entering into Power Purchase Agreements (PPAs), or participating in green power programs offered by utilities.