Understanding carbon accounting can be complex for businesses seeking to measure their environmental impact.
This guide on the GHG Protocol's Scope 2 standard provides clear explanations to help professionals accurately calculate and report emissions.
You'll learn the basics of Scope 2, how it fits into broader GHG accounting, and get step-by-step instructions for calculating emissions. Expert advice is also included on verifying inventories, effective disclosure methods, and leveraging your carbon data for sustainability gains.
Navigating Scope 2 GHG Protocol for Effective Carbon Management
The GHG (Greenhouse Gas) Protocol provides the global standard for measuring and managing greenhouse gas emissions from private and public sector operations and value chains. Understanding the Protocol's methodology for calculating Scope 2 emissions is key for companies looking to accurately account for their carbon footprint.
Scope 2 covers indirect GHG emissions from the generation of purchased electricity, steam, heating and cooling. For many companies, these emissions make up a large share of their carbon inventory.
Unravelling the Basics: Scope 2 GHG Protocol Explained
The GHG Protocol delineates two approaches for calculating Scope 2 emissions:
- Location-based: Calculates emissions based on average energy generation emission factors for the grids where energy consumption occurs. This approach reflects the average carbon intensity of grids where companies operate.
- Market-based: Calculates emissions based on emissions factors that correspond to contractual instruments, like renewable energy certificates (RECs), Guarantees of Origin (GOs) or Power Purchasing Agreements (PPAs). This better reflects a company's procurement choices.
The market-based method is recommended for improved transparency and to enable emissions reduction incentives. Both approaches can be reported for fuller disclosure.
The GHG Protocol - The Gold Standard for Carbon Accounting
The Greenhouse Gas Protocol establishes comprehensive global standardized frameworks to measure and manage greenhouse gas emissions:
- Helps companies calculate complete carbon inventories, set reduction targets, and track performance.
- Core focus areas: scope 1, 2 and 3 emissions, supply chain, product life cycles, and cities.
- Offers corporate accounting tools, calculation guidance and standards across sectors.
- Recognised by major environmental regulators and adopted by thousands of companies globally.
The Imperative of Accuracy in Carbon Accounting
Getting Scope 2 calculations right is vital to set meaningful reduction targets and maintain credibility with stakeholders on sustainability performance:
- Common Pitfalls: Using averages for grid emission factors, not addressing contractual instruments, and incomplete data capture on energy use.
- Risks of Inaccuracy: Under/over-reporting of emissions, inability to track performance over time, misleading stakeholders, and poor reduction strategies.
Adopting GHG Protocol's Scope 2 methodology, along with robust data gathering processes and supply chain engagement, enables accurate carbon accounting as the vital basis of impactful climate action.
What is a GHG Protocol scope 2?
Scope 2 emissions refer to indirect greenhouse gas (GHG) emissions associated with the purchase of electricity, steam, heat, or cooling. Although these emissions physically occur at the facility where energy is generated, they are accounted for in an organization's GHG inventory because they result from the organisation's energy use.
The GHG Protocol provides globally recognised standards for measuring and reporting scope 2 emissions. It categorises scope 2 emissions into two components:
- Location-based: Calculated based on the average emissions intensity of grids where energy consumption occurs. This reflects the average emissions intensity of grids where energy is generated.
- Market-based: Calculated based on the emissions intensity of energy products purchased. This reflects emissions from the electricity that organisations have purposefully chosen.
The GHG Protocol recommends organisations take a market-based approach to accurately reflect emissions from electricity purchases. However, reporting both location-based and market-based emissions provides a comprehensive profile of an organisation's scope 2 climate impact.
Properly accounting for scope 2 emissions enables organisations to make informed energy procurement decisions, engage with energy suppliers, implement energy efficiency measures, and track progress towards climate goals. Adopting the GHG Protocol standard enhances accuracy and consistency in scope 2 emissions reporting across different companies and sectors.
What is scope 1 scope 2 scope 3 GHG Protocol?
The GHG Protocol provides a three-tiered scope system to categorise greenhouse gas (GHG) emissions for businesses and organisations. Essentially, scope 1 are those direct emissions that are owned or controlled by a company, whereas scope 2 and 3 indirect emissions are a consequence of the activities of the company but occur from sources not owned or controlled by it.
Scope 1 emissions come from sources that are owned or controlled by the company, like fuel combustion, company vehicles, and manufacturing processes. Scope 2 accounts for purchased electricity used for own consumption. Scope 3 emissions are indirect emissions in the company's value chain, including purchased goods, transportation, product use, and end-of-life treatment of products.
Understanding these scopes is crucial for accurate carbon accounting and emissions reporting. Organisations aiming to reduce their carbon footprint need insight into emissions across their operations and supply chains. By categorising emissions into these scopes, the GHG Protocol methodology enables businesses to identify high-emission areas to target for emissions reduction activities.
What is the difference between GHG scope 1 and scope 2?
The GHG Protocol Corporate Standard classifies a company's GHG emissions into three 'scopes'. Scope 1 emissions are direct emissions from owned or controlled sources, for example, emissions from combustion of fuels in company-owned vehicles or boilers. Scope 2 emissions refer to indirect emissions from the generation of purchased energy. This includes purchased electricity, heat, steam, and cooling.
The key difference between scope 1 and scope 2 emissions lies in whether the source of emissions is owned or controlled by the reporting company (scope 1) or if the emissions are caused by the generation of energy bought from another entity (scope 2). For scope 2 emissions, companies have an indirect impact by purchasing energy, but direct emissions occur at the energy generation source outside the company's boundaries.
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How do you offset Scope 2 emissions?
Scope 2 emissions refer to indirect greenhouse gas (GHG) emissions associated with the purchase of electricity, steam, heat, or cooling. Offsetting these emissions can help organisations reduce their carbon footprint.
Here are some effective ways to offset Scope 2 GHG emissions:
- Purchase renewable energy certificates (RECs). RECs help fund renewable electricity production from sources like solar and wind. Buying RECs supports renewable power while offsetting some or all of your Scope 2 emissions.
- Enter power purchase agreements (PPAs) for off-site renewable energy. PPAs allow you to source electricity for your operations directly from a specific renewable energy project. The renewable energy you contract offsets your Scope 2 emissions.
- Generate renewable energy on-site using solar panels, wind turbines, or other distributed energy resources (DERs). By producing your own renewable power, you prevent emissions associated with grid-supplied electricity, directly avoiding Scope 2 emissions.
- Utilise electricity utility green tariff programs. Some utilities offer customers the option to purchase renewably generated electricity through a green pricing program. Participating in a green tariff allows renewable energy use while lowering Scope 2 emissions.
Taking one or more of these steps can significantly reduce total Scope 2 emissions from purchased power. Using solutions like EcoHedge's automated carbon accounting software also helps track progress in offsetting emissions over time. Consistently mitigating Scope 2 GHG emissions brings companies one step closer on their journey to net-zero.
Mastering Scope 2 GHG Emissions Calculation
Accurately accounting for Scope 2 greenhouse gas (GHG) emissions is crucial for organisations aiming to reduce their carbon footprint. Scope 2 covers indirect emissions from purchased electricity, steam, heating, and cooling.
To measure Scope 2 emissions, businesses must follow methodologies like the GHG Protocol Corporate Standard. This internationally recognised framework provides guidelines on setting organisational boundaries, collecting energy data, choosing emissions factors, calculating emissions, and reporting figures.
In this article, we break down the step-by-step process for measuring Scope 2 emissions using the GHG Protocol methodology.
Determining Organisational Boundaries for Accurate Accounting
The first step is to determine your organisational boundaries—deciding which operations to include and exclude from your emissions accounting.
The GHG Protocol categorises an organisation's operations into:
- Facilities it owns and controls
- Facilities it leases and operates
- Investments where it holds equity shares
You should compile a list of all facilities and operations connected to your organisation. Then, analyse the level of control and influence your organisation has over each one using decision trees from the GHG Protocol.
Based on this assessment, determine your consolidation approach:
- Operational control: Account for facilities/operations over which your organisation has full authority to introduce and implement policies. This is the recommended approach.
- Equity share: Account for facilities/operations according to your organisation's equity share. Used when you have joint control.
- Financial control: Account for facilities/operations based solely on financial ownership.
Choosing the right consolidation method is vital for accurate Scope 2 accounting aligned with the GHG Protocol.
Collecting Energy Usage Data for Scope 2 Accounting
Once organisational boundaries are set, the next step is gathering energy usage data. This includes:
- Electricity purchased from the grid and on-site renewables
- Imported steam
- Heating and cooling energy generated off-site
You'll need to pull usage data across all operations within your selected boundaries. Data should cover a minimum 12-month period.
Ensure data correctly represents different energy types used on-site. For low-carbon supplies like renewables, collect details on instruments like Energy Attribute Certificates.
Perform quality checks by cross-referencing supplier invoices against meter readings. Identify and address significant data gaps or anomalies before emissions calculations.
Choosing the Right Emissions Factors for Scope 2 Calculations
The GHG Protocol allows two approaches for choosing emissions factors:
- Location-based: Uses average emissions intensity of grids where energy consumption occurs.
- Market-based: Based on emissions attributes of chosen energy products like renewable electricity.
Location-based factors are best for disclosing your organisation's overall relationship with grid-supplied energy. This reflects impacts of local grid generation mixes.
Market-based factors showcase emissions specifically from electricity purchases like renewables. This demonstrates impacts of green procurement.
Most organisations report Scope 2 figures using both location-based and market-based methods. We recommend following this dual reporting approach aligned with the GHG Protocol Scope 2 guidance.
Calculating Scope 2 Emissions: A Step-by-Step Guide
With reliable activity data and appropriate emissions factors determined, you can calculate Scope 2 emissions using this formula:
Scope 2 emissions = Σ Activity data of energy type x Emissions factor of energy type
For example, calculating Scope 2 emissions from purchased electricity using location-based factors would be:
Electricity emissions (metric tons CO2e)
= Electricity used (MWh) x Relevant grid emissions factor (metric tons CO2e/MWh)
Make separate calculations for electricity, steam, heat, cooling, then sum to determine total location-based and market-based Scope 2 emissions.
Use spreadsheet tools to automate emissions calculations across multiple facilities based on activity data and chosen factors. This minimises risk of calculation errors.
Navigating Uncertainty in Scope 2 Emissions Reporting
Despite best efforts, some uncertainty in reported Scope 2 figures is expected due to inherent limitations in data sets and evolving calculation methodologies.
However, organisations can demonstrate credible public reporting aligned with GHG Protocol principles for dealing with uncertainty:
- Disclose and justify assumptions, methodologies and data sources
- Use conservative estimates where uncertainty is high
- Report market-based Scope 2 figures separately from location-based
- Prioritise reducing high-uncertainty areas through data improvements
By providing context around Scope 2 emissions figures reported and strategies implemented to minimise uncertainty over time, organisations can credibly communicate sustainability progress to stakeholders.
Following the steps outlined in this guide will lead to accurate, GHG Protocol-aligned Scope 2 emissions reporting. From setting organisational boundaries to navigating uncertainty, we equip you with the knowledge to measure and manage indirect emissions effectively on your net zero journey.
Verifying Your Scope 2 Inventory with Assurance
As companies work to accurately measure and reduce their carbon emissions, independent verification of a greenhouse gas (GHG) inventory provides credibility and ensures compliance. However, assurance comes with practical constraints around cost, data limitations, and other factors. In this section, we explore considerations around first vs. third-party assurance, selecting partners, scope boundaries, and how carbon accounting software is enabling more automated verification.
Weighing First-Party Assurance vs. External Verification
When compiling your organisation's scope 2 emissions data related to purchased electricity, you have two main options for assurance:
- First-party assurance involves self-checking inventory methodologies and data integrity by your internal sustainability team. This allows for rapid insights and adjustments but lacks independence.
- Third-party assurance leverages external auditors to independently verify your GHG inventory. This enhances credibility but can be more time-consuming and costly.
Consider balancing both approaches. Initial first-party assurance enables quick improvements before periodic third-party verification evaluates conformance to GHG protocol standards. The right software also facilitates auditability with data trails.
Selecting the Right Partners for GHG Assurance Services
If considering third-party assurance, aim for recognised, specialised verifiers in GHG emissions measurement, such as:
- Accounting and professional services firms - Big 4 firms like Deloitte or PwC offer GHG inventory assurances as part of their sustainability service lines. Their global scale aids consistency.
- Engineering and environmental consultancies - Firms like Ricardo, ENVIRON, ERG, and others provide focused GHG expertise from inventory methodology review to data analytics.
- Certification bodies - Standards organisations like Bureau Veritas or Intertek conduct supplier audits and can verify GHG emissions as part of broader ISO certifications.
Look for relevant project experience in your industry and business size. Clearly scope boundaries, expectations, and budgets upfront.
The Boundaries of Assurance in Scope 2 Emission Reporting
While independent assurance enhances credibility, it has constraints:
- Cost - External verification requires adequate budgets, especially for smaller businesses. Software can reduce this burden through automation.
- Data gaps - Incomplete emissions data limits absolute assurance. Set materiality thresholds to focus on largest impacts.
- Consistency - Standardised calculation methods and data sharing enable efficient assurance.
- Time lags - Assurance may assess past emissions, while disclosure demands real-time insights. Again, software bridges this gap.
Work closely with assurance providers to maximise value within practical limitations.
Tech-Enabled Assurance: The Role of Carbon Accounting Software
Carbon accounting software like EcoHedge optimises assurance by:
- Automating data collection from utility bills and other sources to minimise errors
- Maintaining audit trails on all emissions calculations for easy verification
- Enabling customised analytics, forecasts, and contextual metrics to facilitate insights
- Generating automated emissions reports that align to GHG Protocol frameworks
- Providing visualisation tools to quickly identify outliers and focus assurance efforts
With rigorous back-end calculations and transparency features, the right software allows for efficient first and third-party assurance services focused on methodology oversight rather than manual data checking.
In closing, a balanced approach to inventory assurance enhances the accuracy and credibility of your scope 2 emissions measurement. Weigh the pros and cons of self-verification vs. external experts when considering your verification needs. Collaborative software also unlocks efficiency gains for both reporters and auditors.
Communicating Your Scope 2 Emissions: Strategies for Disclosure
Effectively communicating your organisation's Scope 2 emissions and greenhouse gas (GHG) accounting practices is key to demonstrating accountability and building trust with stakeholders. As per the GHG Protocol, Scope 2 accounts for indirect GHG emissions from purchased electricity, steam, heating, and cooling. By following core principles around disclosure and choosing meaningful performance indicators to report, companies can optimise their Scope 2 communications across different mediums to reach target audiences.
Adhering to Reporting Principles for Scope 2 Disclosures
When disclosing your Scope 2 emissions, it's vital to adhere to relevant carbon accounting and reporting standards. This ensures the quality and consistency of your disclosures. Some key principles include:
- Relevance: Report data that reflects your actual indirect emissions and helps stakeholders assess your performance. Focus on energy use most material to your operations.
- Accuracy: Ensure robust data collection and calculation methods. Disclose any uncertainties, assumptions, and methodological changes.
- Consistency: Use consistent boundary definitions, data sources, and protocols across reporting periods. Explain any changes or restatements.
- Transparency: Provide context on data sources, underlying assumptions, and methodologies used to calculate emissions.
Following these principles demonstrates commitment to producing quality carbon accounts and builds trust.
Choosing Relevant Indicators for Scope 2 Emissions Disclosure
When disclosing your Scope 2 footprint, consider providing:
- Total gross Scope 2 emissions: Your overall indirect emissions number.
- Breakdown by energy type: e.g. electricity, steam, heating/cooling.
- Tracking over time: Show historical emissions data to demonstrate performance trends.
- Intensity metrics: Relate emissions to business metrics like production output. Helps normalise performance.
- Comparisons: Compare against base years, targets, benchmarks, or peer data to add context on your footprint.
Choose indicators aligned to your business structure and stakeholder interests. Layering multiple datapoints also aids understanding of your unique Scope 2 profile.
Optimising Disclosure Channels for Effective Scope 2 Communication
Leverage channels like:
- 📄Sustainability reports: Dedicate a section to Scope 2 performance and methodology.
- 🌐Website: Maintain a GHG inventory page outlining recent Scope 2 emissions.
- 💬Stakeholder engagements: Share custom analyses on request with key audiences.
- 🚨Product/service disclosures: Display Scope 2 data associated with offerings.
- 📢Press releases: Highlight achievements like emissions reductions through renewable energy purchases.
Determine optimal mediums to reach your audiences at relevant moments to relay Scope 2 progress. An integrated approach covers both reporting requirements and proactive engagement.
Transparency vs. Risk: Finding Balance in Scope 2 Reporting
Being transparent in disclosures builds trust but may expose some risks around competitiveness or legal compliance. Strategies like:
- Disclose aggregate emissions data rather than facility/asset-specific numbers.
- Report progress towards goals more frequently than comprehensive inventories.
- Pursue third-party verification to validate methodologies and data.
Well-structured Scope 2 communications demonstrate accountability to stakeholders while responsibly navigating potential downsides of complete transparency. Ongoing stakeholder engagement also aids determining optimal disclosure strategies.
Harnessing Your GHG Inventory for Sustainable Growth
Beyond reporting, a comprehensive Scope 2 emissions inventory equips companies to set ambitious decarbonisation targets and execute data-driven strategies to achieve them.
Setting Science-Based Targets from Scope 2 Emissions Data
With a rigorous Scope 2 emissions baseline established through the GHG Protocol, companies can derive science-based targets aligned to IPCC pathways limiting warming below 1.5°C. These targets create accountability to pursue deep decarbonisation on a timeline consistent with climate science.
For example, by analysing your Scope 2 inventory, you may find the majority of emissions come from purchased electricity. You could then set a target to procure 100% renewable energy by 2025, drastically reducing emissions. Robust data is key to setting meaningful targets.
Strategic Renewable Energy Procurement Informed by Scope 2 Data
Granular Scope 2 data allows companies to pinpoint the largest areas of indirect emissions exposure. This insight guides strategic clean power purchasing decisions targeting high-impact emission sources.
Procuring renewable energy through power purchase agreements (PPAs) or utility green power programs can effectively eliminate Scope 2 emissions from purchased electricity. Understanding your consumption patterns through Scope 2 accounting informs the scale and type of clean power needed.
Targeting Energy Efficiency: Insights from Scope 2 Emissions
For companies leasing assets which lead to indirect emissions, Scope 2 offers visibility into energy conservation opportunities. Building benchmarking and targeted equipment upgrades or retrofits can then achieve outsized emission reductions.
Enhanced energy efficiency lowers operating expenses while cutting carbon. Regularly updating your Scope 2 inventory allows you to continually assess performance and identify areas for additional efficiency gains over time.
Decarbonisation as a Business Imperative: The Role of Scope 2 Inventories
Scope 2 data quantifies climate risk exposures, informing the investment case for sustainability. With robust carbon accounting, companies can model financial, reputational, and regulatory risk reductions from achieving ambitious decarbonisation goals.
Communicating your sustainability journey also builds stakeholder trust. Scope 2 emissions data demonstrates a credible commitment to environmental stewardship.
With a rigorous GHG inventory and science-aligned targets in place, companies can confidently pursue sustainability as a core business strategy.
