A reality check for Scope 2 accounting: Balancing integrity with feasibility
DDL provides input to the GHG Protocol Scope 2 revisions
By Katherine Burley Farr and Angel Hsu
At the end of January, Data-Driven EnviroLab (DDL) submitted a response to the Greenhouse Gas Protocol Scope 2 Public Consultation regarding the proposed changes to the rules governing Scope 2 emissions inventory accounting. These rules determine how organizations report Scope 2 emissions and have far-reaching implications for how corporations report emissions, procure energy, as well as engage in climate action.
The changes in Scope 2 emissions accounting come at a critical time as the expansion of AI and data centers as well as the electrification of transport and other infrastructure drives a historic spike in electricity demand. Large technology companies and other major electricity users are under pressure to show that their electricity procurement and related Scope 2 emissions does not just come from renewable sources and look clean on paper, but also credible with respect to the timing and location of electricity consumption. This is why the proposed Scope 2 revisions are crucial and have attracted significant attention from governments and businesses: they could reshape how companies account for renewable energy certificates or RECs, power purchase agreements (PPAs), the concept of hourly matching, and broader clean-energy investments.
The consultation opened after the GHG Protocol’s Scope 2 Technical Working Group shared its proposed revisions after three years of stakeholder engagement and expert input. Below, we provide a brief overview of Scope 2 emissions and the inefficiencies with the original framework, the proposed changes, and our response to these changes.
What are Scope 2 Emissions?
Scope 2 emissions are the indirect greenhouse gas emissions produced when a company purchases and utilizes electricity, steam, heat, or cooling. Although this electricity powers business operations such as lighting, appliances, equipment, and HVAC, the actual emissions occur at the power plant where the electricity was generated, not at the company or location using it.
What makes Scope 2 accounting particularly complicated is the dynamic nature of electricity generation. The carbon intensity of electricity produced varies hour to hour depending on numerous factors such as local weather conditions (which affects the production of renewable energy dependent on these conditions as well as local demand for energy), the fuel type and local energy mix, and the plant and grid efficiency. In North Carolina for example, energy generation relies mostly on natural gas and nuclear power. Meanwhile, hydropower dominates the Pacific Northwest, solar is more common in the Southwest, and wind powers much of the Great Plains and Midwest. Any accounting framework that ignores this variability risks misrepresenting a company’s actual climate impact.
Challenges with the Current Framework
Under the existing Scope 2 rules, organizations report emissions using two methods: the location-based method, which reflects the actual emissions from energy consumed at a specific site, and the market-based method, which accounts for emissions tied to electricity a company deliberately chose to procure, often through renewable energy certificates (RECs) or similar instruments.
Both methods rely on annual electricity consumption data which leads to a distorted understanding of a firm’s true emissions. Under market-based accounting, purchased credits are “annually matched,” meaning that a company can claim credit for carbon-free electricity generated at a completely different time and place from where and when it actually consumed power. This lack of spatial and temporal precision in the existing rules has raised serious concerns about accuracy and comparability, double-counting, and the usefulness of the emissions framework.
DDL highlights three core problems with the current approach:
- The “annual matching” approach misrepresents reality. This method assumes that megawatts of energy consumption are the same at all times, whereas in reality, the emissions and costs associated with energy consumption vary significantly at different times of the day and year. For example, when faced with an unexpected surge in energy demand, energy providers might need to rely on coal-fired power plants to meet this need.
- The current approach can overstate the emission reductions by treating annual certificates as equivalent to real-time, local electricity use. Under the current system, companies do not have to be concerned about high-emission energy consumption if they can utilize market instruments to offset these emissions. By doing so, they look greener on paper, which discourages efforts to directly reduce their actual environmental footprint.
- The current approach encourages diminishing climate returns. The current system rewards investment in the cheapest available renewable energy which tends to be intermittent. Since renewable energy sources are intermittent and sometimes less reliable, continued investment in the cheapest form of renewable energy does not displace the need for power generated by fossil fuels when renewable resources are unavailable or insufficient due to weather conditions or during peak periods.
We have raised three major concerns with the existing framework:
The impact of the proposed changes:
After three years of stakeholder engagement, the GHG Protocol’s Scope 2 Technical Working Group has proposed a set of revisions designed to improve the credibility of Scope 2 accounting while keeping implementation practical.
For location-based emissions reporting, organizations would be required to use the most precise spatial boundary and time interval available, a meaningful upgrade in granularity.
For market-based emissions reporting, the proposed changes make three significant updates:
- Hourly matching and deliverability. Companies can now only claim credit for clean electricity certificates if it was generated and consumed within the same hour and market boundary as their actual energy consumption, thus closing the current loophole that allows renewable energy certificates to offset high-intensity energy consumption.
- A new definition for “Standard Supply Service” to prevent organizations from taking market-based credit for clean electricity that they did not intentionally choose to procure, such as when it is publicly funded, mandated, or broadly shared among customers.
- Hourly residual mix emissions factors. For any electricity use not covered by a contractual instrument, organizations would use an emissions factor representing “unclaimed” generation in their market. If that data isn’t available, a fossil-fuel-only grid average would serve as the fallback.
To ease the transition, the proposal also includes accommodations such as a threshold exemption for the hourly matching requirement, the use of load profiles when hourly electricity consumption data is unavailable, a legacy clause for contractual instruments acquired under the current framework, and a phased implementation schedule.
DDL’s response to the proposed changes:
Overall, we support many of the proposed changes to the Scope 2 reporting framework, although several concerns remain.
Summary of our position
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We agree that the increased temporal and spatial granularity requirements in both the location-based and market-based methods are necessary changes to ensure the integrity and credibility of Scope 2 emissions accounting. These measures help align emissions reporting with actual grid operations. Scope 2 inventories should reflect electricity consumption as accurately as possible in reality while broader clean-energy investments can be recognized through separate impact or consequential accounting approaches.
Specifically, we support the use of hourly consumption data, hourly emissions factors, and hourly matching of contractual instruments as the most important part of the revisions. We anticipate that these changes will also incentivize further decarbonization, particularly in areas that have not experienced as much progress under the current system. In many major electricity markets, the data and procurement infrastructure needed for more granular accounting is emerging or already in place, but implementation remains uneven across regions and customer types. We generally support the feasibility measures proposed for organizations where the system cannot currently accommodate hourly location-based and market-based Scope 2 emissions accounting.
However, we express concerns about the proposed Standard Supply Service and residual mix emissions factors under the market-based methods. While we support the concept of allocating publicly funded, mandated, or shared clean energy resources fairly, we believe that the proposed definition of Standard Supply Service would reduce the feasibility and comparability of the proposed revisions overall and may disincentivize companies from taking other voluntary climate actions outside of the market, such as siting and advocacy. While the fossil-only emissions factor default is intended to incentivize the development of residual mix emissions factors and reduce the possibility of double-counting, this default may reduce comparability and be overly punitive. In our response, we recommend that adjustments to these definitions could simplify the system for suppliers and reporters, thus making meaningful accounting more accessible.
The proposed changes are both necessary and challenging. We recognize and applaud Greenhouse Gas Protocol for pushing for greater integrity and accountability in Scope 2 emissions accounting while balancing the needs and perspectives of many stakeholders. We look forward to seeing the results of the public consultation process.
