What is the market-based method for Scope 2?
When a company buys renewable energy or holds certificates like RECs or Guarantees of Origin, the question becomes how that procurement actually shows up in a carbon footprint. The market-based method is the calculation approach that answers this, using the emission factors tied to specific energy contracts rather than average grid data. It is one of two methods the GHG Protocol requires companies to report for Scope 2 emissions, and the results can look very different depending on what instruments a company holds.
Quick Answer: The market-based method is an approach to calculating Scope 2 greenhouse gas emissions using contractual instruments, such as renewable energy certificates or supplier-specific emission factors, rather than average grid data. It reflects the actual energy products a company has chosen to purchase, which means the figure can differ significantly from what a location-based calculation would produce.
What Is the Market-Based Method?
The market-based method is one of two approaches defined by the GHG Protocol for calculating Scope 2 emissions (the emissions associated with purchased electricity, heat, steam, or cooling). Where the location-based method uses average emission factors for the grid in a given region, the market-based method uses factors that are specific to the energy contracts or instruments a company holds.
If a company has purchased renewable electricity through a Power Purchase Agreement (PPA) or holds Renewable Energy Certificates (RECs) or Guarantees of Origin (GOs), those instruments carry their own emission factor, often zero. The market-based calculation uses that factor instead of the regional grid average.
What Instruments Does It Use?
The GHG Protocol sets out a hierarchy of instruments that can be used in a market-based calculation, in order of preference:
- Supplier-specific emission factors provided directly by your energy supplier
- Residual mix factors, which represent the emissions intensity of grid electricity that has not been claimed by any certificate holder
- RECs, GOs, and similar certificates that transfer the environmental attributes of a unit of renewable electricity from producer to buyer
- PPAs, which are direct contracts with energy generators that typically carry a specific (often zero) emission factor
Where none of these are available, the GHG Protocol allows the use of a location-based factor as a substitute, but this is a last resort rather than the intended approach.
Why Does the Market-Based Method Matter for Carbon Reporting?
For companies that have invested in renewable energy procurement, the market-based method is where that investment shows up in their carbon footprint. A company running entirely on grid electricity with no certificates or contracts may report a higher Scope 2 figure under the market-based method than under the location-based method, because residual mix factors often carry a higher emissions intensity than the headline grid average.
The GHG Protocol requires companies to report both figures where data is available. This dual reporting prevents a situation where a company can simply claim a low Scope 2 figure without disclosing what the grid-average calculation would have produced.
For frameworks like SECR, CDP, and Science Based Targets initiative (SBTi) target-setting, understanding which method applies, and when, is a practical requirement rather than an optional detail.
How Does the Market-Based Method Work in Practice?
In practice, applying the market-based method means gathering the right documentation. A company needs to confirm:
- Whether it holds any certificates or has signed any contracts that carry a specific emission factor
- Whether those instruments meet the GHG Protocol's quality criteria (they must be issued within the same country or market as the consumption, be retired to prevent double-counting, and be no older than one year at the point of use)
- What residual mix factor applies to any electricity not covered by certificates or contracts
This documentation step is where many companies run into difficulty. Certificates need to be verified and matched to consumption periods, and residual mix factors are not always straightforward to locate, particularly for companies operating across multiple countries.
Seedling's carbon accounting process covers both Scope 2 calculation methods, with guidance from a dedicated carbon expert to make sure the right factors are applied and the assumptions behind them are clearly recorded. That matters for stakeholder credibility: a footprint is only as defensible as the methodology behind it.
Market-Based vs Location-Based: Which Figure Should You Use?
The short answer is both, reported alongside each other. The GHG Protocol's dual reporting requirement exists precisely because the two figures tell different stories. The location-based figure reflects physical grid emissions. The market-based figure reflects procurement decisions.
Neither is more "correct" than the other. For target-setting under SBTi, the market-based figure is typically used for Scope 2 targets, which means the quality of the instruments a company holds directly affects whether its targets are credible. For companies without any renewable energy certificates, the two figures will be identical or very close.
The distinction becomes most relevant when a company is actively managing its energy procurement as part of a decarbonisation plan. At that point, the market-based method is the mechanism that connects procurement choices to reported emissions.
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