Companies are under increasing pressure to engage with the climate crisis. Customers, employees, and investors are demanding climate action — influencing corporates to disclose their climate impact and make credible climate goals. This has led to a huge growth in the number of companies disclosing their emissions through different sustainability standards.
The Carbon Disclosure Project (CDP) is one of the most popular standards and is based on the GHG Protocol. Over 9,000 companies globally are now reporting to CDP. Scope 2 emissions are a key part of annual sustainability reporting, but it’s an area that many companies struggle to report accurately. In this article, we hope to answer some of your questions regarding Scope 2 to help with your annual reporting process.
What are Scope 2 emissions?
In the updated GHG Protocol Scope 2 Guidance, Scope 2 is defined as “an indirect emission category that includes GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by the reporting company”. While it includes steam, heat, and cooling the majority of Scope 2 emissions arise due to companies importing electricity from the grid.
Scope 2 can be distinguished from Scope 1 — which covers direct emissions created on-site or in company owned vehicles and Scope 3 — which concerns a company’s supply chain emissions.
Location-based vs. Market-based
In 2015, the GHG Protocol updated its guidance regarding Scope 2 reporting. One of the main changes in the update was the introduction of location-based and market-based Scope 2 reporting.
Location-based Scope 2 emissions are based on the average emission factor of the local grid. Market -based Scope 2 reporting takes a more complex look at emissions and considers any contractual instruments that may be used in competitive energy markets. This means that any green tariffs, renewable certificates, or PPA’s are considered in the final market-based emission calculation.
For most multinational companies, this has led to a dual-reporting requirement for Scope 2 emissions.
What forms of energy are tracked in Scope 2?
- Electricity: Almost every company uses electricity as part of their operations. Scope 2 emissions are created when power plants burn fossil fuels to generate electricity off-site. Even though the reporting company doesn’t directly burn the fossil fuels, it’s ultimately responsible for the resulting emissions.
- Steam: Large industries use steam for heating, cleaning, or directly in their processes. To qualify as Scope 2 emissions, steam will generally be provided through a combustion asset such as a boiler or thermal power plant — which is outside a company’s operational control.
- Heat: Heat can be in various forms but generally companies will use it as low to high temperature hot water. For example, if an office was supplied heat through a local district heat network operated by a third-party — the emissions would be in Scope 2.
- Cooling: For companies using cooling in their operations such as in cold stores, they could be supplied with cooling from a third-party. In this scenario, cooling would be reported as Scope 2 emissions. For example, if a company was supplied chilled water from a chiller owned and operated by a third-party, the emissions would be classed as Scope 2.
Read the full article where Alvaro, one of our specialists, addresses the following key questions: