Scope 2

Scope 2
Name	Scope 2
Industry	Environmental accounting

Scope 2 Scope 2 denotes a category in greenhouse gas accounting that attributes indirect emissions from purchased electricity, steam, heat, or cooling to the reporting entity. It complements categories that allocate direct emissions and other indirect emissions, informing corporate United Nations Framework Convention on Climate Change reporting, European Commission climate policy alignment, and voluntary disclosures such as those guided by the Carbon Disclosure Project, Task Force on Climate-related Financial Disclosures, and Science Based Targets initiative.

Definition and Scope

Scope 2 is defined in the Greenhouse Gas Protocol as indirect emissions from the generation of purchased energy consumed by a company, organization, or institution. It covers emissions linked to purchases of electricity generation from utilities like Électricité de France, Duke Energy, State Grid Corporation of China, and purchases of steam or cooling supplied by district systems such as those in New York City, Tokyo, or Copenhagen. The category sits alongside Scope 1 and Scope 3 classifications used by entities including BP, Nestlé, Walmart, Apple Inc., and Siemens to attribute emissions across operational boundaries recognized by frameworks like International Organization for Standardization standards and investor frameworks promoted by BlackRock and Vanguard.

Accounting Methods and Standards

Accounting for this category follows methodologies established by the Greenhouse Gas Protocol Corporate Standard and associated guidance documents used by firms such as Unilever, Microsoft, Google LLC, and Amazon (company). Standards reference national inventories maintained under the Intergovernmental Panel on Climate Change guidelines and align with reporting regimes of agencies like the Environmental Protection Agency, Department for Business, Energy and Industrial Strategy, and European Environment Agency. Market instruments including Renewable Energy Certificate, Guarantee of Origin, and Power Purchase Agreement accounting rules are integrated into corporate calculations by organizations such as Iberdrola, Ørsted, and NextEra Energy.

Market-based vs Location-based Approaches

Two primary approaches appear in protocols: the market-based method and the location-based method. The market-based approach attributes emissions reflecting contractual instruments—Power Purchase Agreements, Renewable Energy Certificates, Wellington Management procurement contracts—used by corporates like Google LLC, Facebook (Meta Platforms), and IKEA. The location-based approach reflects average grid emission factors for a geographic area served by grids like those of California Independent System Operator, National Grid (UK), PJM Interconnection, or State Grid Corporation of China. Regulators and market actors including European Commission, California Air Resources Board, and traders on exchanges like European Energy Exchange reconcile these methods in reporting frameworks.

Measurement and Reporting Practices

Measurement protocols require data on electricity consumption metered at facilities, supplier disclosure of fuel mixes, and use of emission factors from sources such as the International Energy Agency, U.S. Environmental Protection Agency eGRID, and country inventories submitted to the United Nations Framework Convention on Climate Change. Companies including Siemens, General Motors, Toyota Motor Corporation, and Samsung often report both market-based and location-based figures in sustainability reports aligned with guidance from Global Reporting Initiative and disclosure platforms like Carbon Disclosure Project. Audits by firms like PricewaterhouseCoopers, Deloitte, KPMG, and Ernst & Young validate methodologies and certificate chains for instruments issued by registries such as AIB (Association of Issuing Bodies) and I-REC Standard.

Impacts on Corporate Emissions Inventories

Scope 2 calculations can materially affect corporate greenhouse gas inventories and target setting for emitters including ExxonMobil, Shell plc, TotalEnergies, and major industrials like ArcelorMittal and BHP. Adoption of market-based instruments such as Power Purchase Agreements by Google LLC and Amazon (company) has enabled reported reductions in Scope 2 emissions without immediate changes to on-site fuel combustion (Scope 1). Accounting choices influence investor assessments by firms like BlackRock and State Street and inform corporate strategies on procurement, onsite generation, and investments in providers such as Ørsted, Vestas, and Enel.

Regulatory and Policy Context

Regulatory frameworks at the European Commission level, national rules from agencies like the U.S. Securities and Exchange Commission, and regional regulators including California Air Resources Board shape disclosure expectations. Policy instruments—Renewable Portfolio Standards, European Union Emissions Trading System, and national renewable support schemes in countries like Germany, China, and India—affect grid emissions and the availability of contractual instruments. International initiatives such as the Paris Agreement and reporting obligations under the Task Force on Climate-related Financial Disclosures encourage consistency in how entities report indirect emissions.

Criticisms and Limitations

Critiques target potential double counting, reliance on certificate markets like Renewable Energy Certificates and Guarantee of Origins, and the risk that market-based reductions do not reflect actual grid decarbonization as noted in analyses by Academic institutions and think tanks such as World Resources Institute, Carbon Trust, and Rocky Mountain Institute. Concerns arise when entities prioritize low-cost contractual offsets over investments in system-wide decarbonization advocated by policymakers at European Commission and scholars associated with Harvard University, Stanford University, and Massachusetts Institute of Technology.

Category:Greenhouse gas accounting