Market-based emission factor methodology – Scaler

Purpose of this article

This article documents how Scaler applies the GHG Protocol Scope 2 market-based method, ensuring alignment with GHG Protocol quality criteria and hierarchy requirements.

Market-based emission factors allow organizations to reflect supplier-specific contractual instruments (renewable electricity tariffs, PPAs, Energy Attribute Certificates, or supplier emissions declarations) when calculating Scope 2 emissions, in line with GHG Protocol guidance.

For step-by-step configuration instructions, see Configuring market-based emission factors.

For location-based methodology, see Location-based emission factor methodology.

Overview

Market-based accounting is one of two methods for calculating Scope 2 emissions under the GHG Protocol. It allows organizations to account for the specific contractual arrangements they have made to purchase energy, rather than defaulting to grid-average emission factors.

What this article covers:

When market-based accounting applies (and when it does not)

GHG Protocol Scope 2 hierarchy and quality criteria

How Scaler applies market-based factors

Fallback logic to location-based factors

Handling mixed-source electricity

Design decisions that ensure GHG Protocol compliance

Audit trail requirements

Dual reporting requirement

When market-based accounting applies

GHG Protocol scope definitions

Under the GHG Protocol, market-based accounting applies only to Scope 2 emissions:

Purchased electricity

Purchased steam

Purchased heat

Purchased cooling

Market-based accounting does not apply to:

Scope 1: Direct emissions from fuels combusted on-site

Scope 3: Indirect emissions from tenant-controlled energy use or other value chain activities

Important clarification:

Even if a tenant has a renewable energy contract, that contract affects the tenant's emissions (Scope 3 for the landlord), not the landlord's Scope 2 emissions. Market-based accounting is only relevant when the reporting entity has a contractual instrument for the energy it purchases.

For scope classification details, see Understanding Scope 1, Scope 2, and Scope 3 emissions in Scaler.

GHG Protocol Scope 2 hierarchy

The GHG Protocol defines a quality hierarchy for market-based emission factors. Scaler allows users to apply any of these instruments by configuring the appropriate emission factor value and documenting it in the Reference field.

Hierarchy (highest to lowest quality)

1. Electricity attribute certificates or equivalent instruments

Renewable Energy Certificates (RECs)

Guarantees of Origin (GOs)

International REC Standard (I-RECs)

2. Contracts for electricity (such as PPAs)

Power Purchase Agreements with renewable generators

Green tariffs with supplier-specific emissions rates

3. Supplier/utility emission rates

Supplier-specific emissions declarations

Utility-specific emission factors

4. Residual mix (sub-national or national)

Only available in EU; coming soon to U.S.

Accounts for contractual instruments already claimed

Removes renewable energy that has been contractually allocated, leaving the "residual" grid mix

5. Other grid-average emission factors (sub-national or national)

See Location-based emission factor methodology for grid-average factors

Important: Scaler does not enforce the hierarchy. Users are responsible for ensuring instruments meet GHG Protocol quality criteria.

Quality criteria for contractual instruments

For a contractual instrument to qualify for market-based accounting, it must meet the following criteria per GHG Protocol Scope 2 guidance:

1. Convey the energy attribute

The instrument must represent the environmental attributes of the electricity generation (e.g., renewable, low-carbon).

2. Be the only instrument for that MWh

Instruments must not be double-counted. Only one entity can claim the environmental attribute for a given MWh of generation.

3. Be sourced from a credible system

The tracking or registry system must prevent double-counting and ensure transparency.

Examples of credible systems:

North American registry systems (M-RETS, PJM-GATS, WREGIS, etc.)

European GO registries (AIB members)

I-REC Standard registry

4. Be retired or cancelled

The instrument must be retired in the same year as the electricity consumption to ensure it cannot be resold or reclaimed.

5. Geographic, temporal, and technology specificity (where possible)

Higher-quality instruments specify:

Where the electricity was generated

When it was generated

What technology was used

Instruments with greater specificity provide more credible claims of environmental attributes.

How Scaler applies market-based factors

Application logic

Scaler applies market-based emission factors when all of the following conditions are met:

The asset has an Energy supplier region assigned

The meter has a Supplier linked

An emission factor exists for the meter's Subcategory + Source combination

An emission factor value exists for the consumption year

Fallback to location-based

If any of the above conditions are not met, Scaler automatically falls back to location-based emission factors.

Why this design matters:

Ensures reporting completeness — No missing emissions

Maintains GHG Protocol compliance — Dual reporting of location-based and market-based is required

Prevents accidental misapplication — Users must explicitly link meters to suppliers

Important design decision: Manual linking required

Scaler does not automatically apply market-based factors. Users must explicitly link meters to suppliers.

Why manual linking is required

1. Prevents unintended Scope misclassification

Without manual linking, users could accidentally apply market-based factors to:

Scope 1 fuels (natural gas, fuel oil)

Scope 3 tenant-controlled meters

Market-based accounting only applies to Scope 2 emissions. Automatic application could violate GHG Protocol requirements.

2. Maintains user control

Users decide which meters use market-based vs location-based factors. This is critical because:

Not all electricity meters may have supplier-specific contracts

Some meters may intentionally use grid-average factors (e.g., for comparison or conservatism)

3. Creates clear audit trail

Explicit linkages create a transparent record of:

Which meters use market-based factors

Which supplier contract applies

When the linkage was established

Handling mixed-source electricity

If a meter receives electricity from multiple sources (e.g., 60% green, 40% grey), the emission factor entered in Scaler must represent the blended contractual emissions rate for 100% of consumption.

Why Scaler applies factors to 100% of consumption

Supplier-provided emission factors already account for the contractual mix.

Example:

A meter is supplied with:

60% renewable electricity (0 kg CO₂e per kWh)

40% grid electricity (0.5 kg CO₂e per kWh)

Blended rate calculation:

(0.60 × 0) + (0.40 × 0.5) = 0.2 kg CO₂e per kWh

The blended rate of 0.2 kg CO₂e per kWh is entered in Scaler and applied to 100% of the meter's consumption.

What NOT to do

Incorrect approach:

Do not enter separate emission factors for the green and grey portions.

Why this is wrong:

Scaler applies the emission factor to 100% of consumption

Entering only the grey portion (0.5 kg CO₂e per kWh) would overstate emissions

Entering only the green portion (0 kg CO₂e per kWh) would understate emissions

Correct approach:

Enter the single blended rate that represents the total contractual emissions for all consumption.

Audit trail requirements

For GHG Protocol compliance, organizations must document:

1. Contractual instrument type

Examples:

Power Purchase Agreement (PPA)

Renewable Energy Certificate (REC)

Guarantee of Origin (GO)

Supplier emissions declaration

2. Reference information

What to document in the Reference field:

For PPAs:

Contract period (e.g., "PPA 2025–2027")

Generator name (if applicable)

Technology type (e.g., "Wind PPA")

For Energy Attribute Certificates:

Certificate type (REC, GO, I-REC)

Vintage year

Quantity retired

Registry name (if applicable)

For supplier declarations:

Supplier name

Declaration period (e.g., "Supplier emissions declaration 2024")

Technology mix (if available)

3. Emission factor value and source

The kg CO₂e per kWh value

How it was calculated (if not directly provided by supplier)

4. Quality criteria verification

Supporting documentation (retained separately, not in Scaler):

Contracts

Certificates

Supplier declarations

Evidence that instruments meet GHG Protocol quality criteria

Tip

Scaler's Reference field should capture enough detail for an auditor to understand what contractual instrument was used. Full supporting documentation should be retained in your organization's records.

Dual reporting requirement

The GHG Protocol requires organizations to report both:

Location-based emissions (using grid-average factors)

Market-based emissions (using contractual instruments)

Why dual reporting is required

Dual reporting provides:

Location-based: Shows the emissions associated with the actual grid electricity consumed, regardless of contracts. This provides a consistent baseline for comparison.

Market-based: Shows the emissions associated with contractual choices, reflecting the organization's procurement decisions.

How Scaler supports dual reporting

Scaler calculates both methods simultaneously:

Location-based factors are always calculated in the background

Market-based factors are applied when explicitly configured

Both values are available in reports and analytics

Users can compare market-based vs location-based emissions side-by-side

Important: Organizations must report both values to comply with GHG Protocol Scope 2 guidance.

Common edge cases

Case 1: Contract covers multiple years

Scenario: A PPA or green tariff covers 2025–2027.

Solution: Enter the emission factor for all three years with the same reference (e.g., "PPA 2025–2027").

Case 2: No market-based factor for a given year

Scenario: A supplier contract exists for 2024 and 2025, but not 2023.

Solution: Scaler automatically falls back to location-based factors for 2023. Emissions will still be calculated using the grid-average factor for that year.

Case 3: Supplier changes mid-year

Scenario: A meter switches suppliers during the year.

Solution:

Option 1 (preferred): Split the meter into two separate versions by update the supplier field.

Option 2: Use a blended emission factor representing the weighted average of both suppliers for the full year.

Document this approach in the Reference field for audit transparency.

Case 4: Residual mix is not available

Scenario: Organization wants to use residual mix but it's not published for their region.

Solution: Per GHG Protocol guidance, use the location-based grid-average factor as the market-based factor in regions without a published residual mix. By not linking the meter to a Supplier, Scaler will automatically fall back to the location-based factor. If using another value, set this up as a Supplier and document this approach in the Reference field: "Grid-average factor (residual mix not available)".

Case 5: Tenant has a renewable energy contract

Scenario: A tenant has a renewable electricity contract for their space.

Question: Should the landlord apply market-based accounting for that meter?

Answer: No. Market-based accounting only applies when the reporting entity (in this case, the landlord) has the contractual instrument. The tenant's contract affects the tenant's emissions (which are Scope 3 for the landlord), not the landlord's Scope 2 emissions.

Solution: Continue using location-based factors for tenant-controlled electricity. The tenant can claim market-based emissions in their own reporting.