What Are Market-Based Emissions: How To Accurately Track Yours

Eloise Moench
Marketing Lead

As corporations steadily move towards greener practices, it has become imperative for them to keep track of their energy, or “Scope 2” emissions. This is done through carbon accounting– a method that helps corporations calculate and report their greenhouse gas (GHG) emissions. 

The international protocol for calculating GHG Scope 2 emissions is divided into two methods: market-based emissions tracking and location-based emission tracking. 

Read on to know more about the method of market-based emissions tracking, and how to accurately track your emissions using this method. 

What are Scope 2 emissions? 

According to the United States Environmental Protection Agency, Scope 2 emissions are indirect GHG emissions – usually associated with the purchase of electricity, heat, cooling, or steam. While Scope 2 emissions usually occur at the facility in which they are generated, they must be accounted for in a corporation’s GHG inventory as they are a result of the company’s energy usage. 

Scope 2 emissions are reported on through the Greenhouse Gas Protocol, a comprehensive global standard for GHG accounting and reporting. It is internationally-recognized and for the past ten decades, has been utilized by over 90% of the Fortune 500 companies that report their emissions.

Understanding Market-Based Emissions

The History of Market-Based Methodology

When businesses began accounting for the emissions related to their electricity consumption using the GHG methodology, only “location-based” accounting existed. This meant that companies could only report their Scope 2 emissions by considering the electricity mix on the grid they consumed from. So, this accounting methodology just considers the electricity physically delivered by the local grid to the energy buyer.  

A limitation of location-based emissions accounting is that buyers cannot impact their Scope 2 emissions score, regardless of the electricity they procure through their supply contracts. 

As a result, in 2015 a new carbon accounting methodology - dubbed “Market-based” - was introduced. This new accounting methodology allowed companies to meet their global annual electricity consumption with EACs - a market-based instrument aiming to drive the deployment of renewable generation assets by incentivizing companies to buy renewable electricity, mainly but not only from solar and wind farms.

What are Market-Based Emissions? 

The market-based accounting methodology means that a company can claim to be 100 percent renewable and have 0 market-based GHG emissions by buying a volume of EACs that equals their consumption, as long as the energy they buy has been generated in the same year as their production and is within the jurisdiction of the EAC scheme they operate in. 

At the end of the year, companies calculate their final energy consumption and match it to an equivalent amount of EACs purchased through brokers or suppliers, or they match the EACs bundled with their PPA contracts. EACs allow the companies to claim the environmental benefits of the underlying amount of renewable energy injected into the grid somewhere, at some point over the year, even though it is not directly related to the physical electricity flow that meets their day-to-day consumption. 

In 2019, approximately 38% of companies that publicly reported their emissions to the Carbon Disclosure Project (CDP) utilized the market-based emissions approach. According to studies, this number is set to increase in the future as corporates continue aligning themselves with the GHG Protocol and net-zero targets.

Calculating Market-Based Emissions 

Market-based emissions are calculated based on an individual corporation’s contract agreements and specific energy purchases. Emissions are calculated based on the amount of energy an organization purchases and this method is utilized to support the usage and reporting of green energy tariffs via Renewable Energy Certificates (REC) and Guarantees of Origin (GO’s). 

For example, if a California-based business is connected to the LA electricity grid, it decides to directly contact a third-party renewable energy developer and enter a contract to “buy” clean energy or renewable energy credits (RECs). While it is still connected to the LA grid, the market-based emissions method allows the business to claim emissions of renewable energy, thereby claiming “net zero electricity”. 

There are several steps to implement when calculating market-based emissions. The correct formula for calculating the emissions is:

kWh consumed x Contract source emissions factor (EF) = Market-based Scope 2 CO2e GHG Emissions 

  • The corporation must get the market-based emissions factors for energy sources specified in its contracts 
  • The power bought from the third-party source must be multiplied by its specific emissions factor. The same must be applied for all the sources in the energy contracts – then summing them up
  • For electricity usage emissions that are included in a corporation’s contracts, utilize the residual mix emissions factor 

What is an emissions factor? 

An emissions factor is a value that quantifies how much GHG gets emitted per unit of activity. Organizations such as the International Energy Agency have databases of national power grid emissions factors available. 

What is the residual mix?

Residual mix refers to the emission factor for a grid that excludes electricity generation claimed by a corporation’s electricity contracts.


 Market-Based vs Location-Based Emissions calculations

While market-based ghg emissions are calculated based on an organization’s specific energy purchases, location-based emissions are calculated through the average emissions intensity of a local power grid. 

If we are to use the California business example, it is connected to the LA grid which is powered by the Southern California Edison. Any entity connected to the grid pays the SCE monthly utility bills in return for electricity.

To calculate the business’s emissions through the location-based method, it will utilize an emissions factor for the average GHG intensity of the power grid, and multiply that by its power consumption to calculate its Scope 2 emissions from the purchased electricity.

Some of the key differences in market-based emissions vs location-based emissions are:

  • Calculating location-based emissions can be applied to all electricity grids while calculating market-based emissions is applied to operations whereiconsumers are given a choice of differentiated electricity products, supplier-specific data, etc. 
  • The market-based method’s results omit the average emissions in the location where the electricity is used while the location-based method’s results omit emissions from differentiated electricity purchases, supplier offerings, or other contracts. 

Track Your Market-Based Emissions with Flexidao

Keeping track of your electricity portfolio so you can report on your  market-based GHG emissions  can be a complex task. Flexidao offers services that will help. By effectively monitoring and having oversight of your clean energy contracts and EACs, you can report on market-based emissions with confidence and efficiency. 

Here is how Flexidao will help you manage your clean energy portfolio:

  • Flexidao automates EAC data collection from official sources. This helps you to have the right information in place when it comes to reporting on your market-based Scope 2 Emissions .
  • Our platform tracks performance, exports metrics, monitors Scope 2 KPIs, and facilitates full auditor disclosure with detailed emissions data and certificates transaction logs to help you with effective and efficient reporting. .

Optimize your energy management portfolio today with Flexidao! Contact us now.