The evolution of scope 2 accounting, target setting and monitoring
9th May 2022
Andres Chang, SBTi Research Manager, explains the advantages and drawbacks of current scope 2 practices, and how the initiative plans to address them.
Scope 2 emissions—that is, emissions from purchased electricity and heat—represent one of the largest sources of greenhouse gas (GHG) emissions globally. Although these emissions physically occur at the sites where electricity and heat are generated, they are also accounted for by the companies that purchase and use this energy.
Companies have a responsibility to account for and reduce these scope 2 emissions at a pace and scale that is aligned with science. Doing so depends on accurate and consistent emissions accounting, for which the GHG Protocol is the world-recognized standard.
How the accounting works
Under the GHG Protocol Scope 2 Guidance (and, consequently, the SBTi) companies are required to report scope 2 emissions in two ways:
A ‘location-based’ approach that reflects the average emissions intensity of the local grids on which energy consumption occurs.
A ‘market-based’ approach that reflects emissions from electricity generation that companies have purposefully chosen, enabling businesses to use their purchasing power to accelerate the deployment of renewable energy.
Both approaches face unique challenges. Market-based accounting uses contractual instruments that come in a wide range of types: from power purchase agreements to green tariffs to renewable energy certificates. The impact of these can vary, even among similar types of instruments, based on use-case and technical details. Location-based accounting has the potential drawback that companies can account for emissions reductions at the grid level that are unrelated to the companies’ procurement practices and investments.
Spotlight on best practice
There are some measures companies can take to reduce both location- and market-based scope 2 emissions at the same time, for example, improving energy efficiency and shifting to on-site renewable energy generation. These measures work by reducing purchased electricity consumption altogether, and they are widely recognized as high-impact practices to reduce scope 2 emissions. Additionally, there are some market-based instruments with a high likelihood of driving new renewable energy capacity, and hence contributing to real-world emissions reductions. Yet, there has also been growing concern about companies using low-impact instruments to reduce their market-based scope 2 emissions, from an emissions accounting point-of-view, without driving real-world change.
The SBTi’s path forward
To continue supporting companies to set science-based targets that are consistent, reportable and impactful, while addressing these concerns, the SBTi will carry out the following steps:
Deepening our collaboration with the GHG Protocol. Given the intimate link between GHG accounting and target-setting, we aim to work closely with the GHG Protocol. The GHG Protocol recently announced new work that includes a study examining the need for updated scope 2 guidance.
Enhancing the transparency of how companies achieve their targets. The SBTi is developing a measurement, reporting and verification (MRV) framework, which will produce guidance and ensure mechanisms are in place for publicly tracking companies’ progress against their science-based targets. Better transparency into how companies achieve their targets can help drive more impactful renewable energy procurement practices.
Assessing the need for updated scope 2 criteria. In future work, we will assess whether changes are needed to the SBTi’s scope 2 criteria. Our aim is to ensure the integrity and impact of reported progress against targets, while aligning with the GHG Protocol to the greatest extent possible.
Our commitment to high-integrity technical work
In proceeding with these steps, we will follow a transparent and open process to ensure that our approaches retain the highest degree of integrity and rigor. We are committed to the following practices:
Proactively engaging external stakeholders, including business and financial institution sustainability leaders and practitioners, academic experts and civil society.
Incorporating the latest climate science and methodologies to drive change in the real economy and deliver solutions.
Trialing new methods through road testing and pilots.
Sharing regular updates through the SBTi website, social media, newsletter and events.
The SBTi aims for science-based targets to become standard practice for companies worldwide and contribute to halving emissions by 2030, which is why we are continually working to improve our approach and evolve with best practice. For updates, sign up to our newsletter and follow us on LinkedIn and Twitter.