Scope 2 refers to indirect greenhouse gas emissions resulting from the consumption of purchased electricity, heating, cooling and steam. The sources of these emissions are beyond a company's direct control.
The role of Scope 2 emissions
Depending on the industry, Scope 2 emissions can be a significant source of greenhouse gases. They arise from energy production and the combustion of fossil fuels, particularly for electricity and heat generation. Companies need to consider Scope 2 emissions when calculating their corporate carbon footprint and adjust their energy procurement practices accordingly.
More and more companies are also looking at the carbon footprint of their value chains (Scope 3) and are making efforts to reduce their suppliers' direct and indirect emissions (i.e. their Scope 1 and 2 emissions).
Obligations to monitor and report Scope 2 emissions
Various laws and regulations require companies to monitor and regularly disclose their Scope 2 emissions. Notable examples include the European Corporate Sustainability Reporting Directive (CSRD), the Californian Climate Disclosure Rules, and reporting requirements for listed companies in many jurisdictions around the world. The Task Force on Climate-Related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) have also developed voluntary reporting frameworks that are increasingly adopted by companies.
In accordance with the GHG Protocol, two accounting methods can be used to report Scope 2 emissions:
- Location-based approach: Reflects the average emission intensity of the local grid where the energy is consumed.
- Market-based approach: Reflects the individual emissions of a company's contractual agreements and related energy purchases.
Challenges related to Scope 2 emissions
There are several challenges to measuring and monitoring Scope 2 emissions. These include the limited control companies have over these emissions, a frequent lack of transparency, and complex emissions accounting and reporting processes. The procurement of renewable energy or renewable energy certificates (RECs), and energy efficiency measures have become key tools for companies to address their Scope 2 emissions. Some companies are also choosing to invest in on-site energy generation, such as solar power, to reduce their Scope 2 emissions.
