Summary: This is an extract of Chapter 5: Identifying Scope 2 Emissions and Setting the Scope 2 Boundary. This chapter describes the sources of scope 2 emissions and how to establish a boundary for scope 2 accounting under different generation and distribution models and scenarios.
- Organizational boundaries
As detailed in the Corporate Standard, a company can choose one of three consolidation approaches for defining its organizational boundaries for the entire corporate inventory, including equity share, financial control, and operational control. Companies should use a consistent consolidation approach over time for their entire inventory.
- Operational boundaries
After a consolidation approach has been determined to define the organizational boundary, it shall be applied consistently across the inventory. Companies can then identify emissions from included sources and categorize them into direct and indirect emissions, and further by “scopes.” The Corporate Standard divides a
company’s emissions into direct and indirect emissions:
- Direct emissions are emissions from sources that are owned and controlled by the reporting company. These emissions are considered scope 1.
- Indirect emissions are emissions that are a consequence of the activities of the reporting company, but occur at sources owned or controlled by another company. These include scope 2 and scope 3 emissions. Scope 2 includes emissions from energy purchased or acquired and consumed by the reporting company (see Section 5.3 for expanded definition). Scope 3 emissions include upstream and downstream value chain emissions and are an optional reporting category in the Corporate Standard. The Corporate Value Chain (Scope 3) Accounting and Reporting Standard (2011) outlines how to conduct a comprehensive scope 3 inventory.
For many companies, scope 2 and scope 3 represent the largest sources of GHG emissions. By allowing for GHG accounting of direct and indirect emissions by multiple companies in a supply chain, multiple entities can work to reduce emissions where they have influence.
The underlying framework of direct and indirect corporate emissions reporting means that one company’s scope 1 is another company’s scope 2 and/or 3. This is an inherent part of the reporting framework that enables multiple entities along a value chain to consistently report those emissions. However, as stated in the Corporate Standard, companies should avoid double counting the same emissions in multiple scopes in the same inventory. In addition, double counting the same emissions within the same scope by multiple companies should also be avoided (see Section 5.5).
2.1 leased assets
Energy use in leased buildings or from leased electricity generation assets can be a significant emissions source. To determine whether the assets’ emissions are included in the inventory boundary and how they should be categorized by scope, companies should determine the entity that owns, operates, or exerts control over certain leased assets.
As noted in the Corporate Standard and its supplemental Appendix F (available at ghgprotocol.org), all leases confer operational control to the lessee or tenants, unless otherwise noted.2 Therefore, if a company is a tenant in a leased space or using a leased asset and applies the operational control approach, any energy purchased or acquired from another entity (or the grid) shall be reported in scope 2. On-site heat generation equipment, such as a basement boiler, typically falls under the operational control of the landlord or building management company. Tenants therefore would report consumption of heat generated on-site as scope 2. If a tenant can demonstrate that they do not exercise operational control in their lease, they shall document and justify the exclusion of these emissions.
Emissions from assets a company owns and leases to another entity, but does not operate, can either be included in scope 3 or excluded from the inventory. For more information on organizational boundaries, see The Corporate Standard, Chapter 3: Setting Organizational Boundaries, and Appendix F at www.ghgprotocol.org.
3. Defining scope 2
Scope 2 is an indirect emission category that includes GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling consumed by the reporting company.3 GHG emissions from energy
generation occur at discrete sources owned and operated by generators that account for direct emissions from generation in their scope 1 inventory. Scope 2 includes indirect emissions from generation only; other upstream emissions associated with the production and processing of upstream fuels, or transmission or distribution of energy within a grid, are tracked in scope 3, category 3 (fuel- and energy- related emissions not included in scope 1 or scope 2).
3.1 Forms of energy use tracked in scope 2
Scope 2 accounts for emissions from the generation of energy that is purchased or otherwise brought into the organizational boundary of the company. At least four types of purchased energy are tracked in scope 2, including the following:
Electricity: This type of energy is used by almost all companies. It is used to operate machines, lighting, electric vehicle charging, and certain types of heat and cooling systems.
Steam: Formed when water boils, steam is a valuable energy source for industrial processes. It is used for mechanical work, heat, or directly as a process medium.
Combined heat and power (CHP) facilities (also called cogeneration or trigeneration) may produce multiple energy outputs from a single combustion process.
Reporting companies purchasing either electricity or heat/steam from a CHP plant should check with the CHP supplier to ensure that the allocation of emissions across energy outputs follows best practices, such as the GHG Protocol Allocation of GHG Emissions from a Combined Heat and Power (CHP) Plant (2006).
Heat: Most commercial or industrial buildings require heat to control interior climates and heat water. Many industrial processes also require heat for specific equipment. That heat may either be produced from electricity or through a non-electrical process such as solar thermal heat or thermal combustion processes (as with a boiler or a thermal power plant) outside the company’s operational control.
Cooling: Similar to heat, cooling may be produced from electricity or through the distribution of cooled air or water.
This guidance focuses on electricity accounting. Differences in accounting for heat, cooling, and steam are treated in Appendix A.
- Distinguishing scopes reporting by electricity production/distribution method
Once energy is generated, it is either consumed on-site, or distributed to another entity by direct line transfer or through the electricity grid. These pathways, along with any contractual and/or certificate sales from electricity generation from owned/operated equipment, determine how the emissions from energy generation are accounted for and reported by different entities in scope 1 and 2.
(Scope 3 accounting is addressed in Appendix B.) Scope 2 emissions are accounted for when a company obtains its energy from another entity, or when a company sells an energy attribute certificate from owned and consumed generation. See Chapter 10 for background on energy attribute certificates.
Under all four scenarios identified below, companies should report electricity consumption separately from the scopes as part of reporting the total quantity of energy
consumption in kWh, MWhs, TJ, BTUs or other relevant units.
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If the consumed electricity comes from owned/operated equipment (Figure 5.1)
If energy is produced and consumed by the same entity (with no grid connection or exchanges), no scope 2 emissions are reported, as any emissions occurring during the power generation are already reported in scope 1. This scenario may apply to large industrial facilities that generate their own energy on-site in owned/operated equipment.
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If the consumed electricity comes from a direct line transfer (Figure 5.2)
In this example, energy production is fed directly and exclusively to a single entity—here, Company B. This applies to several types of direct line transfers, including:
- An industrial park or collection of facilities, where one facility creates electricity, heat, steam, or cooling and transfers it directly to a facility owned or operated by a different party.
- For energy produced by equipment installed on-site (e.g. on-site solar array or a fuel cell using natural gas) that is owned and operated by a third party.
- For electricity, heat, steam, or cooling produced within a multi-tenant leased building (by a central boiler, or on-site solar) and sold to individual tenants who do not own or operate the building or the equipment. Tenants may pay for this energy as part of a lump rental cost and the tenant may not receive a separate bill.
In any of these scenarios:
- The company with operational or financial control of the energy generation facility would report these emissions in their scope 1, following the operational control approach, while the consumer of the energy reports the emissions in scope 2.
- Any third-party financing institution that owns but does not operate the energy generation unit would not account for any scope 1, 2, or 3 emissions from energy generation under the operational control approach, since they do not exercise operational control. Only the equipment operator would report these emissions in their scope 1 following an operational control approach. Equipment owners would account for these generation emissions in scope 1 under a financial control or equity share approach, however.
- If all the energy generation is purchased and consumed, then Company B’s scope 2 emissions will be the
same as Company A’s scope 1 emissions (minus any transmission and distribution losses, though in most cases of direct transfer there will be no losses).
- If the consumed electricity comes from the grid (Figure 5.3)
Most consumers purchase or acquire some or all of their electricity through the electric grid, a shared electricity distribution network. Depending on the design of the grid, there may be a small number of central generation facilities providing energy to many consumers, or there may be a large number of generation facilities representing different technology types (thermal power using coal or natural gas inputs, or wind turbines, solar photovoltaic cells, or solar thermal, etc.).
Electricity generators report any emissions from generation in scope 1, but most renewable or nuclear technology would report “zero” emissions from this generation. A grid operator or utility dispatches these generation units throughout the day on the basis of contracts, cost, and other factors. Because it is a shared network as opposed to a direct line, consumers may not be able to identify the specific power plant producing the energy they are using at any given time.5 Use of specified generation on the grid can only be determined contractually. Energy on the grid moves to the nearest point it can be used, and multiple regions can exchange power depending on the capacity and needs of these regions. Steam, heat, and cooling can also be delivered through a grid, often called a district energy system. Such systems provide energy to multiple consumers, though they often have only one generation facility and serve a more limited geographic area than electricity grids.
- If some consumed electricity comes from owned/operated equipment, and some is purchased from the grid (Figure 5.4).
Some companies own, operate, or host energy generation sources such as solar panels or fuel cells on the premises of their building or in close proximity to where the energy is consumed. This arrangement is often termed “distributed generation” or “on-site” consumption, as it consists of generation units across decentralized locations (often on the site where the energy output will be consumed, as opposed to utility-scale centralized power plants).
The company may consume some or all of the energy output from these generation facilities; sell excess energy output back to the grid; and purchase additional grid power to cover any remaining energy demand.
The owners/operator of a distributed generation facility may therefore have both scope 1 emissions from energy generation, as well as scope 2 emissions from any energy purchased from the grid, or consumed from on-site generation where attributes (e.g. certificates) are sold.
This arrangement impacts activity data as follows:
- Activity data. Determining the underlying activity data (in MWh or kWh) in these systems may be challenging given the flux of electricity coming in or flowing out.
- Many markets utilize “net metering” for these systems, which allows grid purchases to be measured only as net of any energy exported to the grid. This net number may also be the basis for how costs are assessed.
For accurate scope 2 GHG accounting, companies shall use the total—or gross—electricity purchases from the grid rather than grid purchases “net” of generation for the scope 2 calculation. A company’s total energy consumption would therefore include self-generated energy (any emissions reflected in scope 1) and total electricity purchased from the grid (electricity). It would exclude generation sold back to the grid.
If a company cannot distinguish between its gross and net grid purchases, it should state and justify this in the inventory.
Table 5.1 illustrates the difference between total energy consumption and net energy consumption (if the reporter is a net grid consumer rather than producer).
Figure 5.4: Facility consuming both energy generated on-site and purchased from the grid
A negative consumption number for net energy exporters demonstrates the challenge of using net consumption information as activity data. Because scope 2 reflects energy purchased from a separate entity outside the inventory boundary, energy consumed from owned/operated facilities may not be reported in scope 2, depending on the sale of attributes.
- Avoiding double counting in scope 2
The dual reporting requirement in this guidance can complicate the understanding of whether double counting is occurring and whether it threatens an inventory’s accuracy.
Table 5.2 details several scenarios of double counting, along with whether they introduce accuracy errors and how they are, or can be, addressed.
- Avoiding double counting between owned energy generation assets (scope 1) and grid-delivered energy consumption in separate operations (scope 2)
Some companies such as electricity utilities or suppliers may own energy generation facilities that sell all their power into the local grid. Emissions from these generation facilities are reported in scope 1 of the utility’s inventory. At the same time, the utility may have separate administrative, commercial, or industrial facilities or office buildings (apart from the generation facilities)6 that consume electricity from the same grid to which the utility is supplying—which would be reported in scope 2. Following the Corporate Standard scopes framework, companies should avoid reporting the same emissions in scope 1 and 2 of the same company’s inventory; but in the case of utilities, a
scope 2 calculation according to either the location-based or market-based approach would likely include emissions from the generation assets reported in scope 1. This is because the owned generation facilities will be supplying the same grid region where their electricity consumption occurs.
Therefore, to minimize double counting between scope 1 and 2 within the same inventory, companies in this situation should treat their grid consumption as though it were supplied by their own generation facilities (e.g. as though they were an “on-site” source), with no additional emissions reported in scope 2 (see row 2 of Table 6.1 for this scenario). The grid-consuming facility should secure a contract or other instrument with its own generation unit(s) to convey the claim following the Quality Criteria in the market-based method, including ensuring that there have not been any sales from that production conveying claims to other parties. If possible, utilities should also remove from any supplier-specific emission factor or third-party data collectors the quantity of energy (and its emissions) supplied to or associated with these commercial/industrial operations.
Any energy consumption not covered by contractual arrangements with owned/operated generation units should be treated as grid-consumed energy in scope 2, reported according to both the location-based and market-based method emission factor hierarchies.