Location-Based vs Market-Based Scope 2 Emissions

For small and growing businesses (SMEs) beginning their sustainability reporting journey, one of the most confusing topics in greenhouse gas (GHG) accounting is the difference between location-based and market-based Scope 2 emissions. Both relate to the electricity, heating, or cooling your business purchases — but they are calculated differently and can lead to very different carbon results.

Understanding the distinction is key for accurate reporting under the European Sustainability Reporting Standards (ESRS) and the VSME Standard, especially as energy-related disclosures form the backbone of most SME sustainability reports.

What Are Scope 2 Emissions?

Scope 2 emissions are the indirect emissions from purchased energy — typically electricity, heat, steam, or cooling — that your business consumes. You don’t burn the fuel yourself (that’s Scope 1), but your energy supplier does. These emissions are still part of your footprint because they arise from your operations.

Under the ESRS E1 standard and the VSME Basic Module (B3), SMEs must report total energy use and GHG emissions, including Scope 2. To ensure comparability, ESRS requires companies to calculate emissions using both the location-based and market-based methods.

Learn how to report Scope 1 and 2 emissions step by step →

The Two Methods Explained

1. Location-Based Method

This approach uses the average emissions intensity of the grid in the country or region where your energy is consumed. It reflects the carbon intensity of the local electricity mix — for example, coal-heavy vs renewable grids.

Formula example:

kWh consumed × country-specific grid emission factor (kg CO₂e/kWh)

Pros:

• Easy to calculate using national data (available from EU or IEA datasets)
• Good for tracking decarbonisation progress in your country

Cons:

• Doesn’t reflect your purchasing choices (e.g., if you buy green energy certificates)

2. Market-Based Method

This method reflects the emissions from the electricity your company has specifically chosen to buy, based on supplier contracts or certificates like Guarantees of Origin (GOs).

Formula example:

kWh purchased × supplier-specific emission factor (kg CO₂e/kWh)

Pros:

• Shows the impact of choosing renewable energy
• Encourages greener purchasing decisions

Cons:

• Requires verified supplier data or certificates
• Can vary year to year based on contracts

Which One Should SMEs Use?

The ESRS and VSME standards recommend reporting both figures where possible. If you can’t access market-based data, the location-based figure is acceptable on its own. However, including both helps stakeholders understand your true performance and your efforts toward energy decarbonisation.

For SMEs using the VSME Basic Module (B3), you can:

• Report total electricity use (kWh or MWh)
• Estimate emissions using the location-based grid factor
• Add market-based figures later if you switch to a renewable supplier or obtain certificates

See how to report shared office space energy use →

Why the Distinction Matters

For example, if your office in the Netherlands consumes 50,000 kWh of electricity:

• Location-based: around 15 tonnes CO₂e (based on the Dutch grid average)
• Market-based: could be close to 0 tonnes CO₂e if you buy 100% certified renewable electricity.

That difference can meaningfully change how your progress is viewed — especially by clients and lenders tracking emission reduction plans.

Learn how to set science-based targets as an SME →

Data Sources for SMEs

You can find emission factors for your calculations from:

• European Environment Agency (EEA) – publishes grid emission factors by country
• International Energy Agency (IEA) – provides global and regional electricity data
• Your energy supplier – for contract-based or renewable certificates

If you use accounting software or an energy management tool, these factors are often built in automatically.

Find out how to report fuel receipts and invoices for CSRD compliance →

Frequently Asked Questions

Do SMEs need to report both methods?

No, but it’s encouraged. If you can only access national averages, report the location-based figure first and note that supplier data is not yet available. Over time, you can upgrade your report to include market-based values. Explore how the VSME Standard handles energy metrics →

How do I find the right emission factor?

The EEA’s latest country grid factors are publicly available, and many online calculators include them. Your energy supplier should provide market-based factors or renewable certification details on request.

What if I use multiple offices in different countries?

You can calculate Scope 2 separately for each location using each country’s grid factor, then sum them up for your total footprint. This provides transparency and supports future expansion of your sustainability data collection.

Can switching to a renewable supplier reduce my reported emissions?

Yes — under the market-based method, buying certified renewable electricity (with GOs) can significantly reduce your reported Scope 2 emissions, even if your location-based total stays the same.

Key Terms

• Scope 2 Emissions: Indirect GHG emissions from purchased energy
• Location-Based Method: Uses grid average emission factors
• Market-Based Method: Uses supplier-specific or certificate-based data
• Guarantee of Origin (GO): EU certification proving renewable electricity source
• Emission Factor: Conversion rate linking energy use to CO₂e emissions

Conclusion

Understanding and reporting Scope 2 emissions correctly helps SMEs show progress in decarbonisation and meet growing client and lender expectations. Start with location-based data — it’s easy and public — then move to market-based reporting as your data collection matures. This dual approach aligns with ESRS best practice and demonstrates your business’s commitment to credible climate action.

By improving your data accuracy year by year, you’ll make sustainability reporting simpler, more transparent, and genuinely impactful.