Scope 2 Emissions Reporting UK: Location-Based vs Market-Based Accounting

What Scope 2 Emissions Are and Why They Are Reported Separately

Scope 2 emissions are indirect greenhouse gas emissions arising from the generation of purchased electricity, heat, steam, or cooling consumed by a business. They are classified separately from Scope 1 (direct emissions from owned sources) because the emissions arise at the point of generation, not at the business premises. However, the business's purchasing decision determines which generators are economically supported, creating an indirect link between procurement choices and generation emissions.

The GHG Protocol Corporate Accounting and Reporting Standard, and its companion GHG Protocol Scope 2 Guidance published in 2015, establishes the dual reporting requirement for Scope 2. Both a location-based figure and a market-based figure must be reported for any organisation following the GHG Protocol methodology. The dual requirement addresses the tension between physical reality (what electricity is actually generated) and commercial attribution (what a buyer claims to have purchased).

The Streamlined Energy and Carbon Reporting (SECR) framework, introduced through the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2018, mandates Scope 1 and Scope 2 emissions disclosure for quoted companies, large unquoted companies, and large LLPs in their annual reports. SECR does not mandate the GHG Protocol specifically, but DESNZ guidance recommends it, and the location-based method is the default for SECR compliance. For further detail on SECR obligations, see the dedicated guide at /secr-reporting-uk-guide/.

Location-Based Versus Market-Based: The Core Distinction

The location-based method calculates Scope 2 emissions using the average emissions intensity of the electricity grid in the geography where the consumption occurs. For UK electricity consumption, the emissions factor is the national grid average factor published annually by DESNZ in its Greenhouse Gas Reporting: Conversion Factors document. The location-based figure reflects the actual carbon intensity of the electricity mix delivered through the grid, regardless of what the buyer has contractually claimed.

The market-based method uses contractual instruments to determine the emissions factor assigned to a specific buyer's consumption. If a buyer holds a supply contract with a zero-carbon tariff backed by matched REGOs, a PPA with direct REGO assignment, or operates on-site generation, the market-based emissions factor for that volume is zero or near-zero. If no contractual instrument exists, the buyer must use the residual mix factor rather than the grid average factor.

The residual mix factor is the emissions intensity of the electricity remaining after all contractually claimed renewable generation has been attributed to buyers holding certificates. Because the most attractive (lowest-carbon) generation is preferentially claimed through certificate markets, the residual mix factor is typically higher than the grid average factor. Using the grid average factor as a substitute for the residual mix factor when no contractual instruments are held overstates the carbon benefit of the general grid mix and understates actual market-based Scope 2 emissions.

DESNZ Emissions Factors and How to Use Them

DESNZ publishes annual Greenhouse Gas Reporting: Conversion Factors for use in emissions reporting. These are the official factors recommended for UK SECR reporting and for GHG inventory purposes. The publication includes:

• Grid electricity location-based factors (kg CO2e per kWh consumed), updated annually to reflect the changing generation mix
• Transmission and distribution loss factors
• Factors for other fuels and energy carriers used in Scope 1 and Scope 3 calculations

The DESNZ conversion factors are published on gov.uk and should be downloaded fresh each reporting year. Using factors from a prior year produces inaccurate results because the grid carbon intensity has been declining as renewable generation capacity increases. The 2024 grid average emissions factor was substantially lower than the 2015 figure, reflecting the growth of wind and solar generation in the UK mix.

For market-based reporting, the contractual instrument's emissions factor is used rather than the DESNZ grid average. A REGO-backed zero-carbon tariff carries a zero factor for the contracted volume. Any volume not covered by a contractual instrument falls back to the residual mix factor, which is not published by DESNZ directly but is available through the Association of Issuing Bodies' European Residual Mixes publication, which covers the UK residual mix as part of its scope.

What Counts as a Credible Market-Based Claim

Under the GHG Protocol Scope 2 Guidance, credible market-based instruments for UK electricity must meet a hierarchy of quality criteria. In descending order of preference:

1. Supplier-specific emission rates based on actual generation portfolio disclosure: a licensed supplier that directly operates or purchases from identified renewable generators and can provide audited generation data
2. REGOs contractually assigned to the buyer under a supply contract or PPA, with the REGO retirement confirmed for the reporting year and generation vintage matched to the consumption year
3. Direct on-site or private-wire generation from zero-carbon sources, where the business physically consumes generation from a dedicated asset
4. Residual mix factor: applied to any volume for which no higher-quality instrument exists

REGOs purchased separately from the supply contract (so-called unbundled REGOs) are not considered a credible instrument under the GHG Protocol hierarchy, though they remain valid for other purposes. The Protocol requires that the certificate is contracted in association with the energy purchase, not acquired independently after the fact.

The "100% Renewable" Trap and Unmatched REGOs

A widespread practice in the UK business energy market involves suppliers offering tariffs described as "100% renewable" that are backed by REGO purchases on the open certificate market. The supplier purchases REGOs to match total customer consumption volume and retires them in Ofgem's REGO register, allowing the tariff to carry a renewable electricity claim.

The limitation is that REGO prices on the open market have at times been very low, meaning the cost to a supplier of claiming 100% renewable electricity has not necessarily reflected any additional investment in renewable generation. The CCC and academic researchers have noted that REGO-backed claims do not demonstrate additionality: the renewable generation would have occurred whether or not the REGO was sold for certificate revenue.

For GHG Protocol Scope 2 reporting, an unmatched REGO (one not contractually linked to a specific supply arrangement with generation vintage confirmation) does not meet the market-based quality criteria. Organisations using GHG Protocol methodology that hold only general-pool REGO-backed tariffs should confirm with their supplier whether the REGOs meet the matching, tracking, and vintage requirements needed for a zero Scope 2 market-based claim.

ASA has adjudicated on supplier claims of "100% renewable" electricity and has upheld complaints where the claim was based on REGO matching without consumer-facing explanation of the mechanism. Businesses repeating supplier claims in their own reporting or marketing face the same scrutiny from the ASA and from the CMA under the Green Claims Code.

Residual Mix Factors and Their Significance

Residual mix factors are published for European countries, including the UK, by the Association of Issuing Bodies (AIB). The UK residual mix factor represents the carbon intensity of UK grid electricity after all certificated renewable generation has been claimed by certificate holders. Because certificated generation is attributed to buyers, the remaining pool of generation (the residual mix) contains a disproportionately high share of fossil fuel and nuclear generation.

A business without contractual renewable instruments that uses the DESNZ grid average factor for market-based reporting is underreporting its market-based Scope 2 emissions. The correct factor is the residual mix, which is higher. This distinction matters for the integrity of market-based reporting and for any claim that a business has reduced its market-based Scope 2 emissions by switching to a REGO-backed tariff without other changes.

How we verified this

This article draws on the GHG Protocol Corporate Standard and Scope 2 Guidance as published by the World Resources Institute, DESNZ Greenhouse Gas Reporting: Conversion Factors published on gov.uk, the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2018 on legislation.gov.uk, Ofgem REGO scheme documentation, and ASA adjudications and guidance on environmental claims. The SECR framework is covered in more detail at /secr-reporting-uk-guide/.

Frequently asked questions

Editorial disclaimer: The following questions address common points of uncertainty about Scope 2 emissions reporting for UK businesses. They do not constitute legal, accounting, or environmental compliance advice. Businesses should obtain professional advice specific to their reporting obligations and circumstances.

What is the difference between location-based and market-based Scope 2 reporting?

The location-based method uses the grid average emissions factor published by DESNZ for the geography where electricity is consumed, reflecting the actual carbon intensity of the generation mix. The market-based method uses the emissions factor from contractual instruments the buyer holds, such as a REGO-backed supply contract or a PPA with direct REGO assignment. Where no instrument exists, the residual mix factor applies. Both figures must be reported under GHG Protocol methodology. The location-based figure reflects physical reality; the market-based figure reflects commercial attribution.

Does a green energy tariff give me zero Scope 2 emissions under GHG Protocol?

A green energy tariff backed by REGOs contractually assigned to your supply arrangement may support a zero market-based Scope 2 claim for the contracted volume, provided the REGOs meet the GHG Protocol's quality criteria including generation vintage matching and contract bundling. A tariff backed by pool-purchased, unbundled REGOs may not meet the full quality criteria. Confirm with your supplier whether the REGO arrangement meets GHG Protocol Scope 2 Guidance matching and tracking requirements before making a zero Scope 2 market-based claim.

Where do I find the official UK emissions factors for SECR reporting?

DESNZ publishes Greenhouse Gas Reporting: Conversion Factors annually on gov.uk. These are the official factors recommended for UK SECR reporting and corporate GHG inventories. The factors are updated each year to reflect changes in the generation mix and should be downloaded fresh for each reporting year. Using outdated factors produces inaccurate results, typically overstating emissions in recent years as the grid has become progressively less carbon-intensive.

What is a residual mix factor and when do I use it?

The residual mix factor is the emissions intensity of UK grid electricity after all certificated renewable generation has been attributed to certificate holders. It is higher than the grid average factor because fossil fuel and nuclear generation represents a disproportionate share of the uncertificated pool. The residual mix factor is used for market-based Scope 2 reporting for any electricity volume not covered by a qualifying contractual instrument. It is published by the Association of Issuing Bodies in the European Residual Mixes report, which covers the UK.

Which companies must report Scope 2 emissions under SECR?

The Streamlined Energy and Carbon Reporting framework, introduced under the Companies, Partnerships and Groups (Accounts and Reports) Regulations 2018, requires Scope 1 and Scope 2 emissions disclosure in annual reports for quoted companies of any size, and for unquoted companies and LLPs meeting the large company thresholds (turnover above £36 million, balance sheet above £18 million, or more than 250 employees, meeting at least two of three criteria). The full SECR obligation is covered in the dedicated guide at /secr-reporting-uk-guide/.

Sources

• DESNZ Greenhouse Gas Reporting: Conversion Factors - gov.uk
• Companies, Partnerships and Groups (Accounts and Reports) Regulations 2018 - legislation.gov.uk
• Ofgem REGO scheme
• ASA environmental claims guidance

For related reading on emissions reporting obligations and green energy procurement, see SECR Reporting UK Guide and Green Business Energy UK.