Glossary›Emissions accounting and measurement›Power purchase agreements (PPAs) and market-based Scope 2 claims
Glossary term
Cluster D · D49
Tier 1 · differentiator
Power purchase agreements (PPAs) and market-based Scope 2 claims
Definition
A power purchase agreement is a long-term contract to buy electricity, and usually the associated certificates, from a specified generator. A market-based Scope 2 figure reflects the contractual instruments an entity holds rather than the grid average. AASB S2 requires location-based Scope 2. Market-based Scope 2 is permitted as additional information, not required.
On this page
In practice
This is the entry most likely to contradict what a reader has been told, so it states the position plainly and then explains why the contradiction exists.
What AASB S2 requires. Paragraph 29(a)(v) requires disclosure of location-based Scope 2 emissions, together with information about any contractual instruments the entity holds that could inform a reader’s understanding of its Scope 2 emissions. The AASB confirmed in its Basis for Conclusions that mandatory market-based disclosure was considered and not adopted. An entity may disclose a market-based figure voluntarily, and where it does, the market-based figure sits as complementary information alongside the required inventory, not in place of it.
The practical consequence for a business with a PPA is uncomfortable and needs saying early: signing a PPA does not reduce the Scope 2 number you are required to disclose. The mandatory figure is consumption multiplied by the grid emission factor. The PPA is disclosed as a contractual instrument, and may support a voluntary market-based figure shown alongside.
The three PPA structures, which differ in what they deliver.
Structure
How it works
What it moves
Retail or sleeved PPA
The entity contracts with a retailer who sources from a nominated generator. Electricity and certificates arrive through the retail arrangement.
Simplest to evidence. Supports a market-based figure only.
Physical or on-site PPA
Generation is connected at or near the site.
Behind-the-meter generation reduces grid consumption and therefore reduces location-based Scope 2 directly. This is the one case where the mandatory number moves.
Virtual or financial PPA
A contract for difference on the electricity price, settled financially, with LGCs transferred separately. No electricity flows to the entity.
The certificates, not the contract, are what substantiates the claim, and the financial leg is an accounting question in its own right.
The distinction in the third case is the one that catches people. A virtual PPA is a derivative with an electricity price exposure. Its accounting treatment under AASB 9 is a financial statement matter, and it is a live connected-information point: a contract disclosed in the sustainability report as evidence of climate action, and in the financial statements as a derivative, has to tell one consistent story.
For a market-based claim to hold, the GHG Protocol Scope 2 Guidance sets quality criteria the instrument must meet: it must convey the generation attribute, be tracked and redeemed or retired on behalf of the user, be retired as close as practicable to the consumption period, and be sourced from the same market as the consumption. The market boundary is the criterion that catches Australian entities out, because the National Electricity Market and the Wholesale Electricity Market in Western Australia are separate markets. An instrument sourced in one does not automatically support a claim against consumption in the other, so a national business with sites on both sides needs to check that its instruments match the market its load sits in.
What the assurer does with it
The mandatory location-based figure and any voluntary market-based figure are tested differently, and the assurer separates them first. For the location-based figure they test consumption and the factor applied, and a contractual instrument is irrelevant to it.
For a voluntary market-based figure they test the instrument: the PPA or supply agreement, the certificate surrender records, the quantities, the periods, and the reconciliation between certificates surrendered and megawatt hours claimed.
They accept a market-based figure supported by registry surrender evidence, clearly labelled as market-based, presented alongside and not instead of the location-based figure. They reject a market-based figure presented as the Scope 2 disclosure, a PPA presented as evidence of emissions reduction with no certificate surrender behind it, a claim whose certificate quantity does not reconcile to consumption, and any claim made on a virtual PPA where the LGCs were sold to a third party.
They also raise the connected-information point on a virtual PPA: if the derivative is not in the financial statements, they will ask why.
Commonly confused with
Carbon offsetting. A PPA and certificate surrender address Scope 2 electricity emissions through a market-based accounting method. Offsetting uses carbon credits to net against a gross emissions figure, is a different instrument class, and is disclosed separately under the target requirements. Also confused with GreenPower, which is a government-accredited voluntary product with its own additional requirements over and above a bare LGC surrender.
Sources
1
2
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Review status
Review required
Last reviewed
15 September 2026
Editorial pass, unsigned
Reviewer required
Carbon accounting specialist and registered company auditor
Next scheduled review
1 August 2027
next expected National Greenhouse Accounts Factors release
Part of
Cluster D, Emissions accounting and measurement
49 terms from the head term carbon accounting down to individual Scope 3 categories and the mechanics of factors, boundaries and data quality. The largest cluster in the glossary.
Related terms
The instrument that actually substantiates the claim
The two methods and which one AASB S2 requires
The disclosure a PPA does not move, except behind the meter
Related questions
We have sites in several states. Does that change our emission factors?
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Yes, for electricity. Location-based Scope 2 factors differ by state and territory because grid intensity differs, so you need electricity consumption split by site and state and then the matching factor for each. Scope 1 fuel factors are national and do not change from one state to another.
Where do Australian emission factors come from?
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The National Greenhouse Accounts Factors, published each year by the Department of Climate Change, Energy, the Environment and Water. They give Scope 1 factors by fuel and Scope 2 electricity factors by state and territory. NGER-registered corporations must use NGER measurement methods for their NGER reporting.
Where this sits commercially
Carbonhalo tells a board which of the three PPA structures moves the mandatory figure before the contract is signed, not after.
Other terms in this cluster
Power purchase agreements (PPAs) and market-based Scope 2 claims