Glossary›Emissions accounting and measurement›Location-based vs market-based Scope 2
Glossary term
Cluster D · D4
Tier 1 · differentiator
Location-based vs market-based Scope 2
Definition
The location-based method measures Scope 2 emissions using the average emissions intensity of the grid where the electricity was consumed. The market-based method uses the emissions attributes of contractual instruments such as renewable energy certificates and power purchase agreements. Australian standards require the location-based figure to be disclosed; market-based information is supplementary.
On this page
In practice
This entry exists because the market gets it wrong, and the error costs real money.
The two methods answer different questions. Location-based asks what emissions were caused by the electricity you physically consumed, using the grid’s average intensity. It ignores every contract you hold. Market-based asks what emissions you may claim after accounting for the energy attribute certificates you procured and retired. The same consumption produces two different numbers, and both are legitimate answers to their own question.
The Australian requirement is not symmetrical. Paragraph 29(a)(v) requires an entity to disclose its location-based Scope 2 emissions and to provide information about contractual instruments necessary to inform users’ understanding. Appendix B paragraph B30 states, for the avoidance of doubt, that an entity is required to disclose Scope 2 using a location-based approach, and is required to provide contractual instrument information only where such instruments exist and information about them informs understanding. Appendix B paragraph B31 defines contractual instruments and says the entity might disclose market-based information as part of that. Might, not shall.
So the ordering is: location-based is the disclosure; market-based is context about contracts. A great deal of vendor material, software output and consultancy reporting presents them as a pair of equally valid options, or leads with the market-based figure because it is lower. Under AASB S2 that is a presentation error, and where the market-based figure is the headline it is a misstatement of a required metric.
What this means for a PPA. This is the conversation that should happen before the contract is signed, not after. A corporate power purchase agreement, a GreenPower purchase or a block of surrendered large-scale generation certificates has three effects and one non-effect.
It reduces your market-based Scope 2, which is supplementary information. It supports a genuine abatement outcome in the electricity system, which is the reason to do it. It usually hedges your energy price, which is often the real commercial driver. And it does not move your location-based Scope 2 by a single tonne, because the grid you drew from is unchanged.
An entity that committed to a fifteen-year PPA on the basis that it would lower the emissions number in its statutory report has not been well advised. The right framing for a board paper is that the PPA is an energy procurement and abatement decision with a reporting benefit in the supplementary disclosure, not a reporting decision.
There is a related instrument confusion worth separating. Renewable energy certificates operate inside Scope 2 accounting through the market-based method. Carbon offsets and ACCUs operate outside the scopes entirely and never reduce any disclosed gross emissions figure. They are different instruments doing different jobs, and board papers routinely treat them as interchangeable.
What the assurer does with it
The assurer’s first test is presentational and it is quick: which figure is disclosed as Scope 2. A market-based figure occupying that position is a finding regardless of how well it is evidenced.
Where both are presented, they confirm the location-based figure is identifiable as the required disclosure, that both were calculated from the same consumption population, and that the difference between them is explained by the contractual instruments claimed and nothing else. An unreconciled gap between the two figures is a fast route to a query, because it usually means different consumption data was used.
On the location-based number they test the factor: the correct state factor for each site, from a cited edition of the factor set. On the market-based number they test the instruments, and here the evidence bar is specific. They want the certificate surrender or cancellation records from the registry, in the reporting entity’s name, covering the reporting period, not a purchase invoice and not a supply contract. A certificate bought and held is an asset position, not an emissions claim.
They accept a location-based figure calculated on state factors with the edition cited, presented as the Scope 2 disclosure, with market-based information shown separately and supported by registry surrender records. They reject a market-based headline figure, a renewable claim resting on a retailer’s marketing statement, certificates surrendered outside the reporting period claimed within it, and a market-based figure calculated on a different consumption base from the location-based one.
Commonly confused with
Carbon offsetting. Certificates operate inside Scope 2 accounting; offsets sit outside the scopes and reduce nothing that is disclosed. Also confused with the idea that market-based is the more sophisticated or more accurate method: it is neither, it answers a different question, and under AASB S2 it is the secondary one.
Sources
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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 required disclosure both methods are trying to express
The state factors the location-based figure is built from
The instrument class that sits outside the scopes entirely
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 puts the location-based figure where the standard requires it, and shows the market-based one beside it without pretending it is the disclosure.
Other terms in this cluster
Location-based vs market-based Scope 2