Market-Based Method
The market-based method is a Scope 2 accounting approach that calculates emissions based on the specific electricity product or contract an organisation has chosen — such as a 100% renewable energy tariff backed by Renewable Energy Guarantees of Origin (REGOs) or the residual grid mix.
What is Market-Based Method?
The market-based method is the second of two Scope 2 accounting approaches defined in the GHG Protocol Scope 2 Guidance (2015). Unlike the location-based method (which uses grid average factors), the market-based method reflects the emissions associated with the specific electricity supply that an organisation has contractually chosen.
The market-based approach uses a hierarchy of emission factors. The most specific option is a direct contract or power purchase agreement (PPA) with a specific generator. Next is the use of energy attribute certificates — in the UK, these are Renewable Energy Guarantees of Origin (REGOs). If an organisation purchases electricity backed by REGOs from its supplier, the market-based emission factor for that electricity is zero (for the renewable component). If no contractual instrument is in place, the residual mix factor applies — this represents the grid average after all claimed renewable attributes have been removed, and is typically higher than the standard grid average.
For a UK organisation on a certified 100% REGO-backed green tariff, its market-based Scope 2 for electricity is zero. However, its location-based Scope 2 remains unchanged at the grid average. This dual reporting reveals an important nuance: the market-based figure shows what you've chosen to buy; the location-based figure shows what the grid physically delivered.
The credibility of market-based claims depends on the quality of the contractual instruments. REGOs are currently inexpensive in the UK (often under £1 per MWh) and can be purchased independently of the physical electricity supply, leading to criticism that they do not drive additional renewable capacity. More impactful instruments include corporate power purchase agreements (CPPAs), which provide long-term revenue certainty to new renewable projects, and direct investment in on-site generation (e.g., rooftop solar).
CDP, the GHG Protocol, CSRD, and ISSB all require dual reporting of both location-based and market-based Scope 2. SBTi accepts market-based Scope 2 for tracking progress against targets. SECR requires the location-based method only, but organisations can supplement with market-based figures.
Practical Examples
A company on a 100% REGO-backed renewable electricity tariff reports market-based Scope 2 of 0 tCO₂e for electricity, while its location-based figure using the UK grid average remains at 150 tCO₂e for the same 725,000 kWh consumed.
An organisation enters into a 10-year corporate PPA with an offshore wind farm, securing a market-based emission factor of zero for the contracted volume and supporting the development of additional renewable capacity.
A business without any renewable energy certificates or green tariff applies the UK residual mix factor (higher than the grid average) for its market-based Scope 2 calculation, reflecting that the renewable attributes from the grid have been claimed by other buyers.
How Climatise Helps
Climatise calculates market-based Scope 2 automatically when you specify your electricity tariff type. The platform supports REGO-backed tariffs, CPPAs, and residual mix factors, producing dual Scope 2 figures (location-based and market-based) for compliant reporting across SECR, CDP, and CSRD.
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