In late October, the Greenhouse Gas Protocol (“GHG Protocol”) proposed updated Scope 2 guidance for companies quantifying and reporting their greenhouse gas (“GHG”) emissions.  If finalized as proposed, the guidance would have significant impacts on how companies plan their renewable energy investments and measure progress toward their climate goals.  The main changes proposed to the market-based emissions accounting method are to require, for the first time, hourly matching of renewable energy purchases and to limit contractual instruments to electricity from “deliverable” sources that could plausibly be part of the relevant energy grid mix.  For the location-based method, the proposed updates include introducing a new emission factor hierarchy with stricter geographic and temporal precision.  

This post provides an overview of the proposed changes to the Scope 2 guidance and the potential effects of those changes for stakeholders to consider.  The GHG Protocol is seeking stakeholder feedback on its proposals via public consultation.  Feedback is due December 19, 2025 and can be submitted via the Consultation Survey. 

Brief Background on the GHG Protocol

The GHG Protocol establishes comprehensive standards for private and public entities to calculate and report their GHG emissions.  While several other initiatives focused on improving how companies report climate-related actions, such as E-Ledgers and the Task Force for Corporate Action Transparency (“TCAT”), have recently gained momentum, the GHG Protocol standards remain the most commonly used standards worldwide for corporate reporting of GHG emissions.  Further, several mandatory GHG emissions frameworks have adopted the GHG Protocol framework, including California’s Climate Corporate Data Accountability Act (sometimes referred to as SB 253) and the European Sustainability Reporting Standards (ESRS) mandated by the European Union Corporate Sustainability Reporting Directive (CSRD).

The GHG Protocol’s Corporate Accounting and Reporting Standard provides a guide for companies to use in quantifying and reporting their GHG emissions, categorizing direct and indirect emissions into three different “scopes.”  In calculating Scope 2 emissions—emissions from the generation of electricity, steam, heating, and cooling a company consumes—the GHG Protocol permits companies to apply their market-based energy procurement instruments, such as renewable energy certificates (“RECs”) and virtual power purchase agreements (“VPPAs”), to offset emissions for reporting purposes.  This framework encourages companies to invest in clean energy through market instruments and is credited with significantly contributing to the 100 gigawatts (“GW”) of clean energy procurement in the United States since 2014. At the same time, some critiques have been leveraged against the use of voluntary, unbundled RECs (where the physical electricity is separate from the renewable environmental attributes), including that they do not directly reduce GHG emissions by purchasers.  These critiques have prompted calls by some stakeholders for increased temporal and geographic granularity that could help improve transparency and spur further decarbonization of the grid.   

Proposed Scope 2 Updates

Under existing Scope 2 guidance, companies must calculate their Scope 2 emissions using two methods: a location-based method and a market-based method.  Under the location-based method, emissions are calculated based on the average emissions intensity of the grid on which the company is located.  This method does not account for differentiated electricity purchases by companies.  Under the market-based method, emissions are calculated based on the emissions of the specific generators from which a company purchases electricity.  When a company purchases low- or zero-emissions electricity through a REC or VPPA, that purchase is included in the company’s emissions calculations even if the electrons that in fact power the company from the grid were generated elsewhere.

Under the proposed updates, companies would continue to report their Scope 2 emissions using the location-based and market-based methods.  However, to improve accuracy and transparency in reporting, the guidance proposes changes to both methods.

Updates to the Location-Based Method

Proposed revisions to the location-based method are intended to reduce ambiguity for how reporters identify the most appropriate emission factor to be used.  Revisions include:

• Factor Hierarchy Updates: A new location-based emission factor hierarchy would be based on spatial boundaries (local, operational grid, grid-wide, or national), temporal granularity (hourly, monthly, or annual), and the emission factor type (consumption- or production-based).

• Precision Requirements: Organizations would be required to use the most precise emissions factors accessible to them, prioritizing the most precise location information first, followed by the most precise time matching.  For instance, given the choice between using a national emission factor with hourly temporal resolution and a local emission factor with annual temporal resolution, the latter should be used.

• Definition of “Accessible”:  Accessible emission factors are defined as publicly available, free to use, and from credible sources.  Reporting organizations would not be required to use any factors that cannot be freely accessed in the public domain.

The proposed guidance also contains possible feasibility measures to support implementation, including load profiles and a phased implementation.  Load profiles would allow organizations without access to hourly activity data to approximate hourly data using monthly or annual data.  Under a phased implementation, staged effective dates for requirements, which are yet to be determined, would give stakeholders time to adapt and develop tools for compliance.

The GHG Protocol is requesting feedback on the feasibility and potential impacts of the proposed updates to the location-based method, including implementation readiness, regional or organizational challenges accompanying the new emission factor hierarchy, decision-making utility, and administrative or cost considerations.

Updates to the Market-Based Method

The guidance also contains several proposed updates to the market-based accounting method.  Importantly, the method would continue to allow companies to use contractual instruments such as RECs and VPPAs to reduce reported emissions if they meet certain criteria.  However, the guidance proposes significant revisions to the criteria that the instruments need to meet in order to qualify.  The updates include:

• Hourly Matching: All contractual instruments would be required to be matched to electricity use on an hourly basis.  As discussed below, there would likely be some exemptions for smaller organizations.

• Deliverable Market Boundaries:  All contractual instruments would be required to be sourced from generation deemed “deliverable” to the consuming load.  Deliverable means that electricity from a generator could plausibly be part of the mix serving the organization through a connective grid.  Where grid operations or interconnections differ from national borders, the GHG Protocol will issue proposed defined market boundaries. 

• New Standard Supply Service (“SSS”) Guidance:  The guidance would clarify how companies may account for electricity from publicly funded, mandated, or shared resources.

• Updated Residual Mix Factors: The guidance would eliminate the option for companies to use grid-average emission factors when no residual mix is available.  Instead, for consumption not matched through contractual instruments, organizations would be required to use either a residual emission factor that excludes all claims and SSS contractual instruments, or a fossil-only grid-average or fossil emission factor.

The guidance includes several potential implementation measures that would be designed to ensure that the proposed changes are feasible for reporting organizations.  These include:

• Exemption Thresholds:  Smaller organizations, which are yet to be defined, would be exempt from the hourly matching requirement (but not from the deliverability requirement).

• Load Profiles:  Organizations without access to hourly activity data or hourly contractual instruments could approximate hourly data from monthly or annual data.

• Legacy Clause:  Organizations with existing contractual instruments, such as VPPAs, could continue to count those instruments for a period of time, even where they do not meet the proposed hourly matching and deliverability requirements.  The GHG Protocol is seeking feedback on whether stakeholders support including a legacy clause, and, if so, what design features (including eligibility criteria, duration, and disclosure requirements) would make it most effective.

• Phased Implementation:  To facilitate a smooth transition to new requirements, implementation is expected to phase in over multiple years.  The Scope 2 guidance will likely be finalized in late 2027, with an effective date several years after finalization. 

The GHG Protocol is requesting feedback by December 19 on several aspects of the proposed updates to the method-based accounting method, including whether companies support each of the proposed measures and the effects of the measures on the integrity, impact, and feasibility of the market-based accounting method.  More detailed descriptions of the proposed changes, along with a full list of questions posed to reporting organizations, can be found in the GHG Protocol’s Public Consultation Materials.

Considerations for Stakeholders

Both the proposed hourly matching and deliverability requirements for the market-based accounting method would represent a significant change and increased stringency for companies making renewable energy claims based on RECs and VPPAs.  Proponents argue they would strengthen credibility in corporate claims and could spur the development of more energy storage and clean firm power, while critics caution that they could increase costs and reduce participation in voluntary markets, potentially slowing investment in renewables.

For many companies with ambitious renewable energy goals, the changes would make it more difficult to reach those targets while reporting under the GHG Protocol.  To reach a 100% renewable energy target, companies would need to purchase clean energy within their geographical boundary that matches their real-world demand during the different hours of each day.  In some markets, sufficient renewable resources may not be available at certain times, meaning companies would either fall short of their targets or need to invest in energy storage or other clean firm resources.  On the other hand, the increased temporal and geographic granularity would improve the accuracy of companies’ inventories and could spur further decarbonization of the most in-demand parts of the grid, ultimately leading to lower emissions system-wide.

The ultimate effects on companies will depend on the details of the finalized guidance and the specific situation of a given company.  Many of the details of the proposed updates are still under development, including the U.S. deliverable market boundaries, exemption thresholds, and the implementation timeline.  Stakeholders are encouraged to assess the potential impacts of the guidance on their clean energy investments and provide feedback to the GHG Protocol accordingly. 

Consequential Accounting Consultation

Some stakeholders have expressed concern that the proposed changes to the Scope 2 guidance would not capture important decarbonization impacts from companies’ general renewable energy investments.  In response, the GHG Protocol plans to develop a parallel consequential accounting framework that would allow companies to quantify the emission impacts of procurement strategies that are currently countable under Scope 2 but may no longer qualify under the new guidance, such as VPPAs that do not meet the proposed deliverability criteria.

A consequential accounting framework could offer a different way of evaluating the benefits of clean energy resource investments.  For example, under the proposed Scope 2 guidance, a company’s decision to move forward with investing in a new solar project may no longer appear attractive because the solar project would only produce energy during hours for which the company has already procured renewable energy instruments.  However, a consequential accounting analysis may show that the solar project would displace gas generation in the region, thus lowering the overall emissions of the grid in that area. 

The GHG Protocol has not yet issued a proposed consequential accounting framework but is gathering stakeholder feedback to inform its future development.  Additional information about consequential accounting, along with a full list of questions posed to stakeholders, can be found in the GHG Protocol’s Consultation Materials.

Conclusion

The GHG Protocol’s proposed Scope 2 guidance could have profound impacts not only on how companies calculate and report their emissions, but also on how they invest in the energy transition.  Stakeholders should consider the potential impacts of the proposals on their organizational goals and offer feedback to the GHG Protocol by the consultation deadline of December 19, 2025.

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Covington’s Carbon Management and Climate Mitigation group has extensive experience and capabilities advising on climate mitigation strategies.  Our global team is ready to assist clients as they engage with the current public consultation processes, understand and apply the GHG Protocol, implement their corporate net-zero goals, and identify strategic partnerships and funding opportunities to accelerate the energy transition.