This proposed update clarifies the “same market” criteria in the 2015 Scope 2 Guidance while ensuring that market boundaries accurately reflect how electricity is regulated and traded in practice and helps users of the Scope 2 Guidance apply the market-based method more consistently while preserving the flexibility for organizations to implement more granular geographic procurement strategies or prioritize projects based on their impacts.
Proposed Update to Quality Criteria 5
Criteria 5: Market Boundaries. All contractual instruments used in the market-based method for Scope 2 accounting shall be sourced from the same electricity sector in which the reporting entity’s electricity-consuming operations are located or from linked electricity sectors where cross-border transactions of energy and attributes occur.
Market boundaries are limited to the geographic boundaries of the electricity sector(s) in which the reporting entity’s electricity-consuming operations are located, inclusive of linked electricity sectors, where they exist.
An electricity sector encompasses the entire system of physical infrastructure, markets, and regulatory frameworks involved in the generation, transmission, distribution, and consumption of electricity. The decision-making authority that establishes the boundaries of an electricity sector is vested in national governments such that electricity sectors follow national borders. Where national governments share electricity regulatory frameworks, markets, and physical infrastructure, multinational electricity sectors are established.
Market boundaries can also encompass linked electricity sectors where adjacent countries share physical electricity infrastructure and trade energy and attributes across borders.
Evaluation against GHG Protocol Decision-Making Criteria
INTEGRITY
Market boundaries for contractual instruments must align with electricity sector boundaries to ensure that scope 2 emissions reporting accurately reflects the reality of how electricity and Energy Attribute Certificates (EACs) are transacted—including for regulatory compliance. Requiring artificially narrow geographic market boundaries under the GHG Protocol risks misrepresenting the electricity that customers are genuinely purchasing and undermines the purpose of transparent scope 2 accounting.
Electricity sectors typically have national boundaries. For example, national governments have authority over the transmission and wholesale sales of electricity within a country’s boundaries, energy markets are structured through policies and standards that rely on a national legal framework, and energy infrastructure development follows national energy security priorities. Where national governments share electricity regulatory frameworks, markets and physical infrastructure (as in the EU[1]) multinational electricity sectors are established and should be recognized by the GHG Protocol.
In some instances, cross border transactions of electricity and mutually recognized attributes occur over interconnected physical infrastructure where national governments have not entered into a shared regulatory framework. In these cases, national electricity sectors can be considered sufficiently linked to be of the same market. For example, in North America, bilateral coordination between FERC (U.S.) and NRCAN (Canada) enables cross-border reliability and market arrangements despite the lack of a shared regulatory body.
The proposed requirement for EAC procurements to originate from narrowly defined geographic areas doesn’t align with the principle of integrity. Due to the nature of the power grid, electricity cannot be traced from a specific generator to a specific end user. Electrons do not travel across the grid, and electric grids cannot physically deliver specified power. In this sense, no generation is physically deliverable to a customer. The only mechanism for allocating exclusive rights to claim the attributes of procured generation is a contractual instrument and the regulatory and legal system through which it is contractually delivered and enforceable. Efforts to attribute physical distinctiveness to a commodity that is inherently non-differentiated—or to model transmission constraints through layered financial proxies—do not enhance the scientific validity of generation attribute claims.
IMPACT
National and multinational market boundaries have historically been conducive to scaling renewable development because they allow renewable energy to be deployed in resource-appropriate and cost-effective locations, regardless of where demand is located. This geographic and economic flexibility reduces overall system costs, attracts greater investment, and ultimately results in more renewable generation than would be possible within fragmented or localized markets. Enhanced availability of renewable purchasing options has been shown to increase demand for renewables overall, as shown year over year in NREL’s Status and Trends in the U.S. Voluntary Green Power Market.[2]
Due to topographic limitations, renewable generation is not always readily available in precisely the same area as load. The ability to legally transact and claim the use of renewable generation in a different geographic area within electricity sector boundaries facilitates greater voluntary renewable energy demand that helps drive new renewable energy project financing.[3]
Under the current market-based scope 2 “physical deliverability” proposal, companies with limited financial resources or who operate in regions with limited grid connected renewable energy will likely not be able to reflect any procurement they can make in their scope 2 GHG emissions. This will disincentivize buyers as demonstrated by Green Strategies, Inc.’s recently released survey detailing how different renewable energy customers would be impacted by a physical deliverability requirement in scope 2. They found that only 30% of respondents currently prioritize procuring from the same grid as their facility, and 70% have active procurements that would not be eligible under smaller market boundaries. There is no scenario where a reduction in demand for clean or renewable energy leads to a positive impact on the climate.
FEASIBILITY
National and multi-national market boundaries provide ample purchasing and supply options to electricity customers. Such boundaries are already in use and facilitate credible regional trading for example, between U.S. and Canada, or between EU countries. Credible tracking and trading systems as well as legal parameters are also easily applied and are often already in place on national and multi-national market contexts.
Electricity sector boundaries are also more stable than smaller regional boundaries constrained by transmission infrastructure. Under such an approach market boundaries will need to be updated as transmission systems expand and evolve, potentially stranding more investments over time and further challenging companies’ procurement efforts. By contrast, maintaining consistent sectoral boundaries ensures continuity that better facilitates long-term planning.
Notes
[1] In the EU, member states operate under a shared regulatory framework for electricity markets, promoting trading through the European Network of Transmission System Operators for Electricity (ENTSO-E), and the EU Clean Energy Package ensures legal consistency across borders. Such organizations (ENTSO-E, FERC) coordinate grid planning, reliability standards, and operational procedures across jurisdictions.
[2] O’Shaughnessy, Eric, Sushmita Jena, and Jenny Sumner. 2024. Status and Trends in the U.S. Voluntary Green Power Market: 2022 Data. Golden, CO: National Renewable Energy Laboratory. NREL/TP-7A40-88219. https://www.nrel.gov/docs/fy24osti/88219.pdf.
[3] O’Shaughnessy, Eric, A More Comprehensive View of the Impacts of Voluntary Demand for Renewable Energy (September 11, 2024). Available at SSRN: https://ssrn.com/abstract=4953515 or http://dx.doi.org/10.2139/ssrn.4953515