CO2 accounting: location-based vs. market-based

In times when sustainability and the reduction of CO₂ emissions are gaining in importance, it is becoming increasingly important for companies to present their environmental footprint transparently. The CO₂ balance sheet, which records a company's CO₂ emissions, plays a central role in this. There are two common approaches to calculating electricity consumption and the associated emissions: the location-based and the market-based approach. But what exactly do these terms mean and how do they differ? This guide sheds light on the differences and shows how companies can use these methods to optimize their carbon footprint.

The location-based approach - what's behind it?

The location-based approach calculates a company's CO₂ emissions based on the average electricity mix in a specific region or country. This approach is based on the assumption that the electricity a company uses comes from the general electricity grid. This means that emissions are calculated on the basis of regional or national electricity production, regardless of whether the company has special electricity contracts.

The average emission factor indicates how much CO₂ is emitted per kilowatt hour of electricity consumed in a region. This value varies depending on the location, as the proportion of renewable energy and fossil fuels is different in each region.

An example of the location-based approach

Let's take a company in Germany that draws electricity from the general grid. The German electricity mix consists of renewable energy, nuclear power and fossil fuels. The location-based approach to carbon accounting uses the average emission factor of the German electricity grid. Even if the company uses green electricity, the calculation is based on the average electricity mix.

Advantages of the location-based approach

This approach reflects the actual state of the regional electricity grid. It shows the influence of electricity consumption on the region's CO₂ emissions and illustrates local electricity generation and its CO₂ impact.

The market-based approach - flexibility through individual procurement decisions

In contrast, the market-based approach takes a company's individual electricity procurement decisions into account. Here, the emissions are calculated on the basis of the company's electricity supply contracts. If a company purchases green electricity, for example, it can take this into account in its carbon footprint and reduce its CO₂ emissions accordingly.

An example of the market-based approach

A company concludes a contract with an electricity provider that supplies 100% green electricity from renewable energy sources. In this case, the company can set the emissions from electricity consumption in the carbon footprint to zero, as the energy comes from climate-friendly sources.

Advantages of the market-based approach

This approach enables companies to clearly document their efforts to reduce CO₂ emissions. By switching to green energy providers, companies can not only reduce their emissions, but also incorporate sustainable investments into their carbon footprint.

Conclusion: A flexible approach for a comprehensive carbon footprint

To get a complete picture of their CO₂ emissions, companies should consider both approaches. The location-based approach provides an overview of general electricity consumption and regional emissions, while the market-based approach emphasizes individual efforts to reduce emissions. The combination of both methods enables companies to create a transparent carbon footprint and take targeted measures to reduce their environmental footprint in the long term.