Understanding market-based Scope 2 emissions under AASB S2

When it comes to reporting greenhouse gas (GHG) emissions, clarity around what’s required and what’s optional can make a big difference for Australian entities. Under the new AASB S2 Climate-related Disclosures standard, there’s a clear direction: entities must disclose their location-based Scope 2 greenhouse gas (GHG) emissions only; there’s no mandate to report market-based Scope 2 emissions.

This approach is set out in paragraph 29(a)(v) of AASB S2, which requires disclosure of location-based Scope 2 emissions and information about any contractual instruments that help users understand those emissions. The emphasis here is on transparency and consistency, ensuring users have the information they need without overcomplicating reporting requirements.

The Australian Accounting Standards Board (AASB) reinforced this position in its Basis for Conclusions, noting that while market-based Scope 2 emissions can provide useful insights, mandatory disclosure isn’t required. Instead, entities have the flexibility to voluntarily disclose market-based emissions if they believe it adds value for stakeholders.

In this article, we explore what these requirements mean in practice, the rationale behind the AASB’s approach, and practical considerations for entities weighing up voluntary disclosure of market-based Scope 2 emissions.

What are market-based Scope 2 emissions?

Two methods are available to measure Scope 2 GHG emissions in compliance with the GHG Protocol:

• Location-based emissions are calculated using average emissions factors for the electricity grid in the region where the energy is consumed. This approach reflects the emissions intensity of the local grid, regardless of any specific electricity contracts or renewable energy purchases an entity may have.
• Market-based emissions, on the other hand, take into account contractual instruments such as renewable energy certificates, power purchase agreements (PPAs), or other agreements that directly link an entity’s electricity consumption to specific sources of electricity. This method allows organisations to reflect the impact of their purchasing decisions, such as buying renewable energy, on their reported emissions.

As noted above, both methods are recognised under the GHG Protocol, but under AASB S2, only location-based Scope 2 emissions are required to be disclosed. Entities may choose to report market-based emissions voluntarily if they believe it provides useful information for stakeholders.

Why does this matter?

The market-based method allows organisations to demonstrate the effect of their procurement choices on supporting renewable energy and reducing their carbon footprint. It also requires robust documentation and transparency about the contractual instruments used.

Why isn’t market-based Scope 2 emissions disclosure mandatory?

The decision not to mandate market-based Scope 2 emissions disclosure under AASB S2 was made after careful consideration and stakeholder consultation. While early proposals suggested requiring entities to report market-based Scope 2 emissions, the AASB ultimately determined that such a mandate was unnecessary. This is because entities already have the flexibility to voluntarily disclose market-based emissions if they believe it adds value for users of their climate-related financial disclosures. Additionally, AASB S2 noted that entities reporting under the National Greenhouse and Energy Reporting Scheme (NGER) can elect to include this information in their disclosures, should the regulator require them to do so.

As a result, under AASB S2, reporting of market-based Scope 2 emissions remains voluntary, allowing organisations to tailor their sustainability reporting to best meet stakeholder needs and regulatory developments.

How should entities disclose market-based Scope 2 emissions?

If an entity chooses to voluntarily disclose market-based Scope 2 emissions, it’s important to present this information clearly and consistently. Under AASB S2, only location-based Scope 2 emissions are required as part of the main greenhouse gas (GHG) inventory. Market-based emissions, if disclosed, should be included as a complementary note or alongside the main GHG statement, not as part of the mandatory GHG inventory.

For entities electing to report market-based emissions, the GHG Protocol requires them to calculate and disclose these emissions across all facilities, not just those with specific contractual instruments. This approach ensures completeness and consistency. Where market-based emissions factors are not available for a particular facility or jurisdiction, the location-based emission factor should be used instead.

By following these principles, entities can provide transparent and meaningful information to stakeholders, while maintaining alignment with both Australian and international sustainability disclosure standards.

Calculating market-based emissions

If your organisation chooses to voluntarily disclose market-based Scope 2 emissions, it’s important to use recognised methodologies and reliable data sources. The following resources provide guidance and emission factors for Australian entities:

• The GHG Protocol Scope 2 Guidance outlines measurement principles and hierarchy of emission factors, ranging from energy attribute certificates and direct contracts to supplier emission rates and grid-average factors.

This hierarchy helps entities select the most precise emission factors available for each facility. Where certificates or contracts are unavailable, supplier rates or grid averages should be used.

• Australian National Greenhouse Accounts Factors 2025: The latest emission factors and methodologies for calculating market-based emissions in Australia are published by the Department of Climate Change, Energy, the Environment and Water.
• Voluntary market-based scope 2 emissions guideline: This guideline provides additional instructions for voluntary market-based disclosure for entities reporting under the National Greenhouse and Energy Reporting (NGER) Scheme.

Using market-based metrics for Scope 2 targets

Entities may set their own targets for reducing Scope 2 emissions and choose to track progress using market-based metrics. Since targets are entity-specific, it’s acceptable to use market-based emissions as the basis for measurement, provided the chosen metric is clearly disclosed in sustainability reports, as required by AASB S2 paragraph 33(a).

How BDO can help

If you’re considering voluntary market-based Scope 2 emissions disclosure and/or setting electricity emission reduction targets, ensure you’re using the most accurate data and methodologies available. Contact our sustainability reporting team for tailored advice on best practice and compliance with AASB S2. As reporting standards and legislation evolve, entities should monitor regulatory updates and adapt their disclosures accordingly.