How GHG Protocol Revisions Will Affect Climate Disclosures

10 minute read | June.08.2023

This article was written by Teresa Hill, Stacy Kray, Lana Le Hir and Zack Tavlin and published in Law360.

Greenhouse Gas Protocol is a partnership between the World Resources Institute and the World Business Council for Sustainable Development.

Currently, it is considering revisions to several aspects of the protocol — including the corporate accounting and reporting standard, the Scope 2 guidance and the Scope 3 standard.[1]

These standards are widely used by companies and other organizations to measure and report GHG emissions. Many global reporting and certification bodies — like the CDP, formerly the Carbon Disclosure Project, used by 18,000 entities worldwide, and the Science-Based Targets Initiative — promote or require their use.[2]

The GHG Protocol standards also have been directly or indirectly endorsed by governmental authorities — including the U.S. Environmental Protection Agency, the U.S. Securities and Exchange Commission, the Federal Trade Commission and the European Union's Corporate Sustainability Reporting Directive — for use in regulatory regimes.[3]

With respect to its Scope 2 guidance, among other revisions, GHG Protocol is currently considering potential changes to market-based and location-based accounting standards for disclosure of Scope 2 emissions.

The issue is an important one — especially for entities that publicly disclose GHG emissions and net-zero targets using these accounting methods. This article focuses on these potential changes.

Scope 2 Emissions and RECs

The EPA defines "Scope 2 emissions" as indirect emissions associated with the purchase of energy to fuel a company's operations — e.g., electricity, steam, heat or cooling.[4] An organization's actual Scope 2 emissions will vary, depending on the mix of renewable energy supplied through the local power grid.

For example, in the U.S., some utility grids have a high mix of renewable power — e.g., those with renewable portfolio standards — while others rely heavily on fossil fuels with a high carbon content, such as petroleum products and coal.

To meet GHG emission goals or targets — or for other reasons, such as to respond to customer demands or support the financing of renewable energy projects — many organizations purchase the right to claim renewable power use through legal instruments called renewable energy credits.[5]

In the U.S., an REC typically confers the right to claim ownership of the environmental benefits, including the associated GHG emissions, of one megawatt-hour of renewable electricity.

Many organizations use RECs from solar and wind projects, which do not emit GHGs during energy generation, to offset emissions from nonrenewable — e.g., traditional fossil fuel — energy use. RECs can be bought and sold unbundled from the energy generated, meaning that the project owner can sell the energy and the RECs to different consumers.

How the Use of RECs Differs in the Two Accounting Methods

The Scope 2 guidance provides two distinct accounting methods for calculating GHG emissions.

There are many nuances to the methods. But for purposes of this article, the important thing to note is that market-based accounting allows an organization to use market-based instruments — such as unbundled RECs or renewable energy power purchase agreements — to report on Scope 2 emissions.

This can be done even if the energy flow from the renewable facility is not actually used by the organization.[6] For example, using the market-based method, an organization could use RECs generated by a solar project in California as credits against energy generated by fossil fuel at a facility in West Virginia.

In contrast, the location-based method requires an organization to use average emissions factors for the specific grid mix of its operations in calculating GHG emissions — regardless of whether the organization has purchased any RECs.[7] Under the current Scope 2 guidance, many companies are required to report using both reporting methods.[8]

Some critics have questioned how effective RECs are at reducing carbon emissions, since they allow companies to increase their actual GHG emissions, but still claim progress toward net-zero goals when such emissions are accounted for net of purchased RECs.[9]

But proponents of RECs note that they are a source of financing for new, additional renewable projects that would not otherwise exist, and that they promote a swifter transition to a low carbon economy.[10]

About half of the questions in the recent stakeholder survey on the Scope 2 guidance requested comment on potential changes to these two accounting methods — including their potential elimination from use for Scope 2 emissions.[11]

Preliminary Results of GHG Protocol Survey

GHG Protocol held a webinar on May 2 to discuss the preliminary findings of the Scope 2 guidance survey.[12] More than half of the responses came from companies, with the remainder from a combination of consultants, industry groups, NGOs, governments and others.

With respect to input on the two accounting standards, GHG Protocol reported that a number of respondents supported establishing location-based accounting as the primary metric, and requiring more granular reporting. For example, PricewaterhouseCoopers LLP responded:

We strongly recommend that GHG Protocol prioritize ... the location-based method — that is, based on the physical location of the consumption and the actual electricity grid generating the power — because it is more representational, meaningful, and actionable. ... Further, we believe that GHG Protocol should continue to evaluate methods to refine reporting ... [f]or example, time of day power usage information, calculations based on daily rather than monthly information, [and] more localized reporting.[13]

Other respondents, however, favored retaining, but strengthening, the market-based standard. For example, the Clean Energy Buyers Association — composed largely of corporate purchasers and renewable energy developers, including nearly 100 companies from the Fortune 500 list — submitted comments through an affiliated institute in support of updating the market-based standard.

The CEBA's comments advocated for revising the market-based standard in ways that would help expand carbon-free electricity procurement options, rather than narrow them; encourage ambition for decarbonization, including for those with limited resources and challenging locations; and enhance the momentum of voluntary energy procurement as a complement to policymaker action to decarbonize the grid.[14]

In a similar vein, KPMG International counseled that the market-based standard could be optimized by requiring more disclosure, including by:

presenting the percentage of electricity purchased via power purchase agreements, virtual power purchase agreements and renewable energy certificates [to] communicate ... the efforts and approaches an entity is taking to physically source its energy from lower emissions or no emissions sources.[15]

What's Next

Somewhat surprisingly, the webinar opened with a discussion of revisions to GHG Protocol's own internal governance procedures, rather than a discussion of revisions to the guidance itself.

Given that significant changes to the Scope 2 guidance could have ripple effects in voluntary and compliance carbon markets and affect broader decarbonization efforts, the organization's focus on internal procedures seems warranted.

But it may portend a much slower process than many had hoped for, at a time of increased reliance on the standards by other standard-setting organizations, credit verifiers and regulators.

On June 5, the organization announced that the "official start" of the revision process "will be informed by the planned restructuring of GHG's Protocol's goverance," and that it expects to release revised draft text in 2024 with final guidance in 2025.[16]

As for the direction of possible revisions, while little clarity was provided during the webinar, a recent study of corporate practices in Scope 2 accounting may offer clues. The study, titled "Renewable Energy Certificates Threaten The Integrity Of Corporate Science-Based Targets," was done in collaboration with GHG Protocol, which called the study a first step in revisions to the Scope 2 guidance.[17]

The study suggested that relying on market-based accounting alone may have the unintended consequence of slowing overall reductions in global emissions, because it allows reporting entities to hold their own emissions steady — or even increase them — but still report progress toward emission reduction goals, by subtracting RECs from actual GHG emissions.

The study acknowledged, however, that relying on location-based accounting alone could also have negative consequences, if it decreases investment in new projects that otherwise would be funded by RECs or power purchase agreements credited under the market-based system.[18]

As one potential fix to the perceived problem that market-based instruments may not result in meaningful actual reductions in emissions, the study suggested that GHG Protocol consider strengthening market-based accounting to require that RECs demonstrate "additionality" — that is, that new renewable energy generation would likely not have occurred without the RECs.[19]

As more and more participants in the global economy come to rely on standards issued by GHG Protocol as a common language of communication on climate action — and as disclosure that was once viewed as voluntary and proactive becomes more and more heavily regulated and scrutinized — GHG Protocol would do well to be thoughtful in its revisions, considering the implications for a global economy increasingly focused on the importance of climate change efforts.

GHG Protocol anticipates a multiyear process to consider revisions, and indicated a willingness during the webinar to continue to take comments from stakeholders, although the official deadline has passed. If your organization has an interest in these matters, we encourage you to take steps to ensure your views are heard, by contacting GHG Protocol, or by engaging with trade groups or others participating in the process.

Companies also should continue to assess their approach to reporting under the GHG Protocol standards in relation to evolving government regulation on the reporting and disclosure of GHG emissions, under regimes such as those mentioned in the introduction to this article.

[1] GHG Protocol, Survey on Need for GHG Protocol Corporate Standards and Guidance Updates, Scope 2 emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling. Scope 3 emissions are upstream and downstream indirect emissions within a company's value chain — i.e., suppliers and customers.

[2] SBTi Corporate Net Zero Standard, Version 1.1, April 2023, at 15,

[3] Draft SEC Climate Change Regulation, issued March 21, 2022, FTC regulations governing renewable energy claims are included in the Green Guides. 16 CFR 260.15. The FTC is currently considering revisions to the Green Guides; see The text of the EU's CSRD can be found at

[4] EPA, Scope 1 and Scope 2 Inventory Guidance,,of%20the%20organization's%20energy%20use.

[5] Terminology differs outside the U.S., but the principles are similar.

[6] GHG Protocol Scope 2 Guidance, GHG Protocol, at 26.

[7] Id.

[8] Id.

[9] Problematic corporate purchases of clean energy credits threaten net zero goals, by Gautam Naik, S&P Global,

[10] Id.

[11] See questions 15–27 of Survey on Need and Scope for Updates or Additional Guidance, Scope 2 Guidance Survey Memo, GHG Protocol,

[12] A recording of the GHG Protocol webinar can be found at

[13] Scope 2 Survey Response, Appendix B, PricewaterhouseCoopers,

[14] CEBI's recommendations for updating the market-based standard included adding guidance to create a hierarchy of energy attributes, including those related to location, time and emissions factors; making the guidance technology-neutral; adding standards for energy storage and clean hydrogen; and account for the value of utility decarbonization from a combination of purchases and grid-supplied carbon-free energy. CEBI Blog, "CEBI's Four Key Recommendations for Updating the Greenhouse Gas Protocol Will Help Advance Systemic Grid Decarbonization," by Priya Barua and Doug Miller, Feb. 15, 2023,

[15] Letter dated March 12, 2023, from KPMG to World Resources Institute and World Business Council for Sustainable Development at 8,

[16] GHG Protocol Newsletter, "Standards Update Process: Where We Are Now," June 5, 2023.

[17] GHG Protocol Press Release, "GHG Protocol to assess the need for additional guidance building on existing corporate standards," March 31, 2022,

[18] See Anders Bjorn et al., Renewable energy certificates threaten the integrity of corporate science-based targets, 12 Nat. Climate Change 539 (2022),

[19] Id. at 544.