Scope 1 and Scope 2 Emissions: Building a Solid Inventory Foundation

By Beatriz Navarro, Head of Product

Scope 1 and Scope 2 are usually framed as the easy part. They involve your own operations — fuel you burn, electricity you consume — and the calculation methodology has been stable since the GHG Protocol Corporate Standard was first published in 2001. In practice, we consistently see enterprises encounter material errors in their Scope 1 and 2 inventory, not because the methodology is unclear, but because the data collection, boundary definition, and Scope 2 accounting choices are more nuanced than they appear at the outset.

Getting Scope 1 and 2 right matters for two reasons. First, these are the figures your CSRD auditor will scrutinize most closely, because they're supposed to be the most straightforward. A material error in Scope 1 or 2 undermines the credibility of your entire inventory, including Scope 3. Second, Scope 1 and 2 performance data feeds your SBTi near-term targets, your transition plan milestones, and your year-on-year emission intensity KPIs. Errors here distort every downstream calculation.

Setting the Organisational Boundary: Operational Control vs Equity Share

Before any activity data flows into the calculation, you must define the organisational boundary — the set of operations and assets for which you are accounting. GHG Protocol offers two approaches: operational control and equity share.

Operational control is the more common choice for CSRD disclosures. Under operational control, you include 100% of the emissions from operations over which you have the ability to introduce and implement operating policies. This means wholly-owned subsidiaries are in at 100%, and assets you operate on behalf of a third party (contract manufacturing, outsourced facilities) are assessed against the policy-authority test. Financial control is a sub-variant: you include entities you consolidate in your financial statements.

Equity share includes emissions proportional to your ownership stake. A 30% equity position in a joint venture contributes 30% of its emissions to your inventory, regardless of whether you operate it. Equity share is sometimes required for financial institutions and investment companies disclosing financed emissions, but for industrial enterprises, operational control is typically more appropriate and easier to document.

The boundary decision has significant implications. Enterprises with complex JV structures — common in manufacturing, energy, and real estate — can see 15-30% differences in total Scope 1 inventory depending on which boundary approach they apply. Choose early, document the rationale, and apply it consistently across periods to avoid restatement triggers.

Scope 1: Direct Emissions Categories

Scope 1 covers direct GHG emissions from sources owned or controlled by the reporting organisation. These fall into four categories:

• Stationary combustion: fuel burned in boilers, furnaces, turbines, and backup generators at owned facilities. Data sources are utility invoices, fuel purchase records, or meter readings. The emission factor applied to each fuel type should come from IPCC AR6 combustion factors or the relevant national energy regulator's published values.
• Mobile combustion: fuel burned in company-owned or leased vehicles and aircraft. Data sources are fuel card records, fleet management system exports, or mileage logs with fuel consumption rates. This category is frequently undercounted when leased vehicles are excluded without documented rationale for the boundary exclusion.
• Fugitive emissions: intentional or unintentional releases of GHGs, primarily refrigerants (HFCs) and methane from natural gas infrastructure. Refrigerant leakage is calculated from recharge records multiplied by the GWP of the refrigerant type. For natural gas distribution or processing, methane emission factors from IPCC or the national regulator apply.
• Process emissions: chemical reactions during manufacturing — calcination in cement production, reduction in steelmaking, fermentation in food processing. These require activity-specific emission factors from IPCC AR6 or sector-specific industrial process databases.

For most service-sector enterprises, stationary and mobile combustion dominate Scope 1, and the calculation is relatively tractable. For industrial manufacturers, process emissions and fugitive refrigerants often represent the largest categories and the highest-risk areas for calculation error.

Scope 2: Market-Based vs Location-Based Accounting

Scope 2 accounts for indirect emissions from purchased electricity, heat, steam, and cooling. The GHG Protocol Scope 2 Guidance (published 2015) introduced a dual reporting requirement: both a location-based and a market-based figure must be disclosed. ESRS E1 carries this forward.

Understanding what each method measures — and why they produce different numbers — is important for accurate CSRD disclosure and for designing an energy procurement strategy that actually lowers reported Scope 2 emissions.

Location-Based Method

Location-based Scope 2 uses the average emission intensity of the regional or national grid where electricity is consumed. The data source is the IEA or national grid operator's annual grid emission factors, typically expressed in tCO2e per MWh. This method represents the actual average emissions associated with electricity use in a given geography — it does not reflect any renewable energy purchases or certificates.

Market-Based Method

Market-based Scope 2 uses supplier-specific emission factors from electricity contracts, or instrument-specific factors from energy attribute certificates (EACs) such as Guarantees of Origin (GOs) in Europe or RECs in North America. If a company purchases electricity under a 100% renewable power purchase agreement (PPA) with GO delivery, its market-based Scope 2 for that facility approaches zero — while its location-based Scope 2 reflects the same regional grid average as any other grid-connected facility.

Market-based accounting gives companies the ability to report the emission outcomes of their energy procurement decisions. It is the basis for Scope 2 target-setting under SBTi near-term criteria. But it requires documentation: the GO serial numbers, the delivery confirmation, the contract terms, and the auditor's verification status of the EAC issuer. Without that documentation chain, a market-based claim of near-zero Scope 2 will not survive CSRD assurance review.

"The most common Scope 2 error we see in early CSRD preparations isn't a calculation mistake — it's using market-based figures without the underlying GO documentation. If you can't produce the certificate serials and the registry records, you have a location-based inventory whether you intend to or not."

— Beatriz Navarro, Head of Product, Carbonkindle

Data Sources Finance Teams Typically Overlook

When finance teams take ownership of CSRD data collection — a pattern we see more frequently as CSRD brings sustainability data into the financial reporting process — several data sources that the sustainability team takes for granted are often not on the initial data request list:

• Backup generator fuel consumption: diesel generators run during grid outages contribute Scope 1 emissions that are never captured in utility invoices. Facilities management records or fuel supplier invoices are the data source.
• Company car allowances vs fleet cards: employees who take a car allowance rather than a company car may still drive company-owned vehicles in some compensation models. The boundary determination — company-owned vs personal vehicle used for business — affects whether combustion is Scope 1 or falls into Scope 3 Category 6 (business travel).
• Leased office electricity: for leased office space where the landlord pays the electricity bill, electricity consumption data must be obtained from the landlord or estimated from floor area and intensity benchmarks. This is a legitimate data gap under GHG Protocol, but it must be documented and quantified as a gap in the disclosure, not silently omitted.
• Heat and district energy purchases: purchased steam or district heating is Scope 2, but often doesn't appear in facility energy cost centers because it's embedded in property service charges. A complete Scope 2 inventory requires an energy survey of each significant facility, not just a pull from accounts payable.

Building the Base Year and Handling Restatements

A Scope 1 and 2 inventory is a time series, not a snapshot. ESRS E1-5 requires disclosure of a base year inventory against which targets and progress are measured. The GHG Protocol recalculation policy specifies that the base year must be restated when structural changes — acquisitions, divestitures, boundary changes, methodology changes — would materially affect comparability with the base year.

The most common restatement trigger for Scope 1 and 2 is a significant acquisition or divestiture: you buy a manufacturing plant with 50,000 tCO2e of annual Scope 1 emissions, and your prior-year base year figures must be restated to include that plant as if it had always been in scope. Without this restatement, year-on-year comparison is misleading — the apparent emission increase is boundary expansion, not operational growth.

The threshold for recalculation significance varies. A common practice is to restate when a structural change affects more than 5% of total base year inventory. Whatever threshold you adopt, document it in your methodology disclosure — ESRS E1 requires disclosure of your recalculation policy.

A well-constructed Scope 1 and 2 inventory is the foundation every credible Scope 3 disclosure and every defensible net-zero target depends on. Invest the methodology design time at the start, and the rest of your CSRD preparation becomes substantially more tractable.