Scope 3.1 Emissions: How to Measure and Reduce Value Chain Impact

Key Takeaways

• AI's carbon footprint has two distinct parts: embodied emissions from building data centers and operational emissions from running them, both accelerating as global data center electricity use is set to double by 2030, and AI-focused use to triple.
• Managing that footprint will require deliberately steering technology architecture, power sourcing, and materials choices, instead of leaving them to react to demand after the fact.
• Eight concrete strategies, from smarter chip design to firm clean power and carbon removal, can cut AI's footprint today, without waiting on new regulation.
• US data centers used 4% of the USA's total electricity in 2024, and are projected to use as much as 15% by 2030.

Introduction

The rapid growth of artificial intelligence (AI), particularly large-language models (LLM) and generative AI, has taken many by surprise. This surge has led to escalating electricity demands at data centers and raised concerns about the strain on the power grid. It has also sparked the construction of new, larger data centers, resulting in growing embodied emissions tied to building and maintaining AI physical infrastructure.

Managing the risks of increased greenhouse gas (GHG) emissions from AI requires investment, expertise, and new approaches to building and operating many aspects of AI operation and supply chains. The immediate task is to understand these risks, gather the necessary information, and to avoid poor outcomes by proactively managing construction, operation, and emissions associated with the growth in AI. In parallel to that work, it's important to recognize that AI can itself be a real force to reduce emissions incrementally and dramatically across a wide range of sectors.

What Is the Carbon Footprint of AI?

The carbon footprint of AI consists of two main parts: "embodied" emissions that come from manufacturing IT equipment and constructing data centers, and "operational" emissions that come from electricity consumed by servers, memory and networking equipment as they perform AI-related calculations. Both of these aspects of emissions are growing as more data centers are built and existing data centers increase their share of power-hungry AI applications like generative LLM searches, AI agents, and AI image generation.

Understanding Electricity Demand for Data Centers

Today, the electricity demand from AI-specific applications is estimated to be less than 1% of global electricity use. To understand this number, it helps to start with the electricity consumed by the 12,000+ data centers worldwide, which was about 1.5% of global electricity consumption in 2024. (This excludes another 0.4% from cryptocurrency mining.) However, most of the computation at these data centers is not AI; instead, it's more conventional applications like e-commerce, video streaming, social media, and online gaming.

The amount of AI-based computation at data centers is hard to determine, but AI-dedicated accelerated servers consumed about one third of overall data center electricity in 2025, or roughly 0.5% of global electricity. Notably, this is projected to grow at 30% annually, much faster than conventional (non-AI) data center electricity use. However, that electricity use results in a relatively small share of greenhouse gas emissions: about 0.5% of global fuel combustion emissions, with AI data centers representing only a small portion of that value.

Still, the demand for AI applications is rapidly growing, and this is likely to drive up the electricity used by data centers and the associated greenhouse gas emissions. The most important implications of this trend are in the US, which hosts about half the world's data centers. Currently, data centers use about 4% of US electricity, but projections for the future range from a low of 9.5% to a high of 15.3% in 2030.

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How Electricity Sources Impact Data Center Emissions

A large increase in electricity use doesn't necessarily result in a similarly large increase in greenhouse gas emissions. Currently, a significant portion of the electricity powering data centers comes from zero-carbon sources such as wind and solar. This is partly because of large, corporate power-purchase agreements (PPAs) signed by leading data center operators, particularly Amazon, Meta and Google. 

US technology companies have been buying renewable energy for years. Global corporate clean energy procurement hit a record 62 GW in 2024, then fell to 55.9 GW in 2025, the first annual decline in nearly a decade, as elevated power prices and policy uncertainty made even large buyers more selective. Meta, Amazon, Google, and Microsoft still accounted for roughly 49% of global clean energy procurement in 2025, with Meta and Amazon alone securing 20.4 GW combined, including 4.7 GW of nuclear power.

The use of low-carbon power means that the net emissions from these data centers is smaller than the electricity consumption numbers might suggest. Of course, a crucial consideration is whether this low-carbon power is truly "additional," meaning that it is being added to the grid and not simply taken away from other uses. Data center operators are also expanding beyond their traditional wind and solar PPAs by exploring novel approaches to try to meet this standard, including geothermal projects in the US and Taiwan.

However, the projected electricity demand from AI applications at data centers will be difficult to meet entirely with low-carbon power, at least in the near term. Despite installing over 43.2 GW of wind, solar and battery projects in the US in 2025, these generators face a long wait for interconnection approval in many parts of the country. Geothermal and hydro power, which offer steady ("baseload") low-carbon electricity, remain constrained in the near term. And the interest in scaling up nuclear power, from restarting full-scale reactors to novel small modular reactors (SMRs), faces significant regulatory, cost, and supply chain hurdles.

One important source of low-carbon electricity that has not received enough attention is natural gas-fired power equipped with carbon capture and storage (CCS). This technology has the potential to significantly reduce emissions from existing power plants and enable new projects to achieve near-zero emissions.

The Role of Embodied Emissions in Data Center Construction

Embodied emissions include all emissions associated with the extraction, production, transportation, construction, and disposal of materials used in construction.

The embodied emissions from constructing data centers are substantial, and include concrete, steel, and IT hardware. Scope 3 GHG emissions for data centers—which include embodied emissions—range from approximately one-third to two-thirds of overall lifetime emissions. At Microsoft, Scope 3 emissions made up about 86% of the company's total FY2025 footprint and grew roughly 12% year over year, with capital goods driving most of that increase. In FY2024, capital goods alone accounted for about 41% of Microsoft's Scope 3 emissions, and purchased goods and services (including IT hardware) accounted for another 34%. In response, Microsoft has started using wood in some data center construction to reduce this impact. While using wood offers a partial solution, it cannot fully offset the emissions of even a single facility, and wood supply chains remain limited.

Major data center operators are working hard to address this challenge, including emphasizing the need for standardized emissions measurements and disclosures for key building materials. Ultimately, achieving deeper decarbonization will require further action to address both operational and embodied emissions.

Eight Strategies to Reduce the Carbon Footprint of AI

1. Adapt Technology Architecture

Efficiency is the foundational strategy in any clean energy approach. As such, chipmakers are developing ways to cut energy use from the outset, such as incorporating more memory directly onto computer chips or hard-wiring basic calculations. These innovations have already reduced energy consumption in new computer chips substantially, in some cases a 96% improvement. Examples of this include NVIDIA's Blackwell platform and the company's newer Rubin platform, launched in 2026, continues that trajectory. Likewise, servers are being designed with new architectures that minimize internal data transfers, delivering additional efficiencies. Even more efficiency gains may be possible with emerging technologies like photonic computing.

2. Optimize Training Geography

There are also significant opportunities to manage AI's energy use through time and space optimization. For example, a large portion of the energy consumption for LLMs occurs during the training phase, prior to a model's deployment for inference. Because these training tasks are not location-dependent, they can be carried out in regions with abundant, low-cost, low-carbon electricity, as part of broader efforts to dynamically move computing tasks to reduce emissions, known as carbon-aware computing. Additionally, server requests for generative AI tasks, like ChatGPT searches, can potentially be routed through systems powered by low-carbon electricity. Although this may add only a few milliseconds of latency, it could substantially reduce emissions from computing operations.

3. Select Appropriately-Sized Models

Not all generative AI tasks, like ChatGPT queries, are equal in terms of energy demand. Leading AI companies are increasingly focusing on using smaller, more efficient AI models to perform these tasks, achieving nearly equivalent quality for far less energy consumption. A notable recent test of that idea came in January 2025, when China's DeepSeek released a model with competitive performance that was trained using less powerful chips and far fewer computing hours than its established rivals. Similarly, many AI applications, such as digital twinning and satellite-based pattern recognition, consume far less electricity than generative LLMs, because of their specialized, relatively efficient models. This can even save energy compared to non-AI approaches: for example, some of the most advanced AI-driven weather prediction models require far less energy than traditional weather simulations, running on a laptop rather than a supercomputer.

4. Address Fugitive Methane Emissions

As data center operators increasingly plan on using natural gas for new electricity supply, reducing upstream emissions from gas production and transmission will be crucial. In the U.S., the Environmental Protection Agency (EPA) 2024 Methane Rule was designed to cut these non-carbon dioxide greenhouse gas emissions by approximately 80%. However, Congress repealed the rule's methane fee in 2025 and barred the EPA from collecting it until 2034. The EPA has since extended compliance deadlines and loosened flare and vent-gas requirements, with litigation over those changes still ongoing. Meanwhile, tools from companies like Kayrros and organizations like Carbon Mapper help detect methane leaks and attribute them to specific operators. The best actors in the industry emit minimal methane, less than 0.5% of what is produced. This standard is achievable for nearly all gas producers.

5. Use Carbon Capture on Power Plants

For both new and existing natural gas-fired power plants, carbon capture and storage technology offers the potential for generating firm, low-carbon power. While many plants currently in operation continue to emit unchecked, this doesn't have to be the case: their emissions can be captured and securely stored geologically. Hyperscalers and project developers should pursue new investments and business models for CCS to reduce existing emissions by 95% or more. For new generation projects, options like NetPower, Arbor, and CES will soon enable emissions abatement of 100%, or even more if combined with biopower to deliver carbon dioxide removal as well. Achieving this will require the development of carbon dioxide pipelines, barges, and storage facilities, which face their own challenges, such as permitting and community approval, that must be addressed directly.

6. Add More Zero-Carbon Power to the Grid

Roughly 8,200 solar, wind, and battery projects in the U.S. are seeking grid interconnection. By the end of 2025, the interconnection queue held roughly 2,060 GW of proposed generation and storage across thousands of projects, and its composition shifted meaningfully. Solar, wind, and storage volumes in the queue all declined year over year (although remained at high absolute levels) while natural gas capacity in the queue grew by 86%. Our blog post, The $5.5 Billion-Dollar Case for Enabling Data Center Load Flexibility, covers one way hyperscalers are working around the wait rather than simply enduring it. These delays need to be addressed, and permitting reform remains an unresolved, live debate. The Manchin-Barrasso bill, which once looked likely to pass, was tabled in December 2024 and never became law. As of 2026, no comprehensive federal permitting law has replaced it. One potential innovation is to use AI to accelerate the development of power flow models and streamline the paperwork required to complete the regulatory process.

7. Invest in Low-Carbon Building Materials

While wood is a promising low-carbon building material, we'll also need glass, concrete, steel, aluminum, and computer chips with minimal embodied carbon emissions. Hyperscalers currently face significant challenges accessing low-carbon versions of these materials, which will eventually be produced using low-carbon hydrogen, carbon capture and storage, and low-carbon electricity. However, these systems require significant investment, workforce development, and permitting to be built. Without these advancements, the embodied emissions from data centers will increase rapidly and significantly in the US, Europe, and globally.

8. Increase Carbon Dioxide Removals

It's already clear that AI applications at data centers will generate emissions from electricity use and embodied carbon that cannot be avoided in the near term. Estimates of current greenhouse gas emissions exceed 300 million tons per year and are likely to grow this decade. These emissions should be measured using full life-cycle analysis and then offset through high-quality carbon removal projects, preferably those with high durability.

To effectively reduce the environmental impact of AI, all eight strategies discussed must prioritize the communities most affected: frontline communities near new infrastructure, consumers facing price increases, and tribal authorities with limited legal protections. Our own research on community opposition to AI data centers found that transparency, not cost or environmental impact alone, is the dominant driver of pushback across 46 stalled or blocked projects. We explore this concern further in our blog, Who Pays for the AI? The Hidden Costs of Rising Data Center Demand, including how ratepayers, not just data center operators, often absorb the cost of new grid infrastructure. Planning should begin by understanding the needs of these communities, ensuring that efforts focus on minimizing harm while maximizing benefits. Equity and justice must be embedded in every stage of planning, production, and permitting across all strategies.

AI's Power Demand Is Indicative of Broader Electricity Demand

AI is just one part of a broader trend of rapidly growing electricity demands, including from electric vehicles, heat pumps, industrial electrification, green hydrogen, and various e-fuels. The challenges AI presents to hyperscalers, communities, regulators, and investors serve as a preview of the complex, far-reaching impacts emerging in other sectors. The same questions keep recurring. Who secures reliable, affordable power fast enough? Who ends up carrying the cost and emissions burden of getting there the wrong way?

Managing AI's power demand will require building the technology architecture, clean firm power supply, and materials strategy to meet that demand deliberately, rather than reactively. AI's carbon footprint underscores the critical need for expertise in clean electricity, grid management, decarbonization, and carbon removal—expertise that will become increasingly vital as more companies realize the complexity and cost of the journey ahead.

Fortunately, AI itself can be part of the solution. With applications in grid management, material science, and advanced manufacturing, AI has the potential to play a powerful role in the climate response.

Read the full 2025 report: ICEF Sustainable Data Centers.

Frequently Asked Questions

How much electricity do AI data centers actually use? 

AI-specific computation likely accounts for around 0.04% of global electricity use today, but data centers overall (most of it non-AI computation) used about 1.5% of global electricity in 2024. In the US, which hosts roughly half the world's data centers, Lawrence Berkeley National Laboratory puts current usage at 4% of US electricity, projected to reach 9.5-15.3% by 2030 as AI-specific demand grows.

Will more efficient AI models like DeepSeek reduce data center energy demand? 

Not necessarily. DeepSeek's 2025 debut showed that competitive models can be trained with less powerful chips and fewer computing hours, but whether that translates into lower total energy demand is contested. Historically, efficiency gains in computing have tended to get absorbed by increased usage rather than reducing total consumption, so the honest answer is that it depends on whether demand growth outpaces the efficiency gained.

What is being done about the embodied emissions from building AI data centers?

‍Embodied emissions, from concrete, steel, and IT hardware, can account for one-third to two-thirds of a data center's lifetime emissions. Strategies include using lower-carbon materials like wood where feasible, developing low-carbon concrete, steel, and chips, and standardizing emissions disclosures for building materials so operators can compare and choose lower-footprint options.

Key Takeaways

• The GHG Protocol's Actions and Market Instruments (AMI) proposal introduces a four-statement reporting framework that will give companies an official place to report carbon dioxide removal (CDR), book-and-claim environmental attribute certificates (EACs), and financed reductions, actions that cannot currently count toward scope 1, 2, or 3 emissions reporting.
• The AMI proposal’s four-statement framework will put current emissions and mitigation efforts side by side in the same report, in the same units, giving sustainability teams a clear, defensible way to make a business case for every major decarbonization investment.
• A full draft standard is expected in 2027/2028. Companies that audit their portfolios against emerging quality criteria and engage now will have time to identify gaps and be best positioned when the standard takes effect.

What Problem Does the AMI Proposal Solve? 

Companies that have purchased carbon dioxide removal (CDR) credits, invested in book-and-claim environmental attribute certificates (EACs) for low-carbon materials, or funded a carbon capture and storage (CCS) project outside of their value chain have probably heard some version of the same question from their board, employees, or investors: "Where does this show up in our GHG Protocol Scopes?" Until now, the answer has been: it doesn’t.  

The current GHG Protocol Corporate Standard was built around a single organization’s emissions inventory. It has no recognized home for CDR, EACs for materials, or financed reductions that occur outside of a company’s operational boundaries (they must be “reported separately”). Companies making real climate investments, therefore, have had no standard way to show it within the Corporate Standard.

The GHG Protocol's Actions and Market Instruments (AMI) proposal aims to fundamentally change that.

What Is the AMI Proposal's Four-Statement Framework?

The GHG Protocol's AMI proposal will replace the single corporate inventory with four distinct Statements, all housed within a single GHG Report:

• Statement 1: A company’s traditional GHG inventory, including operational emissions across scope 1, scope 2 (location-based only), and scope 3.
• Statement 2: Market-based emissions accounting across scopes 1, 2, and 3 using EACs for energy, materials, and other purchased goods. While this is well established for electricity, it will be the first time that similar book-and-claim arrangements for low-carbon steel, concrete, sustainable aviation fuel (SAF), and renewable natural gas can be directly recognized.
• Statement 3: Beyond-value-chain mitigation and CDR. This is the reporting home for CDR credits, superpollutant credits, and financed reductions that mitigate emissions outside a company’s value chain.
• Statement 4: Co-benefits and additional climate impacts, capturing non-GHG benefits arising from corporate action and value that do not fit neatly into emissions accounting.

This change is more than just a rearrangement of reporting - it’s a fundamental expansion of scope. The introduction of Statements 2 and 3 will allow companies to report their mitigation activities in tonnes of CO₂e - the same unit as their emissions. For the first time, a company will be able to show its emissions and its climate investments side by side, in the same language, in the same report.

Why Does This Matter Now?

Today, companies investing in CDR, book-and-claim EACs (other than electricity), and financed emissions reductions face a persistent credibility gap. The investments are real. The climate impact is real. However, since no recognized reporting framework captures them, they are functionally invisible within corporate disclosures. This makes it harder to justify the spend internally and harder to communicate the value externally.

The AMI framework will remove that barrier across every major decarbonization category:

• A company purchasing a book-and-claim EAC for the low-carbon attribute of low-carbon concrete or steel would report the carbon intensity benefit in Statement 2 under scope 3.1. Statement 2 is the appropriate reporting location, rather than Statement 1, because the physical low-carbon concrete/steel product is not actually used by the company.
• An airline or corporate traveler using SAF via a book-and-claim arrangement could report the emissions benefit in Statement 2. Similarly, the airline could now report biogenic emissions from SAF if applicable in Statement 2, scope 1. Corporate travelers would report improvements in Statement 2, scope 3, category 6. Since the SAF does not physically enter the airline’s planes, the benefit is reportable only in everyone’s Statement 2 reports. If the airline can prove physical delivery of SAF onto its airplanes, then the benefits are shifted into everyone’s Statement 1 reports.
• A technology company funding a third-party carbon capture and storage project that receives verified reduction credits would report them in Statement 3, because the CCS project is outside of the technology company’s value chain and the technology company is not buying any goods or services from the CCS project. The third party that operates the CCS project would report lower scope 1 emissions in Statement 1 than they did pre-CCS, since the project impacts their direct emissions.
• A company buying CDR credits from CDR projects outside of their own value chain would report the removals in Statement 3, directly alongside the company’s Statement 1 and 2 emissions. This differs from the previous example because the company is not funding a project; it is buying a service - a CDR credit.

The practical effect will be significant. When clients ask whether a given investment "counts" under the GHG Protocol, the answer will shift from "probably not" to "yes, and here is which statement it belongs in."

What Does This Mean for Hard-to-Abate Sectors?

For sectors like cement, steel, chemicals, shipping, and aviation—where full decarbonization will be extremely challenging—the AMI proposal’s framework offers something that has not previously existed: a multi-faceted reporting strategy.

Companies in these sectors will be able to combine Statement 2 (EAC-based carbon intensity swaps for purchased goods) with Statement 3 (financed reduction credits) to demonstrate near-term progress, while long-term abatement technology matures. A cement buyer, for example, would procure low-carbon cement EACs under a book-and-claim arrangement and report the emissions benefit in Statement 2, while simultaneously funding a CCS project and reporting the resulting reduction credits in Statement 3.

For data centers and large power consumers, the framework adds a new layer to existing scope 2 electricity strategies: the ability to report the embodied carbon benefits of low-carbon materials used in construction and infrastructure, via Statement 2. Lower-carbon natural gas for power procured with EACs would also now be reportable in Statement 2.

For financial institutions and asset managers, the new statements create a richer disclosure environment for both internal reporting and structuring sustainability-linked financial products tied to Statement 2 and 3 performance.

How to Prepare Now

A full draft standard is expected in 2027/2028. Between now and then, the GHG Protocol will define the eligibility and quality guardrails that determine what activities qualify for Statements 2 and 3. Those criteria will matter enormously: they will shape which CDR credits, EAC programs, and financed reduction projects meet the bar for official reporting recognition.

Companies should not wait for final rules to begin preparing. Here are the most important steps to take now:

• Review existing portfolios against the emerging quality criteria for Statements 2 and 3. Not every credit or EAC program will qualify, and identifying the gaps early creates time to act.
• Map current decarbonization investments to the four statements. This exercise alone will reveal reporting opportunities and gaps that are not visible under the current single-inventory framework.

Frequently Asked Questions

What is the AMI proposal, and how does it work? 

The GHG Protocol’s Actions and Market Instruments (AMI) proposal would allow organizations to report: their emissions (statement 1); their market-based emissions across all scopes (statement 2); GHG emissions reductions, avoidance, and removals resulting from their actions (statement 3); and other relevant metrics (statement 4). 

How does AMI compare to the TCAT and/or AIM framework? 

The AMI proposal is very similar to the Task Force for Corporate Action Transparency (TCAT) Mitigation Action Accounting and Reporting Guidance and the Advanced and Indirect Mitigation (AIM) Standard & Guidance. The AMI standard is not finalized, but many concepts from TCAT and AIM (including sector association tests) could be included in the final standard.

Can any climate action really count for the AMI proposal? 

As of September 2026, the AMI standard is not finalized. However, if the final standard adopts the proposed structure, then any verified, high-quality climate action is reportable. Look for guidance from the GHG Protocol to determine verification and quality requirements.

Key Takeaways

• Voice your opinion: The Greenhouse Gas (GHG) Protocol is updating its scope 2 guidance with final standards expected in 2027, which may require hourly and regional matching of renewable energy certificates (RECs), potentially changing how companies claim their electricity-related emission reductions. 
• Act now to secure renewable energy contracts: Companies should move forward with their scope 2 climate commitments today. The GHG Protocol is expected to grandfather in contracts entered into under existing rules.
• Beyond the megawatt hour (MWh): High-impact forward REC contracts measure impact beyond the current annual MWh match requirement, maximizing near-term carbon abatement and social impact for every dollar invested.

Why 2027 Rule Changes Matter for 2030 Targets

Companies racing to meet 2030 climate targets face converging pressures: surging electricity demand, constrained renewable energy supply, and scope 2 accounting rules that could undergo significant changes by 2027.

In a recent webinar, power market experts from Relae (formerly Carbon Direct) and Ever.green explored these changes. Patti Smith, former Electricity Decarbonization Lead at Relae; Julia Millot, Senior Power Decarbonization Manager at Relae; and Liz Pearce, Chief Revenue Officer at Ever.green, unpacked what's changing and how companies can respond.

The stakes are high. Based on GHG Protocol Scope 2 Public Consultation materials, companies may need to match RECs to electricity consumption on an hourly and locational basis as early as 2028. However, we expect the GHG Protocol to grandfather forward REC contracts signed before new rules take effect, enabling companies to continue advancing toward 2030 targets amid rule uncertainty.

Big Changes to the Power Grid

The US power grid is entering sustained demand growth for the first time in decades. "Over the next five years, data centers alone are going to put [the equivalent] of four New York Cities onto the grid," Smith explains, citing forecasts that project around 200 terawatt hours of new data center load through 2030 (i.e. cumulative energy consumption). That demand growth also shows up in near-term grid planning. NERC's January 2026 Long-Term Reliability Assessment forecasts North American summer peak demand rising by 224 gigawatts—a 24% increase—over the next decade, with new data centers cited as the primary driver. These figures highlight that peak capacity and total energy consumption are directly impacted by the data center boom.

Meanwhile, new renewable projects face headwinds. Smith points to interconnection queue delays: "Solar and battery projects are taking three to five years from initial request to operation." At the same time, clean energy tax credits, which were driving wind and solar expansion, have been curtailed. New restrictions on foreign supply chain materials, which are critical to renewable project development, are further hampering the development of new clean electricity projects.

The result: Power demand is rising while new renewable electricity supply is getting throttled. 

The Messy Reality of Electricity Emissions Accounting

Quantifying the emissions from an individual power plant is straightforward. Allocating those emissions to the companies that consume power is far more complicated. 

Grid-supplied electricity comes from many generators that shift constantly, sometimes even second to second. Companies can’t directly measure emissions from a grid-connected load because the generators serving it continuously change. 

Without direct measurement, companies need rules to estimate the emissions they are responsible for. The GHG Protocol’s Scope 2 Guidance provides that framework, establishing how companies estimate electricity-related emissions and how to reduce them through renewable energy purchases.

How Companies Currently Claim Renewable Energy

For the past decade, companies have used renewable energy purchases to achieve their scope 2 emission reduction goals. The most widely used mechanism is the REC, each representing clean energy attributes for one MWh of renewable electricity generated and added to the grid. Currently, when a company buys RECs equal to its annual electricity consumption, it can claim 100% renewable electricity. Under current rules, companies can use purchased renewable energy from anywhere in North America and apply it to any load in North America at any time during the year. 

Importantly, emissions from different power grids vary widely across North America depending on time of day, time of year, and the power grid makeup.

This flexibility allows companies to match a REC from a clean grid against electricity consumption from a dirtier one, creating a potential mismatch between emissions claimed and actual emissions avoided. This gap has drawn scrutiny, contributing to the motivations for the scope 2 rules rewrite.

What's Changing in GHG Protocol Scope 2 Accounting?

On October 19, 2025, after years of consultation, the GHG Protocol released two separate proposals for public consultation: 

1. Scope 2 changes: Moving away from annual REC matching to an ‘hourly and regional’ REC matching requirement.

2. New consequential methodology: A new approach to estimating emissions caused by a company’s consumption and avoided by its renewable energy contracts. 

The hourly matching proposal (24/7): Companies would match RECs to consumption hour by hour within the same grid region, rather than annually across any North American grid. 

"A REC generated on a Texas wind farm would not be able to be used for electricity consumed in New York," Millot explains.

The consequential approach: This proposes a carbon matching methodology, which estimates emissions caused by a load and estimates the emissions a renewable project displaces. 

"Projects in the Carolinas are avoiding 0.6 or 0.7 tons of CO₂ per megawatt hour, whereas a California project is probably closer to 0.2 or 0.3," Smith explains. 

Projects in the Carolinas deliver more than double the climate impact per REC under the consequential rules. In this methodology, the load and generator do not need to be located in the same region.

While the proposed rules and new methodologies work through the public consultation process, it will be important for companies to start to anticipate the potential impacts on their climate goals and strategies. 

Timeline for Scope 2 Accounting Changes

Both the Scope 2 and Consequential Electricity-Sector Emissions consultations closed January 31, 2026, after GHG Protocol extended the original deadline. The GHG Protocol is analyzing feedback with a second consultation and final standards expected by 2027, though the exact timeline is still being finalized.

Companies are encouraged to participate in the public consultation. The GHG Protocol is asking for comments on critical questions, such as: 

• Should proposed rules apply to energy consumers of all sizes? 
• Which geographical boundaries should be used for locational matching? 
• Should existing contracts be grandfathered in? 

The public consultation period is an opportunity to shape the standards that will govern electricity-related emission accounting for years to come.

Why Act Now Instead of Waiting

With final rules still in development, companies with scope 2 emission reduction goals or science-based targets face a decision: Wait for clarity or act now.

Several factors favor early action:

• Inclusion of legacy contracts. "There are a lot of indications from the committees that existing long-term contracts will be grandfathered in," Pearce notes. The draft considers a legacy clause that would allow organizations to apply pre-existing contractual agreements, even if they don’t comply with new rules. 
• Throttled renewable project development. Interconnection delays for new renewable energy projects, elimination of clean energy tax credits by 2028, and limitations on foreign materials needed to develop renewable energy project components mean that new REC supply may be harder to access in future years.
• Renewable project development timelines. "There's generally a lag, sometimes six to 18 months" between contract signing and project operation, Pearce explains. That means even if you sign today, the RECs won’t be generated for up to 18 months from the signing date.
• High-impact opportunity. Through careful project selection, renewable energy investment can go beyond the annual energy match requirement and incorporate additional impactful metrics, such as higher avoided emissions and positive social impacts.

Renewable Energy Buying Options for Companies

Previously, companies have been able to buy renewable energy through the following three paths; however, they all come with their own tradeoffs.

Traditional REC Buying Options

1. REC spot markets make up most corporate renewable procurement. However, they mainly come from existing projects rather than financing new development, which is critical to expanding renewable energy supply to meet rising decarbonization needs.
2. Virtual power purchase agreements (VPPAs) are highly impactful but require large power loads and the ability to manage long-term financial risks. Unavailable to most companies.
3. Utility green tariffs have limited availability throughout the US (depending on the utility(s) that serve your load) and vary in quality. 

Alternative REC Procurement Approach

For companies that want to go beyond the REC spot market and are not large enough to pursue a VPPA, there’s an alternative procurement option available: a high-impact forward REC contract. These multi-year contracts commit to purchasing RECs from specific new projects before they're built, providing the upfront revenue certainty developers need to secure financing at a fraction of the scale and complexity of a VPPA.

Comparing Renewable Energy Procurement Options

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The Path Forward

Despite rapidly increasing grid demand, renewable project headwinds, and changing accounting rules, companies can still meet 2030 scope 2 goals. 

What companies should do now:

• Watch for the next round of GHG Protocol consultation on Scope 2 revisions
• Evaluate forward REC contracts to lock in terms before rule changes
• Prioritize high-impact RECs that deliver measurable climate and social benefits

Key Takeaways

• The GHG Protocol Corporate Standard and life cycle assessment (LCA) offer distinct frameworks for measuring electricity-related emissions, one for annual corporate reporting and one for detailed cradle-to-grave analysis, leading to different emissions results.
• Renewable energy certificates (RECs) are accepted under the GHG Protocol's market-based approach to reduce reported scope 2 and scope 3: category 3 emissions, but are not explicitly addressed in ISO LCA standards, where transparent disclosure is essential.
• Using both the GHG Protocol and LCA together, while recognizing their different scopes, boundaries, and purposes, can give organizations a more complete and strategic view of electricity-related emissions and decarbonization opportunities.

Electricity-Related Emissions: Why Measurement Methods Matter

In the era of AI-driven power demand, scrutiny over electricity-related emissions is intensifying. With this increased attention comes growing confusion around how to measure and report these emissions. The GHG Protocol Corporate Standard and life cycle assessment (LCA) are two widely used methods for measuring and reporting electricity-related emissions, but each follows its own complex and often incompatible, set of rules.

This piece will examine the differences between these approaches and answer common questions such as:

• What are the differences between the GHG Protocol Corporate Standard and LCA?
• Why do they result in different emissions for the same type and amount of electricity?
• Can renewable energy contracts reduce electricity-related emissions under both methods?
• When should you use each approach?

Both the GHG Protocol Corporate Standard and LCA are powerful tools that, if used in complementary ways, can help organizations identify emissions hotspots and develop more effective pathways for decarbonization.

What Is the GHG Protocol Corporate Standard?

The GHG Protocol Corporate Standard is a globally recognized framework for corporate entities to publicly report GHG emissions throughout their value chain. It divides emissions into three scopes:

• Scope 1: Direct emissions from owned or controlled sources, such as company-owned vehicles, on-site fuel consumption, or industrial processes.,
• Scope 2: Indirect emissions from the generation of purchased electricity, heat, steam, or cooling. These emissions are generated off-site, but result from an organization's energy consumption.
• Scope 3: Indirect emissions across an organization's value chain. Scope 3 is divided into 15 categories, including a company's supply chain activities, business travel, employee commuting, investments, and product life cycle emissions.

This piece focuses on emissions associated with electricity consumed by a reporting entity. These electricity-related emissions primarily fall under scope 2 and scope 3: category 3 (fuel- and energy-related activities, or FERA).

Scope 2: Electricity Generation Emissions

Scope 2 emissions account for the generation of electricity a company purchases or uses. Hypothetically, if a company were powered by a single solar project, it would report zero scope 2 emissions. In reality, a company is powered by a combination of power generation assets and must report them under scope 2 emissions. These emissions can be reported using two methods:

• Location-based method: Reflects the average emissions intensity of the local electricity grid where the consumption occurs. This approach is mandatory under various reporting frameworks and does not take into account a company's procurement choices.
• Market-based method: Reflects an organization's actual procurement decisions and energy-sourcing strategies. It accounts for specific contracts, such as power purchase agreements (PPAs), renewable energy certificates (RECs), and green tariffs, which allow businesses to claim lower emissions from their purchased electricity.

Scope 3: Category 3 FERA

Scope 3: category 3 FERA reports on non-generation electricity emissions associated with:

• Upstream emissions: Emissions associated with the production and transportation of fuels needed for electricity generation
• Transmission and distribution losses: Emissions associated with the loss of electricity while delivering it from the generator to the consumer.

The GHG Protocol Corporate Standard does not include emissions associated with the manufacturing, construction, and end-of-life phases of electricity generation equipment; however, some datasets used for reporting may include manufacturing emissions. While scope 3: category 3 guidance may not require these emissions to be included, if possible, companies reporting on their electricity-related emissions should include these additional sources of emissions  in order to more completely represent their total emissions impact. The GHG Protocol Scope 2 Guidance allows for the reduction of some of the reported scope 3 FERA emissions by contracting renewable energy (see Appendix B).

What is an LCA?

An LCA is a systematic method used to quantify the environmental impacts of a process, product, or project throughout its full life cycle. A life cycle includes everything from raw material extraction ("cradle") to manufacturing/production ("gate") through disposal ("grave").

LCAs primarily follow a standard published by the ISO organization (ISO 14040/14044). The ISO standards establish industry-wide rules for which processes are included and how to assign environmental burdens to products.

An LCA can be used for any product, process, or project, and can estimate multiple different environmental impacts (i.e., climate change, human health, ecotoxicity, eutrophication, ozone depletion).

Electricity-Related Emissions Can Be Different Using the GHG Protocol and an LCA

The GHG Protocol Corporate Standard and an LCA (as per ISO standards) generally include different life cycle stages of electricity use when estimating GHG emissions. Therefore, the approaches can result in different reported emissions.

Key Differences in Reporting Electricity-Related Emissions

The GHG Protocol Corporate Standard includes emissions in the following phases:

• Generation (scope 2)
• Transmission and distribution losses (scope 3: category 3)
• Fuel, if applicable (scope 3: category 3)

A “cradle-to-grave” LCA considers emissions from all activities associated with power generation, including:

• Manufacturing
• Construction
• Generation
• Fuel, if applicable
• Use-phase, if applicable
• End-of-life

Use-phase electricity-related emissions are emissions generated by electricity-consuming equipment used or sold by the reporting company (representing additional scope 1 or scope 3 emissions, respectively). Examples include sulfur hexafluoride (SF6) emissions from electrical transformers or refrigerant leakage from air conditioners with high global warming potential. Please note that both the ISO and GHG Protocol Corporate Standard provide guidelines for reporting these emissions. However, due to the equipment-specific nature of these emissions, they are excluded from the following table. The table compares electricity-related emissions associated with different electricity sources using the GHG Protocol Corporate Standard approach and the LCA approach.

Reporting Electricity-Related Emissions

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* US average transportation and distribution loss rate (4.2%) times US average grid carbon intensity (410 gCO₂e/kWh). Note: gCO₂e/kWh = grams of carbon dioxide equivalent per kilowatt-hour. Source: GREET 2024 (US grid average. 10% fuel- and energy-related activities; 1% construction, facilities, maintenance, and end-of-life; 89% fuel combustion).

Reducing Electricity Emissions with Renewable Energy

Renewable Energy Mechanisms Under the GHG Protocol

The GHG Protocol Corporate Standard allows companies to contract for renewable electricity as a mechanism to reduce reported emissions. The GHG Protocol Corporate Standard defines allowable energy contracts that can be used to reduce emissions associated with electricity consumption (market-based reporting).

In North America, one of these allowable contracts is RECs, each of which represent one megawatt-hour of renewable generation. Analogous instruments used in other locations, such as Guarantees of Origin in Europe and green electricity certificates in China, are also permissible under the GHG Protocol Corporate Standard.

RECs were developed as a contractual mechanism for renewable electricity in response to the fundamental structure of "a power grid." In a power grid, it is impossible to link a single generator to a single load. Power is injected at a point in the grid and withdrawn at a different point in the grid; there is no traceable pathway.

RECs were created to track the attributes of electricity generation entering into a power grid for the entity that consumes the power at a different point. The GHG Protocol Corporate Standard allows buyers to claim exclusive use of renewable electricity with RECs even if they are actually consuming a mixture of electricity from the grid.

Renewable Energy Mechanisms Under the LCA ISO Standard

The ISO 14040 standard does not address the use of renewable electricity contracts. However, the ISO 14044 standard provides the following guidance:

"When determining the elementary flows associated with production, the actual production mix should be used whenever possible, in order to reflect the various types of resources that are consumed. As an example, for the production and delivery of electricity, account shall be taken of the electricity mix, the efficiencies of fuel combustion, conversion, transmission and distribution losses."

It does not explicitly define whether RECs can or cannot be used in the determination of the "actual production mix." In the event an organization does procure a renewable energy contract to reduce the emissions reported within the LCA, it should disclose that clearly in order to communicate the impact of the contract on the carbon intensity of the LCA with and without the use of RECs.

Powerful Tools for Different Use Cases

The GHG Protocol Corporate Standard and LCAs following the ISO Standard are both powerful tools that can provide insight into emissions associated with electricity use. The GHG Protocol Corporate Standard allows companies to use a standardized framework to report emissions associated with electricity use and interventions on an annual basis. The LCA ISO standard is a detail-driven analysis that allows a deep dive into specific processes, projects, or products. This detailed analysis allows for deeper insights into areas where a company may have more ability to address specific interventions for emission hot spots. Using these tools together, while understanding the boundaries of each, can provide companies with a more effective and impactful approach to decarbonization.

Frequently Asked Questions

What are the differences between the GHG Protocol Corporate Standard and LCA? 

The GHG Protocol is an annual corporate reporting framework covering scope 2 (generation) and scope 3: category 3 (transmission and distribution losses, fuel), while a cradle-to-grave LCA is a detailed analysis governed by ISO 14040/14044 standards that also includes manufacturing, construction, use-phase, and end-of-life emissions. LCA can also be applied to any product or process and multiple environmental impacts, not just greenhouse gas emissions.

Why do they result in different emissions for the same type and amount of electricity? 

They include different life cycle stages. The GHG Protocol excludes manufacturing, construction, and end-of-life emissions of generation equipment, while an LCA includes them.

Can renewable energy contracts reduce reported electricity-related emissions under both methods? 

Under the GHG Protocol, renewable energy contracts (e.g., RECs, PPAs) are explicitly allowed to report zero market-based scope 2 emissions, though scope 3 FERA emissions remain. Under ISO LCA standards, these contracts aren't explicitly addressed. Organizations may choose to apply them, but should transparently disclose LCA results both with and without the contract's impact.

When should you use the GHG Protocol vs an LCA? 

Use the GHG Protocol for standardized, annual corporate-wide emissions reporting and tracking procurement interventions; use an LCA for a detailed, process- or product-specific deep dive to identify specific emissions hotspots. Relae recommends using both together for a more complete, strategic view of electricity-related emissions.

Key Takeaways

• Inventory before you calculate: carbon accounting means collecting activity or spend data across scope 1 (direct), scope 2 (purchased energy), and scope 3 (value chain) emissions for a full year of operations, then converting the results into CO2e using GHG Protocol-aligned emission factors.
• Measurement matters even as rules shift: disclosure requirements like California's SB253 and the EU's CSRD keep evolving, but many companies measure and report emissions voluntarily anyway, to set a baseline for climate targets and meet investor and customer expectations.
• Scope 2 is getting more complex: rising electricity demand from AI and data centers, combined with upcoming GHG Protocol changes to how renewable energy purchases are counted, make an accurate, current scope 2 measurement more valuable than ever.
• Verify before you report: independent review, internal or external, catches errors like double counting and miscategorization before emissions data goes to stakeholders or regulators.
• Annual measurement is what makes the strategy real: repeating the process every year turns a one-time emissions snapshot into a carbon management plan you can track, report, and act on over time.

What Is the Carbon Accounting Process?

Carbon measurement, or carbon accounting, is the process of estimating the greenhouse gas (GHG) emissions from business activities by taking an inventory of a company’s operations. The process calculates greenhouse gas emissions, measured in metric tonnes of CO2 equivalent (CO2e), to provide a holistic picture of emissions over an entire year of operations.

Why Measure Your Greenhouse Gas Emissions?

Climate disclosure regulations continue to shift. California's SB253 is now active law, with an initial scope 1 and scope 2 reporting deadline in November 2026. The EU's CSRD remains in effect, though 2026 reforms narrowed which companies fall under it. In the US, the SEC's 2024 climate disclosure rule is now the subject of a formal rescission proposal. Even as these rules evolve, many companies continue to measure and report emissions voluntarily to meet investor and customer expectations.

Scope 2 accounting for purchased electricity is entering its own period of change. AI and data center growth is driving unprecedented demand on the grid: NERC's January 2026 Long-Term Reliability Assessment projects North American summer peak demand rising 24% (224 gigawatts) over the next decade, with new data centers cited as the primary driver. At the same time, the GHG Protocol is revising its scope 2 guidance toward hourly, regional matching of renewable energy purchases, with final standards expected by 2027. A clear, current measurement of your scope 2 emissions puts you in a stronger position to adapt your electricity and renewable energy strategy as these rules take shape.

Measuring emissions also provides a baseline for setting climate targets and deciding where to start reducing emissions. Repeating the measurement process annually allows you to track and report progress in a clear, transparent way to ensure that stakeholders—regulators, employees, investors, and customers—are informed about your climate action and impact.

How to Measure Your Carbon Emissions

Step 1: Collect Data

A company’s emissions represent the greenhouse gases emitted from everyday activities such as heating an office, shipping merchandise, traveling to a conference, or producing a physical product.

Emissions Sources: Scope 1, 2, and 3

To calculate your organization’s carbon emissions, you’ll need to collect data from all emissions-generating sources. These sources are divided into three categories, defined by scopes, according to the GHG Protocol:

• Direct emissions (scope 1): Produced from owned or controlled sources such as fuel purchased and consumed onsite for operating facilities and vehicles.
• Indirect emissions (scope 2): Generated from purchased energy such as purchased electricity for powering offices and facilities.
• Value-chain emissions (scope 3): Generated from the direct and indirect emissions from upstream and downstream value chains including purchased goods and services, business travel and employee commutes, and investments.

Types of Emissions Data

For all three emissions categories, there are two broad types of data to collect: activity data and financial spend data:

• Activity data uses units of measurement associated with the emissions-generating activity. For example, the liters of fuel consumed in a year, or the number of kilowatt-hours of energy used.
• Financial spend data, typically sourced from accounting teams and software systems, is used to estimate emissions from spending. Financial spend data may, for example, use the amount spent on business travel to estimate emissions.

Sourcing both activity data and spend data typically requires the help of a range of stakeholders across an organization. For example, facilities and office managers may provide fuel and electricity bills, while a company’s accountant may provide financial data.

While both approaches are valid under the GHG Protocol, there can be costs and benefits to the organization associated with different data sources and methodologies. You must weigh these carefully before aligning on an approach. Not all companies have the data infrastructure in place to support activity data across all of the scopes. While spend data is generally more accessible, it may not deliver a complete picture of emissions reductions—for example, if a company’s employees traveled fewer miles this year than last, but spent more on flights, using a spend data approach might result in an overestimate of emissions compared to an activity data approach.

Step 2: Calculate Your Emissions

To start calculating your emissions, you’ll need to determine the emission factor—the ratio between pollutants emitted and activity conducted or amount spent. For example: Because a gallon of gasoline emits 8.78 kg of CO2 when burned in an engine, the emissions factor would be 8.78 kg CO2 per gallon of gasoline.

Emissions factors are then multiplied by the associated activity or spend data, and the results are summed to estimate a company’s total emissions. To ensure consistent year-on-year reporting and auditability, the emissions factors used should be carefully documented and aligned with the GHG Protocol.

Step 3: Verify Data and Report Your Results

Once calculations are ready, the final step is to verify your information. Have a second internal team or an external expert carefully review the data to check for gaps and ensure it is correctly categorized by emissions source. This can help avoid errors like double counting and miscategorization. Under certain reporting requirements such as CSRD, an external audit is required.

Once data is verified, you can report your findings to internal stakeholders, and disclose it externally if you choose. This information should be presented in a clear, consistent format that includes both emissions data and final calculations broken down by source, as well as links to relevant data to back up your claims.

Step 4: Take Action and Track Progress

Now that you’ve reported the results, your internal stakeholders will be armed with the data they need to do the most critical next step: Set climate targets and take action. Reporting carbon emissions estimates establishes the climate impact of your business activities, allowing you to set realistic, informed targets.

From there, you might compare your total emissions with your competitors and identify your top emissions sources. Reports also help you identify the most achievable reduction opportunities and consider how to address your harder-to-abate emissions, helping you develop a comprehensive carbon management plan.

The carbon accounting process doesn’t stop once you’ve set your plan in motion: Tracking progress requires ongoing emissions measurement to produce annual emissions reports. Action coupled with ongoing carbon measurement is the foundation of an integrated carbon management strategy: It’s what allows you to assess, adapt, and optimize your sustainable transition plan. This gives you the data you need to see and prove your long-term progress, and confidently share your results with customers and investors.

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Key Takeaways

• Larger power users are securing behind-the-meter (BTM) power to bypass grid constraints, pairing data centers with third-party-owned generation assets that deliver electricity through a private line rather than the grid.
• BTM power arrangements can create confusion about electricity emissions classification: the power users neither own the generating asset nor purchase electricity from the grid, leading some to misclassify those emissions as scope 3 in their corporate GHG inventories. But the GHG Protocol's Corporate Standard is clear: BTM electricity emissions belong in scope 2.
• Misclassifying BTM emissions can create reputational and regulatory risk. Relae can help organizations get this right before the contract closes.

Why Large Power Users Are Turning to Behind-the-Meter Power

Large power users are consuming more electricity due to data center growth and are looking to add capacity faster than the grid can support, which is having a direct impact on corporate emissions. For example, between 2020 and 2024, Microsoft’s location-based scope 2 emissions rose 130%, and Google’s rose 92%, driven almost entirely by soaring electricity demand from AI infrastructure. 

To bypass grid congestion and long interconnection queues, many are turning to behind-the-meter (BTM) power. It’s a pragmatic solution to a real supply problem, but it’s opening an urgent carbon accounting question: when the BTM asset is owned and operated by a third party, where should we account for those emissions?

There has been some confusion that has resulted in companies pursuing an interpretation that would place those emissions in scope 3. The GHG Protocol’s Corporate Standard says otherwise, and the stakes of getting this wrong are high.

What Is Behind-the-Meter Power Generation?

Behind-the-meter refers to electricity generated on the power consumer’s side of the utility meter, bypassing the grid, and typically located on or near the site where the power is consumed. 

In most BTM arrangements for a data center, a third-party developer builds and operates a generation asset, such as natural gas, geothermal, or renewable energy, and delivers electricity directly to the facility through a private transmission line. There is no utility meter, no grid connection, and no standard energy invoice. 

This structure allows companies to access large, reliable blocks of power without waiting years for grid interconnection approvals. Since the company does not own or operate the generation asset and is not purchasing electricity through a conventional utility relationship, this arrangement has created some uncertainty around how to account for the associated emissions. 

Can BTM Electricity Emissions Be Classified As Scope 3?

In this scenario, no. The GHG Protocol's Corporate Standard is unambiguous: BTM electricity emissions belong in scope 2, not scope 3. Yet, some companies have been confused about this classification.

There is broad agreement that since the power users do not own or operate the generating asset, those emissions do not belong in scope 1. Divergence starts when we consider that the company is purchasing BTM power, i.e., not from the grid. Since no electricity is acquired from the grid, some argue that rather than accounting for these emissions in scope 2, they are better placed in scope 3, category 8: emissions from leased assets. 

The appeal is obvious for BTM power consumers. Scope 3 emissions face less scrutiny from investors, auditors, and regulators who focus most of their attention on scopes 1 and 2. Classifying BTM emissions as scope 3 would reduce near-term pressure to act. However, the GHG Protocol is unambiguous in its stance.

What the GHG Protocol Actually Says

The GHG Protocol’s Scope 2 Guidance states that “organizations must quantify emissions from the generation of acquired and consumed electricity, steam, heat, or cooling (collectively referred to as ‘electricity’).” The method of delivery, whether grid or BTM, does not change the classification. 

If a company consumes electricity from a BTM source, the emissions from generating that electricity belong in scope 2. Section 5.4 of the Scope 2 Guidance addresses BTM power generation directly: “the company with operational or financial control of the energy generation facility reports those emissions in scope 1, following the operational control approach, while the consumer of the energy reports the emissions in scope 2.”

This resolves the question completely. The emissions sit in scope 1 if the company has operational or financial control of the asset, or in scope 2 if a third party controls it.

The GHG Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard reinforces this conclusion. “Category 8 includes emissions from the operation of assets that are leased by the reporting company in the reporting year and not already included in the reporting company’s scope 1 or scope 2 inventories.”

Because BTM electricity emissions are captured by the Scope 2 Guidance, the scope 3 category 8 does not apply.

Get the Accounting Right Before the Contract Closes

The GHG Protocol is unambiguous: behind-the-meter electricity emissions belong in scope 2 for companies that consume, but do not control the generating asset. This means that BTM contract terms are crucial to determining how the emissions will be classified, since the GHG Protocol assigns scope based on who holds operational or financial control of the generating asset. 

Companies that move fast on BTM capacity without understanding this distinction risk locking in a scope 1 or scope 2 obligation they didn't anticipate or building a reporting strategy around a scope 3 interpretation the GHG Protocol doesn't support. This can become a reputational or even a regulatory liability that is far harder to address after the contract is signed.

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