Unveiling the Impact of Scope 2 GHG Emissions Guidance on Public Companies and Greenwashing Defences
In a recent development, the Greenhouse Gas (GHG) Protocol has opened a consultation period, ending on December 19, 2025, with a focus on two significant proposed amendments. These amendments aim to enhance the consistency of reporting emissions from purchased electricity and introduce "consequential accounting" methods to estimate the broader impacts of electricity sector projects and "avoided emissions." Today, we delve into the proposed revisions to Scope 2 emissions calculations and explore their implications.
Key Background and the GHG Protocol
The GHG Protocol stands as the most widely adopted global standard for measuring and reporting greenhouse gas emissions. It serves as a crucial reference point for substantiating corporate environmental claims. The Protocol categorizes emissions into three "Scopes" for reporting and accounting purposes. Scope 1 encompasses direct emissions from sources owned or controlled by the company. Scope 2 accounts for indirect emissions resulting from the generation of purchased electricity, steam, heating, or cooling consumed by the company. Scope 3 includes all other indirect emissions arising from the company's activities but originating from sources it does not own or control.
The Competition Act in Canada prohibits businesses from making environmental impact claims unless they are backed by an "internationally recognized methodology." The Competition Bureau has recognized the GHG Protocol as this internationally recognized methodology. Proposed amendments to the Competition Act aim to replace the "internationally recognized methodology" requirement with an "adequate and proper substantiation" requirement.
The Alberta Power Market and Out-of-Market Interest
The Alberta power market has witnessed significant "out-of-market" interest from PPA purchaser/counterparties, effectively providing financing for the development of renewable power projects in Alberta. This interest highlights the potential impact of the proposed Scope 2 guidance revisions on the market.
Proposed Revisions to Scope 2 Guidance
Under the current rules, companies have two methods to report their Scope 2 emissions: the location-based method and the market-based method. The proposed changes aim to adopt a stricter approach to both methods.
(i) Location-Based Method
The revised location-based method shifts away from using broad average generation emission factors across a geographic boundary. Instead, it focuses on exclusively reporting emissions for electricity physically delivered at the times and locations of consumption. The proposal also recommends including imported electricity in location-based emission factor calculations.
Previous stakeholder feedback found the rules for selecting location-based emission factors to be ambiguous. The proposed amendments introduce a clear hierarchy: prioritize location precision first, followed by time precision, and finally, factor type. For example, when choosing between a national factor with hourly data and a local factor with annual data, the local factor takes precedence due to its higher priority in location detail. After selecting the most precise location, companies should choose the most granular time interval and prefer consumption-based factors (including power imported from and exported to other regions) over production-based factors (using average emissions from generators within a region). This approach provides a more accurate representation of the actual electricity mix delivered to consumers.
While the hierarchy aims for precision and comparability across regions, the proposal remains grounded in "accessible" factors, defined as publicly available, free to use, and from credible sources. To support feasibility, the amendment allows organizations without access to hourly data to approximate their hourly emissions using monthly or annual data through their load profiles. This balance between data accuracy and accessibility aims to accommodate organizations' varying data availability.
(ii) Market-Based Method
The market-based method currently calculates Scope 2 emissions based on greenhouse gases produced from generators linked to electricity purchased through contractual instruments. The proposed update maintains contractual instruments as the basis for allocation but introduces stricter requirements for temporal alignment and physical deliverability. The update redefines the market boundary based on deliverability, meaning that electricity claimed through a contractual instrument must come from a generator that can realistically supply power through an interconnected grid.
Within Canada, the proposals indicate that provincial power markets will be the relevant market boundaries, reflecting actual grid connections. If the generator is outside that boundary, deliverability can be demonstrated through evidence such as transmission capacity pricing or contracts proving physical delivery. Given the instantaneous nature of power generation and consumption, claims of renewable energy from a specific generator must match the time the electricity was actually used, ideally on an hourly basis. Therefore, contracts under the revised framework must come from the same grid or a connected grid capable of physically delivering power, not from distant regions.
The proposed update also introduces a transition mechanism for existing clean energy contracts that do not meet the new Scope 2 requirements. Two options are under consideration: a legacy clause allowing continued use of qualifying contracts for a defined period with disclosure or a single effective date with lead time after which all contracts must comply with updated criteria. These measures aim to maintain continuity for long-term agreements while ensuring future reporting aligns with revised standards.
Implications and Takeaways
If the proposed changes are adopted, organizations will need to incorporate the new calculation guidance into their Scope 2 emissions determinations and reporting. This will be particularly important for public companies reporting their emissions in light of the Canadian Securities Administrators' staff notice on "greenwashing." Additionally, organizations will need to consider the implications of the Competition Bureau's guidance in support of GHG Protocol reporting, even when the Competition Act is amended to incorporate the "proper and adequate substantiation" defence.
Parties entering into power purchase agreements with Alberta-based renewable power generators and out-of-market parties to existing power purchase agreements will need to carefully assess their ability, including under any transition provisions, to include the financed Alberta power generation in their Scope 2 GHG emissions calculations.
For further insights and guidance on this topic, feel free to reach out to Bill Gilliland. We also extend our gratitude to Nada Farag, articling student, for her valuable contributions to this article.
And there you have it! A deeper dive into the proposed Scope 2 GHG emissions guidance and its potential impact on public company reporting, greenwashing defences, and Alberta's power market. What are your thoughts on these proposed changes? Do you see any potential challenges or benefits that might arise? We'd love to hear your opinions in the comments!
