- in Canada
- within Technology and Tax topic(s)
- with Senior Company Executives, HR and Finance and Tax Executives
- with readers working within the Accounting & Consultancy, Banking & Credit and Insurance industries
The Greenhouse Gas (GHG) Protocol has recently opened consultation concluding on December 19, 2025, on two key proposed amendments: revisions to its Scope 2 Guidance to improve consistency in reporting emissions from purchased electricity, and the introduction of "consequential accounting" methods to estimate system-wide impacts of electricity-sector projects and "avoided emissions." This alert focuses on the proposed revisions to Scope 2 emissions calculations.
Key background considerations
The GHG Protocol is the most widely adopted global standard for measuring and reporting greenhouse gas emissions, making it a key reference point for substantiating corporate environmental claims. The Protocol outlines three "Scopes" of emissions for reporting and accounting purposes. Scope 1 includes direct emissions from sources owned or controlled by the company. Scope 2 accounts for indirect emissions from the generation of purchased electricity, steam, heating or cooling consumed by the company. Finally, Scope 3 includes all other indirect emissions that result from the company's activities but come from sources it does not own or control.
The Competition Act prohibits businesses from making claims about the environmental impacts of their activities, unless those claims are substantiated through an "internationally recognized methodology." Canada's Competition Bureau has recognized the GHG Protocol as an internationally recognized methodology for these purposes. Amendments to the Competition Act have been proposed to remove the "internationally recognized methodology" requirement and replace it with an "adequate and proper substantiation" requirement.
The Alberta power market has seen significant "out of market" interest from PPA purchaser/counterparties effectively providing financing for the development of renewable power projects in Alberta.
Scope 2 guidance proposed revisions
Under the current rules, companies can use two methods to report their Scope 2 emissions: the location-based method, which uses the average emissions from the grid where they operate and the market-based method, which allows companies to contract for renewable energy. The proposed changes would 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 particular geographic boundary, to instead exclusively reporting emissions for electricity physically delivered at the times and locations where consumption occurs. It further recommends including imported electricity in location-based emission factor calculations.
Stakeholders previously found the rules for selecting location-based emission factors to be ambiguous. The proposed amendments introduce a clear hierarchy: prioritize location precision first, then time precision and finally factor type. For example, when choosing between a national factor with hourly data or a local factor with annual data, the local factor would take precedence because location detail is a higher priority. After selecting the most precise location, companies should choose the most granular time interval and then prefer consumption-based factors (which includes power imported from and exported to other regions) over production-based factors (which uses the average emissions from generators within a region). This approach better represents the actual electricity mix delivered to consumers.
While this hierarchy aims to make location-based reporting more precise and comparable across regions, the proposal remains based in "accessible" factors, defined as factors that are publicly available, free to use and from credible sources. Moreover, to support feasibility, this amendment would enable organizations without access to hourly data to approximate their hourly emissions using monthly or annual data through their load profiles. The proposal therefore aims to balance data accuracy with accessibility for organizations.
(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 proposed update redefines the market boundary based on deliverability, meaning that electricity claimed through a contractual instrument must come from a generator that could realistically supply power through an interconnected grid. The proposals indicate that within Canada, provincial power markets will be the relevant market boundaries, reflecting actual grid connections. If the generator is outside that boundary, deliverability can still be shown through evidence such as transmission capacity pricing or contracts proving physical delivery. Power is generated and consumed almost instantly, so if a company claims renewable energy from a specific generator, that claim would have to match the time the electricity was actually used, ideally on an hourly basis. The contracts under the revised framework must therefore come from the same grid or a connected grid that can physically deliver power, not from far-away regions.
The proposed update further 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
If the proposed changes are adopted, organizations will need to take account of the new calculation guidance in determining and reporting their Scope 2 emissions. This will be important for public companies reporting their emissions in light of the Canadian Securities Administrators staff notice on "greenwashing", and for organizations generally to continue to take advantage 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 looking at 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 consider their ability, including under any transition provisions, to include the financed Alberta power generation in their Scope 2 GHG emissions calculations.
About Dentons
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.
