Scope 1 Emissions Explained: How to Track, Report, and Reduce Operational Carbon

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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Key Takeaways

• Carbon accounting is a regulatory and strategic necessity, with policies like the European Union’s Corporate Sustainability Reporting Directive (CSRD) and California’s SB 253 requiring emissions tracking. 
• Many companies track emissions inconsistently, underscoring the need for structured, repeatable carbon accounting to ensure accuracy and impact.
• Accurate carbon data drives efficiency and risk management, helping organizations reduce costs, streamline supply chains, and comply with climate regulations.
• Scope 2 emissions are increasingly challenging to quantify, especially for data centers and power-intensive operations. Grid-average emissions factors mask location-specific and time-specific variations that drive real procurement and siting decisions. Precise scope 2 accounting requires understanding which generators actually serve the load, when, and under what grid conditions.
• Scope 3 emissions have historically been a complex challenge, requiring better supplier engagement, standardized reporting, and expert guidance to support accuracy.

Carbon Accounting: More Than Compliance, a Strategic Advantage

Companies increasingly recognize the business value of reporting carbon emissions: it reduces regulatory risks, attracts sustainability-focused investors, enhances market competitiveness, and drives cost savings through efficiency. Transparent emissions reporting strengthens brand trust and aligns companies with global sustainability standards, ultimately turning climate accountability into a strategic advantage.

Yet, many companies struggle with incomplete and inconsistent tracking. According to the State of Corporate Climate Commitment, 80% of corporate professionals surveyed have tracked emissions at least once, but only 52% do so annually. Without a structured process and reliable data, businesses face compliance risks, financial penalties, and missed cost-saving opportunities. 

This guide provides a clear roadmap to effective carbon accounting, equipping businesses with the knowledge to navigate regulations, enhance data accuracy, and implement effective strategies for compliance and operational success.

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What Are the Benefits of Effective Carbon Accounting?

By embedding annual carbon accounting into operations, organizations can enhance sustainability efforts while achieving financial and strategic benefits. Key benefits include:

Enhancing Transparency and Accountability

By providing accurate and verifiable emissions data, companies can showcase corporate responsibility and build a foundation of transparency. Aligning with recognized standards like the GHG Protocol strengthens confidence among investors and regulators. As climate disclosure laws tighten globally, ensuring credible emissions reporting reduces regulatory risks and enhances stakeholder trust. This commitment to authenticity minimizes the risk of greenwashing and strengthens brand reputation.

Guiding Regulatory Compliance and Risk Mitigation

Businesses navigating evolving environmental regulations must proactively align with policies to avoid financial and legal risks. Mandated emissions reporting, under policies like the European Union’s Corporate Sustainability Reporting Directive (CSRD) and Carbon Border Adjustment Mechanism (CBAM) as well as California’s SB 253, ensures compliance and enhances corporate accountability. Staying ahead of these evolving requirements prepares businesses for future policy shifts and safeguards their long-term resilience.

Improving Operational Efficiency and Reducing Costs

By analyzing energy consumption patterns, organizations can identify operational inefficiencies, optimize supply chains, and implement cost-saving measures while reducing carbon emissions. For example, evo, an outdoor experiences company, collaborated with Relae (formerly Carbon Direct) to assess its carbon footprint. This analysis revealed opportunities to reduce emissions across facilities, products, and shipping. By promoting sustainable practices throughout their supply chain, evo enhanced both environmental performance and operational efficiency.

Building a Competitive Advantage in a Low-Carbon Economy

Building a competitive advantage in a low-carbon economy requires prioritizing emissions transparency and sustainability. Companies that integrate emissions transparency into their operations build stronger relationships with supply chain partners and meet consumer demand for responsible brands. Aligning corporate values with sustainability fosters long-term customer loyalty and enhances market positioning.

Driving Strategic Planning and Net-Zero Alignment

Setting and tracking net-zero commitments requires structured, data-driven carbon reduction roadmaps. Businesses that measure emissions annually are more likely to set public sustainability goals and take action. Carbon accounting supports clean energy transitions, fosters supply chain collaboration, and integrates carbon removal strategies to address residual emissions. By embedding emissions measurement into long-term planning, organizations facilitate resilience and profitability in an evolving business landscape.

Carbon emissions measurement correlates to climate action: 61% of companies that calculate their footprint annually have both set a public goal and begun working toward it.

What Is Carbon Accounting? The Basics You Need to Know

Carbon accounting is the systematic measurement, analysis, and reporting of an organization's greenhouse gas (GHG) emissions. Using standardized metrics like carbon dioxide equivalent (CO₂e), companies can assess emissions across operations and supply chains, identify high-impact areas, and set and track progress toward emissions reduction targets. When conducted annually, carbon accounting supports regulatory compliance, risk management, and decarbonization strategies essential for long-term sustainability.

The GHG Protocol is the most widely used framework for carbon accounting, setting the baseline for how organizations measure and report their emissions. It classifies emissions into three scopes: 

Keep in mind that scope 2 emissions are increasingly difficult to quantify using traditional methods, which fail to account for real-time grid fluctuations and locational energy variations. Cutting-edge, advanced carbon accounting methodologies now provide more precise tracking, particularly benefiting large power consumers like enterprise data centers and hyperscalers. 

Scope 3 emissions also continue to pose a great challenge, requiring extensive data collection and supplier coordination, complexities that are difficult to navigate without expert guidance.

The Corporate Carbon Accounting Process: A Step-by-Step Guide

The carbon accounting process involves systematically measuring, analyzing, and managing an organization’s greenhouse gas emissions across its operations, supply chain, or product life cycle. 

1. Collect emissions data across all three scopes (scope 1, scope 2, and scope 3).
2. Categorize and quantify emissions from each source to estimate the total impact. 
3. Verify data and report findings to promote compliance, accuracy, and transparency.
4. Develop and implement reduction strategies based on insights from the data.

Activity Data Versus Spend Data

Carbon measurement primarily relies on two data types: activity data and spend data.

• Activity data includes direct measurements reflecting the physical amount of an emitting source, such as fuel consumption (in liters or gallons) or travel distance (in kilometers or miles). It accurately represents emissions from a particular operational emission source and allows for measurable decarbonization strategies.
• Spend data serves as an alternative when activity data is unavailable. It estimates emissions based on financial expenditures related to goods, services, or travel. While less precise, it is useful for approximating scope 3 emissions, where direct measurement is often challenging.

Tips for Accurate Data Collection

Effective carbon accounting relies on seamless collaboration across departments, suppliers, and external data sources. Key strategies include:

• Stakeholder engagement: Finance, operations, procurement, and sustainability teams must coordinate to track and validate emissions data. Engaging suppliers is essential for capturing and reducing scope 3 emissions.
• Addressing data gaps: When data is unavailable, proxy data can be used to estimate emissions, but it should be a temporary solution while organizations work toward obtaining accurate, real-world data.
• Standardization and verification: Implementing consistent methodologies and third-party audits enhances the credibility of carbon reporting, building stakeholder trust.

By leveraging precise data, understanding emission scopes, and adopting structured data collection methods, organizations can create a transparent, science-based approach to carbon accounting and lay the foundation for meaningful climate action. 

Climate Standards Businesses Need to Know

Global standards and regulations define carbon accounting methodologies by establishing guidelines for how organizations set boundaries, measure, and disclose emissions. Several key frameworks and policies guide both the international and regulatory levels.

Guidance frameworks

GHG Protocol: The Foundation of Carbon Accounting

• The GHG Protocol is the most widely adopted framework for measuring and managing emissions across organizations globally.
• Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), it provides common standards for businesses, governments, and supply chains.
• Sector-specific guidance has been developed for industries such as energy, finance, manufacturing, and agriculture, which face stricter reporting requirements than service-based sectors.
• The GHG Protocol is currently undergoing its first major revision since its launch. Partnering with the International Organization for Standardization (ISO) to co-develop a consolidated corporate standard that merges the Corporate Standard, Scope 2 Guidance, Scope 3 Standard, and Actions and Market Instruments standard with ISO 14064-1. As of mid-2026, the effort is in active technical development, with a draft opening for public consultation targeted for mid-2027 and a final published standard expected by the end of 2028. Current standards stay in effect until that replacement is finalized, so nothing changes for reporting yet.

ISO 14064: Standardized Emissions Quantification and Reporting

• The ISO 14064 series, created by the International Organization for Standardization (ISO), offers detailed methodologies for greenhouse gas accounting.
• It includes guidelines for organization-level emissions quantification, reporting, and reduction projects.
• ISO 14064 serves as the foundation for independent verification and compliance with voluntary carbon markets, enhancing the credibility of emissions reduction projects.

Policies

EU CSRD: Expanding Mandatory Climate Disclosure

• The Corporate Sustainability Reporting Directive (CSRD) enforces detailed sustainability reporting requirements for companies operating in the EU.
• Following the EU's 2025 to 2026 Omnibus simplification package, CSRD's scope narrowed sharply. It now applies to roughly 5,000 large companies, with new thresholds of more than 1,000 employees and more than 450 million euros in net turnover (up from the original 250 employees and 50 million euros)
• In scope companies must still report scope 1, 2, and 3 emissions data aligned with the EU Taxonomy and European Sustainability Reporting Standards (ESRS).

California SB 253: State-Level Mandatory Emissions Disclosures

• California’s SB 253 Climate Corporate Data Accountability Act sets strict emissions reporting mandates within the US.
• It applies to companies with over US$1 billion in revenue doing business in California, requiring scope 1 and 2 emissions reporting by November 2026..
• CARB has said scope 3 reporting and third-party assurance requirements will be addressed in a subsequent rulemaking covering 2027 and beyond.

EU CBAM: Preventing Carbon Leakage and Promoting Decarbonization 

• The Carbon Border Adjustment Mechanism Requirements (CBAM) requires importers of specific carbon-intensive goods to disclose embedded emissions to prevent carbon leakage and promote global decarbonization by ensuring that domestic and foreign producers face comparable carbon costs. 
• During the transitional phase (2023–2025), importers were required to submit quarterly reports on embedded emissions. 
• As of 2026, they must purchase CBAM certificates to compensate for the carbon footprint of imported goods.

Although carbon accounting requirements vary across regions and industries, they are all fundamentally rooted in the principles established by the GHG Protocol and ISO 14064. As global regulations like the EU CSRD and state-level legislation evolve, organizations must proactively align with these stricter standards to mitigate regulatory risks and support compliance with emerging sustainability expectations.

What Are the Industry-Specific Challenges of Carbon Accounting?

Carbon accounting presents unique challenges across industries due to varying operational structures, emissions sources, and reporting requirements. While the challenges outlined below focus on financial services, data centers, and philanthropies, similar complexities exist across manufacturing, transportation, healthcare, and other sectors. Tailored strategies are essential to effectively addressing these complexities. 

Data Centers: Measuring and Reducing Scope 2 and 3 Emissions

Data center operators consume vast amounts of electricity making scope 2 emissions a major concern. In addition, data center developers and owners face significant scope 3 emissions from embodied carbon from the building materials and the IT hardware required to develop these assets. Effective strategies to reduce data center emissions include:

• Optimizing computing needs and power usage: Use real-time metering and AI-powered analytics to optimize electricity usage across time and locations.
• Procuring low-carbon electricity: Secure long-term access to compliant low-carbon electricity through power purchase agreements (PPAs) or high-impact renewable energy credits (RECs).
• Tracking life cycle emissions: To provide a comprehensive emissions assessment, account for embodied carbon in server manufacturing and end-of-life disposal.

Financial Services: Assessing Emissions From Investments and Portfolios

Financial institutions face significant challenges in evaluating scope 3 financed emissions from investments, loans, and asset portfolios. Key strategies to address these challenges include:

• Adopting industry standards: Frameworks like the Partnership for Carbon Accounting Financials (PCAF) can be used to standardize emissions calculations.
• Understanding asset level data: To accurately report on financed emissions, investors need visibility of emissions data, ideally at the company level.
• Prioritizing green investment strategies: Shift toward sustainable finance by integrating sustainability criteria and emphasizing green bonds or low-carbon funds or investments.
• Ensuring regulatory compliance: To enhance transparency, align with global disclosure frameworks like the International Sustainability Standards Board's (ISSB) IFRS S2 climate-related disclosure standard.

Philanthropies: Managing Emissions From Private Financing

Philanthropic organizations face challenges in tracking emissions across diverse funding activities, operational footprints, and investment portfolios. Effective strategies include:

• Assessing grantmaking impact: Many philanthropies support climate initiatives but may not track the carbon impact of grantees or funded projects. Establishing emissions metrics for grants can enhance transparency and effectiveness.
• Measuring operational emissions: While some philanthropies have relatively low direct emissions, travel, events, and office space still contribute to their carbon footprint. Implementing sustainable operations policies can help reduce emissions.
• Decarbonizing investment portfolios: Endowments and investment funds often hold assets with varying GHG emissions. Aligning investments with sustainability goals and engaging with asset managers on emissions reduction can drive impact.

Organizations across these sectors can enhance emissions transparency, improve sustainability efforts, and align with global climate goals by implementing industry-specific carbon accounting methods. 

Navigating Evolving Standards and Scope 2 Complexity

Carbon accounting standards are actively evolving. In October 2025, the GHG Protocol released two proposals for scope 2 accounting revisions, with final standards expected by 2027. The proposals shift toward hourly and regional renewable energy matching, moving away from today's annual, region-agnostic approach. They also introduce consequential methodology that calculates actual emissions displaced by renewable projects, which varies significantly by region.

For organizations with 2030 climate targets, timing matters. Existing long-term contracts are expected to be grandfathered in under new rules. Meanwhile, new renewable projects face interconnection delays of 3 to 5 years, and the US power grid is experiencing sustained demand growth driven largely by data centers. These pressures converge: power demand is rising while new clean electricity supply is constrained.

Navigating these changes requires understanding emerging methodologies and their strategic implications. See our companion pieces on Navigating Scope 2 Accounting Changes and Scope 2 Emissions Explained for detailed context.

Frequently Asked Questions

How long does carbon accounting implementation take?

Initial measurement typically takes 3 to 6 months, depending on data availability and organizational coordination. Starting with data you already have (utility bills, fuel records) accelerates the process. Scope 2 and scope 3 require more extensive work than scope 1, so actual timelines vary based on which scopes are your focus.

What are the biggest obstacles to getting accurate emissions data?
Data siloes across departments (finance, operations, procurement track separately). For scope 2, grid-average factors mask location- and time-specific variations that actually drive emissions. For scope 3, extensive data collection and supplier coordination are required. Seamless collaboration across departments is essential.

Do we need to measure all three scopes to start?
Yes. Organizations should measure all three scopes. Start where your business is most materially affected, but eventually measure all three for compliance and complete visibility into your emissions sources.

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

• Accelerated phase-out schedules for key clean energy and decarbonization tax credits will shorten the runway for project development, which could stall or cancel projects.
• Urgency is paramount, and qualified projects should expedite construction and operational timelines to secure eligibility for existing credits.
• A more complicated policy landscape requires concerted effort to navigate, including with the support of policy professionals.

Reconciliation Rolls Back Much of the IRA

On Friday, July 4, 2025, the President signed a sweeping reconciliation bill, H.R. 1, that will add at least $3.3 trillion to the national debt and marks a pivotal, contentious moment for US clean energy policy. The law was enacted through the complex legislative process known as budget reconciliation, requiring only a simple majority of votes in the House and Senate. The new law substantially modifies or terminates many of the Inflation Reduction Act of 2022 (IRA)'s clean energy incentives and has extensive implications for the economic viability of American energy and manufacturing projects.  

In the Senate, three Republicans crossed party lines to vote against the bill, requiring Vice President JD Vance to break the tie. In the House, only two Republicans broke ranks to vote against final passage. While some of the more complex provisions of the bill, such as new foreign entity of concern (FEOC) restrictions, will require more time to fully assess, we've prepared a rapid run-down of key alterations to IRA incentives for carbon management, hydrogen, and clean fuel technologies.

What Is the 2025 Reconciliation Bill?

While the 2025 reconciliation bill is staggering in length, scope, and severity, containing provisions to cut Medicaid, reduce nutrition assistance, raise the debt limit, and cut taxes primarily for the wealthy, some of the most drastic sections of the bill modify tax incentives and other public funding for clean energy and emissions reductions.

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Many of the incentives to deploy clean energy that were created or enhanced under the IRA will be phased out early or repealed altogether. Credits with accelerated phase-out schedules include the newly created 45Y clean electricity production tax credit, which will no longer support wind or solar projects after 2027, and the 45V credit for clean hydrogen production for which projects must now commence construction before Jan 1, 2028 (moved up from Jan 1, 2033). 

Since the passage of the reconciliation package, there has been active litigation on several provisions, including an order from a federal district court to vacate IRS guidance that would have prohibited certain wind and solar projects from securing safe harbor.  The table below provides a detailed breakdown of key changes to major tax credits between the original IRA, the draft that moved through Committees in the House, and the final text that was passed by the Senate and signed into law.

Major Tax Credit Changes in the Reconciliation Law

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How FEOC Restrictions Threaten Clean Energy Supply Chains

Many clean energy tax credits include ambiguous language restricting projects connected to FEOC, complicating supply chains and creating new problems for developers of clean energy projects. The law also introduces a complex matrix of new definitions, such as "Prohibited Foreign Entities," which includes both "Specified Foreign Entities" and "Foreign-Influenced Entities."

The FEOC restrictions embedded in the reconciliation bill represent a seismic shift for clean energy developers. These new rules, designed to limit the influence of Covered Nations (China, Russia, North Korea, and Iran), will disqualify projects from receiving tax credits if they source components, minerals, or intellectual property from entities tied to these nations. In other instances, the partial ownership or investment of an entity with financial ties to a Prohibited Foreign Entity may also disqualify a project from qualifying for tax credits.

This FEOC language matters for developers and investors because of the resulting global supply chain disruptions, investment uncertainty, and compliance burdens. The clean energy sector is deeply reliant on global supply chains, especially for solar panels, batteries, and wind components, industries where China currently dominates. The IRA intended to counter this by moving the manufacturing and production of these supply chains to the US. Project developers must now thoroughly review their supply chains and capital providers, and may need to quickly pivot to compliant resources. 

In February 2026, the IRS released interim guidance on the FEOC provisions to provide safe harbor guidance for clean energy manufacturing, investment, and production credits to help taxpayers gauge whether material assistance was provided by a prohibited foreign entity. 

Other Major Rollbacks to the IRA

Beyond clean energy tax credits, the reconciliation package also repeals and rescinds many other IRA provisions. This includes a full rescission of all unobligated IRA appropriated balances at the Department of Energy's Loan Programs Office, and several other programs, including:

• The Tribal Energy Loan Guarantee Program
• Greenhouse Gas Reduction Fund
• Transmission Facility Financing

A complete list of rescissions of energy-related funding is outlined in Sections 60001-60024 and 50402 of the law. These rescissions represent tens of billions of dollars in lost climate investments made under the IRA, which would have provided funds to state, local, and Tribal governments, federal agencies, non-profits, and commercial project developers to reduce emissions and update critical infrastructure.

What Can Project Developers and Other Companies Do?

Developers will need to act quickly to meet updated commence construction and place into service requirements, though circumstances are technology specific (e.g., safe harbor updates to 48E and 45Y). Tax credits generally have advanced commence construction and operational deadlines, resulting in a strong first-movers advantage. Companies should also review their supply chains and revise equipment and material procurement sourcing plans as necessary to address restrictions presented in the reconciliation bill.

An executive order from President Donald Trump issued on July 7 will further complicate how companies proceed. In the EO, the President directs his administration to "strictly enforce the termination of […] 45Y and 48E […] for wind and solar facilities." The Administration will likely issue extremely strict interpretations of "commence construction" clauses and FEOC requirements in forthcoming tax credit guidance issued by the Treasury Department, though these moves are quite likely to face litigation.

The new restrictions being proposed by the Administration, including specific details on FEOC, qualified equipment, commence construction, and other reporting requirements, will require additional guidance from the IRS and provide an opportunity for engagement through public comment. It is important that impacted companies weigh in during these public comment periods, not only to help inform and influence the final rules issued by the Administration, but also to build an administrative record that could support litigation efforts to strike down the final rules.

Staying Ahead of Policy Changes

Given the rapidly shifting landscape of energy policy, it's paramount that companies stay abreast of the latest changes and dedicate resources to understanding how they may be affected. Policy professionals, including the experts at Relae (formerly Carbon Direct), can support organizations as they engage in the regulatory process, anticipate and prepare for new legislation, and navigate the requirements to access essential tax credits and incentives. Even under new constraints, expert guidance can help maximize impact and minimize disruption.

Frequently Asked Questions

How does the reconciliation bill change the timelines for major clean energy tax credits?
Most clean energy tax credits saw their windows shortened relative to the original IRA: 

• The 45Y and 48E credits now terminate entirely for wind and solar facilities placed in service after December 31, 2027, with a separate phase-down (75% in 2034, 50% in 2035, 0% after) for other technologies. 
• The 45V clean hydrogen credit's "commence construction" deadline moved from December 31, 2032 to December 31, 2027. 
• The 45Z clean fuel credit now ends on December 31, 2029 (versus 2027 in the original IRA, but bonuses for SAF have been removed and new emissions-calculation methods favor corn ethanol). 
• Notably, the 45Q carbon capture credit saw little change and retained transferability, with credit values for enhanced oil recovery and utilization raised to match secure geological storage.

What are the FEOC restrictions, and why do they matter so much for developers?
FEOC ("Foreign Entity of Concern") restrictions disqualify projects from tax credits if they source components, minerals, or intellectual property from entities tied to China, Russia, North Korea, or Iran. Even partial ownership or investment ties to a "Prohibited Foreign Entity" can trigger disqualification. The definitions are complex and still being clarified through IRS guidance, meaning developers need to review supply chains and capital providers carefully and may need to pivot to compliant sourcing.

What should project developers do now in response to these changes?
Developers should move quickly to meet the earlier "commence construction" and "placed in service" deadlines, since credits now benefit early actors. This includes reviewing and potentially restructuring supply chains and procurement plans to address FEOC restrictions, and closely monitoring forthcoming IRS/Treasury guidance. 

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

• 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