What is the difference between location-based and market-based Scope 2 emissions?

Location-based Scope 2 uses the average emission factor of the regional electrical grid (e.g., EPA eGRID factors for US subregions, ranging from 0.05 to 0.45 kg CO₂e/kWh). This reflects the actual average carbon intensity of electricity flowing through the grid wires to the building. Market-based Scope 2 uses contractual instruments — Renewable Energy Certificates (RECs), Power Purchase Agreements (PPAs), or utility green tariffs — that allow the building owner to claim the emission characteristics of a specific renewable generator rather than the average grid. A building that buys RECs equal to its annual electricity consumption reports zero market-based Scope 2 emissions even if its physical electricity comes from a fossil fuel power plant. The GHG Protocol requires both methods to be disclosed when market-based accounting is used, to provide transparency about the building's physical grid impact.

How are refrigerant emissions included in building carbon accounting?

Refrigerant leaks from air conditioning and refrigeration equipment are Scope 1 direct emissions because the refrigerant is a potent greenhouse gas with high Global Warming Potential (GWP). Common HVAC refrigerants: R-410A (GWP = 2,088), R-22 (GWP = 1,810, being phased out under Montreal Protocol), R-32 (GWP = 675), R-134a (GWP = 1,430), next-generation R-454B (GWP = 466) and R-1234yf (GWP = 4). To calculate emissions: track annual refrigerant top-up quantities from HVAC service records (required for HVAC systems >50 lbs charge under EPA Section 608), multiply by the refrigerant's GWP to get CO₂e. For example, adding 10 lbs of R-410A = 4.54 kg × 2,088 = 9,479 kg CO₂e ≈ 9.5 metric tons CO₂e. For context, this equals driving a car approximately 23,000 miles. Refrigerant emissions are often overlooked but can represent 5–15% of a building's total Scope 1 carbon footprint.

What is embodied carbon and how does it differ from operational carbon?

Operational carbon is the carbon emitted from energy use during a building's occupied life (Scope 1 and 2 emissions from heating, cooling, lighting, plug loads). Embodied carbon is the carbon emitted during the manufacturing, transportation, and installation of building materials (concrete, steel, glass, insulation, HVAC equipment) and their eventual demolition and disposal — also called Whole Life Carbon. Embodied carbon is accounted under Scope 3 Categories 1-2 (purchased goods, capital goods) for operational building owners. For new construction and major renovations, embodied carbon is addressed using Environmental Product Declarations (EPDs) and tools like the Carbon Leadership Forum's EC3 (Embodied Carbon in Construction Calculator). Studies show that for a typical commercial building with a 50-year lifespan, embodied carbon now represents 30–50% of lifetime carbon — making it essential to address alongside operational carbon, particularly in net-zero strategies.

Which Scope 3 categories are most significant for commercial real estate owners?

For commercial real estate owners (landlords), the most material Scope 3 categories are typically: Category 13 (Downstream Leased Assets) — tenant energy consumption in separately metered spaces that landlords do not control. This is often the largest single Scope 3 category for REITs, sometimes 3–10× larger than Scope 1+2 combined. Category 1 (Purchased Goods and Services) — maintenance materials, cleaning supplies, landscaping. Category 2 (Capital Goods) — HVAC equipment replacements, elevator modernizations, major renovations. Category 11 (Use of Sold Products) — for developers who sell buildings after construction. Addressing Category 13 requires green lease provisions that obligate tenants to share energy data, implement energy efficiency measures, and purchase renewable energy. The Urban Land Institute (ULI) Green Lease Toolkit and GRESB both provide templates for green lease clauses that enable Scope 3 Category 13 data collection and management.

What does the SEC climate disclosure rule require for real estate companies?

The SEC's final climate disclosure rule (March 2024, although subject to ongoing legal challenges) requires SEC-registered companies to disclose: Scope 1 and Scope 2 greenhouse gas emissions (for large accelerated filers, with limited assurance in year 1 and reasonable assurance by year 3); material climate-related risks and their financial impacts; climate-related governance (board oversight, management processes); and, for companies with climate transition plans or public net-zero commitments, disclosure of those targets and progress. Scope 3 is NOT required by the SEC rule (a significant change from the proposed rule). However, IFRS S2 (adopted by 40+ countries) does require Scope 3 for material categories. For US REITs with significant European operations or tenants, both SEC and IFRS S2/CSRD requirements may apply, effectively requiring comprehensive Scope 1–3 disclosure and assurance by 2026–2027.

Engineering·10 min read·December 1, 2025

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The Business Case for Building Carbon Accounting

Commercial buildings account for approximately 39% of global energy-related carbon dioxide emissions according to the International Energy Agency (IEA), split roughly equally between operational emissions (energy use during occupancy) and embodied carbon (construction materials, renovations). Corporate net-zero commitments, SEC climate disclosure rules (proposed 2022, finalized 2024), EU Corporate Sustainability Reporting Directive (CSRD), and tenant ESG requirements are converging to make building-level carbon accounting a near-universal requirement for commercial real estate owners by 2026–2030.

Topics covered

carbon trackingScope 1 emissionsScope 2 emissionsScope 3 emissionsGHG Protocolcarbon accountingbuilding carbon footprintTCFDnet zero buildingscarbon intensityembodied carbonmarket-based emissionslocation-based emissionsRECscarbon offsetsSBTi buildings