After completing the carbon inventory and obtaining the Scope 1, 2, and 3 figures, many Taiwanese-owned factories in Southeast Asia discovered a common problem: Scope 2, which is the indirect emissions from purchasing electricity, often accounts for 40% to 60% of the total emissions, but they don't know where to start reducing them.

Scope 1's emissions originate from its own manufacturing processes, and improvements require equipment investment or process redesign, which are difficult to significantly alter in the short term. In contrast, Scope 2's approach to carbon reduction is more direct: changing the source of purchased electricity or obtaining energy certificates can reduce this figure on paper. However, before that, an important premise must be clarified.

Scope 2 will reveal both figures, but carbon reduction efforts only affect one of them.

The GHG Protocol (Greenhouse Gas Inventory) requires Scope 2 to disclose two calculation results simultaneously, and the two figures can differ significantly.

Location-based figures use the average emissions coefficient of the local power grid. Regardless of the type of electricity you actually buy, the same coefficient is multiplied by your electricity consumption. This figure reflects the actual situation of your local power grid, and the location-based figure will not change even if you buy green electricity or hold renewable energy certificates.

Market-based is calculated based on your actual electricity purchase contracts or energy certificates. If you hold an I-REC (International Renewable Energy Certificate) or have a renewable energy PPA, this portion of your electricity consumption can be calculated using a zero-emission factor, effectively lowering your Scope 2 market-based figure.

Both figures must be made public, but green electricity procurement actions will only be reflected in market segment. If your carbon reduction goals demonstrate concrete actions to European buyers, you must use market segment as a benchmark and ensure that your procurement strategy is designed to make these figures reflect reality.

Three green energy options for Southeast Asian factories

Currently, in major Southeast Asian manufacturing countries such as Thailand, Vietnam, and Malaysia, factories have three main green electricity procurement channels, each with different barriers to entry and benefits.

The first option is to purchase I-RECs (International Renewable Energy Certificates). I-RECs are renewable energy certificates recognized by the I-REC Standard, with each certificate corresponding to 1 MWh of renewable energy electricity. Factories can purchase directly through certificate dealers without changing existing power supply contracts, making it the option with the lowest entry barrier currently available. Prices vary depending on market conditions, and you need to confirm the current quote with the certificate dealer yourself. Market-specific calculations show that electricity consumption holding I-RECs can qualify for a zero-emissions factor.

The second option is rooftop solar power coupled with a Power Purchase Agreement (PPA). The factory signs a long-term contract with a solar developer, who is responsible for installing and maintaining the rooftop solar system. The factory purchases the generated electricity at the agreed-upon price, typically without initial capital expenditure. Contracts are generally for 15 to 25 years, and locking in the price hedges against future electricity price increases. The generated electricity is directly supplied to the factory for its own use, and the Scope 2 market segment figure can be deducted based on actual generation. The rooftop solar PPA markets in Thailand and Malaysia are relatively mature, while in Vietnam, due to changes in grid regulations, the terms need to be confirmed according to the regulations at the time of issuance.

The third option is the power company's Green Tariff. In some countries, power companies offer surcharges that allow factories to purchase electricity or corresponding vouchers from specific renewable energy plants at a premium. This method is the simplest to operate, as it eliminates the need to purchase vouchers or sign a Power Purchase Agreement (PPA). However, its availability varies by country and power company; it is recommended to directly contact your local power company to confirm whether this option is offered and its current conditions.

What can be included in an ESG report when moving from Scope 2?

After purchasing green electricity or holding an I-REC, this action can be reflected in several places in the ESG report.

The GRI 302 (Energy) disclosure can present the plant's renewable energy consumption and percentage, as well as the number of energy certificates held. In the Scope 2 numerical fields, both regional and market figures must be presented, along with an explanation of the type and source of the certificates used.

For the Taiwanese parent company that needs to respond to TCFD, the green electricity procurement activities of its Southeast Asian subsidiaries can serve as a concrete example of "climate-related opportunities" to illustrate the company's response to transformation risks.

When communicating with European buyers, the most practical way to express it is not through percentages, but through concrete actions: "We already hold X MWh of I-REC, corresponding to Y% of the factory's electricity consumption this year, and our Scope 2 market-specific emissions have been reduced to Z tons of CO₂e." Such a statement is more persuasive than vague statements like "committed to carbon reduction" and is more likely to pass the quantitative review of procurement assessments.

Green energy procurement is not a one-off event, but a commitment that requires annual certificate renewals or continued fulfillment of Power Purchase Agreement (PPA) contracts. Establishing procurement records and certificate management processes from the first I-RECs makes it easier to sustain than pursuing 100% renewable energy from the outset.

Further Reading

The following articles can be used in conjunction with this one:

Finding Carbon Reduction Pathways from Carbon Inventory: Three Key Steps in ESG for Manufacturing

Southeast Asian factories exporting to Europe: The 2026 CBAM carbon tariff is coming – three steps to check your exposure level.

Carbon data is available, but how do we generate an ESG report? Three key questions from the first disclosure report for a Southeast Asian factory (link to be updated after launch).