AI Data Centers and Emissions Q&A Part 1: Primer on Carbon Accounting
AI data centers use massive energy, raising emissions and complicating carbon accounting. Understanding scopes 1, 2, and 3 helps measure companies’ true climate
As the use of artificial intelligence (AI) has grown over the past few years, so have the energy needs of the data centers that power AI. In 2024, US data centers used approximately 200 terawatt-hours of electricity, about what it takes to power the country of Thailand for a year.1 And in 2025, greenhouse gas (GHG) emissions in the US increased by 2.4%, driven in part by the expansion of data centers for AI and the increased combustion of coal to keep up with the growth in electricity demand.2
What does this mean for the carbon footprint of companies involved in AI? We sat down with Michael Gillenwater, the executive director, dean, and co-founder of the Greenhouse Gas Management Institute and a member of Dimensional’s network of ESG researchers and academics, to better understand the challenges of carbon accounting and the implications of widespread adoption of AI on companies’ carbon footprints.3
In Part 1 of this two-part series, Gillenwater explains the basics of carbon accounting. In Part 2, we explore how the growth in energy usage by AI data centers will be reflected in a company’s carbon
footprint.
Dimensional: Let’s start with basics. Can you give us a quick primer on carbon accounting and walk us through scopes 1, 2, and 3?
Gillenwater: The idea behind most carbon accounting is to assign responsibility for GHG emissions to an entity, whether that be a city, a country, or a company. In 2001, the GHG Protocol published the first internationally recognized guidance to help companies take an inventory of their GHG emissions. By taking an inventory of their GHG emissions, companies can use the information to assess the sources of their emissions and set targets to manage and reduce their carbon footprint.
The three “scopes” come from the GHG Protocol and are meant to help delineate direct and indirect emission sources. Scope 1 is the most intuitive—these are direct emissions from assets owned or operated by a company. For example, emissions physically emitted from a factory owned by a company would be included in the company’s scope 1 emissions.
Scopes 2 and 3 are both indirect emissions—these are emissions that are not from company-owned or operated assets but from sources that are somehow associated with the company’s activities: for example, the emissions of a key supplier. The GHG Protocol breaks indirect emissions into two categories. Scope 2 are emissions from purchased grid electricity, steam, heating, and cooling for the company’s own consumption. Scope 3 includes everything else.
You could treat all indirect emissions as one category, but under the GHG Protocol, purchased energy usage gets its own separate category—scope 2—with its own set of rules. Exhibit 1 illustrates all three categories.
EXHIBIT 1
Understanding Emissions
Dimensional: Why does the GHG Protocol treat purchased energy usage as its own separate category? Is there something special about energy usage that warrants being given its own “scope”?
Gillenwater: There are a few reasons to distinguish emissions from purchased energy from other indirect emissions, and one is that electricity generation represents one of the largest sources of GHG emissions globally. By some estimates, the generation of electricity and heat now accounts for at least a third of global GHG emissions.4 Separately accounting for these emissions by those consuming this electricity can be useful information, as consumers can play a role in reducing those emissions by reducing electricity demand and by driving demand for alternative, low-carbon resources.
Dimensional: How are emissions from purchased and consumed energy measured?
Gillenwater: Measuring emissions from electricity usage is challenging. Electricity is unusual in that the grid is a pooled resource. Energy produced by different suppliers—e.g., wind, solar, coal—is “mixed” together within the grid and then distributed to consumers in an undifferentiated energy product. What this means is that, as a consumer, you can’t actually determine whether the energy you are using was generated by a wind farm, solar panels, fossil fuels, or some other source. By the laws of physics, it is inherently a mix of all of these. And since the emissions associated with your energy consumption depend on the energy source, this “mixing” of supply at the grid makes it necessary to allocate emissions to electricity consumers based on a combination of emission rates across all these suppliers.
This is where grid averaging comes in. Because there is no way of saying that your electricity only came from a particular wind farm, the standard approach has been to use an average emissions factor (tons of CO2-equivalents per megawatt-hour) to estimate a company’s scope 2 emissions. This is often referred to as the location-based method, because it reflects the average emissions to generate electricity across all the generators supplying a region where the energy is being consumed.
Companies have tended to use an annual average grid factor to estimate their scope 2 emissions. But this doesn’t capture some of the known seasonal and diurnal variability in energy supply—for example, solar tends to deliver more energy during the day, while wind delivers more at night. There are currently efforts underway to move accounting standards from annual to hourly averages. This would make calculating scope 2 more complicated but would better reflect the actual emissions of companies whose electricity consumption also varies by time of day and season.
An alternative accounting method is the market-based or contractual approach. This method permits a reporting company to substitute a location-based grid average factor with an emission factor associated with electricity from a specific generation facility— such as a wind farm—with which the reporting company has a contractual agreement to claim the associated emissions attributes.
Dimensional: You’ve written extensively on the issues with the market-based approach to reporting scope 2 emissions.5 Could you explain why the market-based approach of calculating scope 2 emissions may be inaccurate?
Gillenwater: With the market-based approach, instead of applying the average emissions factor based on where the company is located, the company can enter into a contractual arrangement to apply the emission factor associated with a specific generation facility—for example, a zero emissions factor from a particular wind farm—even if the company is not actually using electricity generated by that particular wind farm. What this means is that a company in Poland, where coal is the main source of energy, can buy a renewable energy certificate6 for a geothermal plant located in Iceland, claim that they are using 100% renewable power, and report zero scope 2 emissions, even though the company in Poland is using energy that is almost definitely generated by burning coal. Efforts are being made to tighten up standards so companies can’t make claims like these that don’t pass the laugh test. More broadly, we are in the middle of an extremely intense debate over the approach to assigning responsibility around market-based claims and whether the market-based approach is fit for purpose.
Stay tuned for Part 2, where we will explore how the growth in energy usage by AI data centers will be reflected in a company’s carbon footprint.
Footnotes
1. James O’Donnell and Casey Crownhart, “We Did the Math on AI’s Energy Footprint. Here's the Story You Haven’t Heard,” MIT Technology Review, May 20, 2025.
2. Brad Plumer, “US Emissions Jumped in 2025 as Coal Power Rebounded,” The New York Times, January 13, 2026.
3. Michael Gillenwater, through Greenhouse Gas Experts Network Inc., provides consulting services to Dimensional Fund Advisors LP.
4. See “GHG Protocol Scope 2 Guidance” (PDF).
5. More about Gillenwater’s critique of contractual-based claims is available in his paper “Creative Accounting: A Critical Perspective on the Market-Based Method for Reporting Purchased Electricity (Scope 2) Emissions,” Energy Policy 112 (January 2018): 29-33.
6. A renewable energy certificate (REC) is a tradeable instrument intended to provide an economic incentive for electricity generation from renewable energy sources. RECs are issued when one megawatt-hour of electricity is generated and delivered to the electricity grid from an eligible renewable energy resource.
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