Local authorities and cities are at the forefront of driving the energy transition, which plays a crucial role in mitigating the effects of climate change. The greenhouse gas emissions in cities, due to energy consumption, are placed into two categories: direct emissions generated from the combustion of fossil fuels mainly in buildings and transport sectors, and indirect emissions from grid-supplied energy, such as electricity and district heating and/or cooling. While there is extensive literature focused on direct greenhouse gas emissions accounting in cities’ inventories, research has focused to a lesser extent on allocation methods of indirect emissions from grid-supplied energy. The present paper provides an updated definition for the concept of local energy generation within the Covenant of Mayors initiative and proposes a new methodology for indirect emission accounting in cities’ greenhouse gas emission inventories. In addition, a broader policy framework in which local action is taken is discussed based on the European Union energy and climate policies, and over 80 exemplary Covenant of Mayors good practices are identified across the technology areas of local energy generation and four modes of urban climate governance. The contributions of the paper demonstrate that local authorities have the capacity to support and mobilize action for local energy generation investments through the multiple modes of urban climate governance to update and strengthen climate action.