The rise of environmental attribute certificates
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· 23 min read
There are cases in which emitters are willing to pay more for low-carbon materials, energy, or processes but do not have physical access to cleaner supply due to geographic mismatches, supply chain complexity, or other reasons. Historically, this has either resulted in inaction or purchase of carbon credits that sit fully outside the emitter's value chain. Environmental attribute certificates (EACs), which are used as part of a chain of custody system known as book and claim, decouple environmental qualities such as lower emissions from the physical flow of commodities, which allows willing buyers to support low-carbon suppliers even if they are operating in a separate part of the supply chain. The revenue from EAC sales can accelerate deployment of cleaner industrial processes, but there are many safeguards that need to be put in place and standards that must be matured to ensure environmental integrity and market trust.
EACs, also referred to as commodity certificates by the Science Based Targets initiative (SBTi) and environmental commodity certificates by ISO 14060, are market instruments that represent the production and sometimes use of a low-carbon good or service. EACs can be issued upon the production of a low-carbon product and sold to a buyer other than the entity that physically receives the good; the buyer then retires the EACs to make a market-based claim. When used in this way, EACs power book and claim systems, where the emissions benefit is "booked" at the point of production, verified and recorded on a registry as an EAC, and then "claimed" by a separate buyer.
Generally, these buyers are companies seeking to make claims related to clean procurement, but individuals, governments, and other organizations may be able to buy EACs as well. The primary purposes of EACs are to track clean production, to enable tracking in regulatory compliance programs, and to create a mechanism by which capital can flow from willing buyers to projects that need it to cover green premiums. This capital flows via sale of the EACs to willing buyers through spot transactions or long-term offtake agreements, both of which can increase the bankability of low-carbon projects. Green premiums for low-carbon products can range from a few dollars to a few thousand dollars per tonne of CO2 reduced, although some expect reasonable EAC prices to be in the neighborhood of $60–$100 each.
EACs are not a new concept. Renewable energy certificates (RECs) are a subset of EACs and emerged decades ago as a tracking mechanism for renewable portfolio standards (RPSs) and clean energy standards (CESs) that mandate utilities to provide predetermined levels of low-carbon energy by particular dates. These instruments are necessary given the complexity of the electricity grid and the inability to directly track electrons once deposited into the power system. A large voluntary market for RECs developed in the 2000s and 2010s, with corporate buyers purchasing RECs from projects outside of RPSs to make claims of "100% renewable energy use" and "0 market-based scope 2 emissions."
RECs demonstrated that it was possible to issue a unique, serialized certificate on a registry to track clean production, which served as a model for other instruments. Renewable thermal certificates (RTCs) are similar in nature to RECs but represent the production of renewable thermal energy from products like renewable natural gas. Similar to how RECs are also used in compliance contexts, the Renewable Fuel Standard in the U.S. created Renewable Identification Numbers (RINs) that are used to track production of renewable fuels in parallel to voluntary RTCs.
RECs, RTCs, RINs, and related instruments are sometimes classified as energy attribute certificates, another EAC subset, as they represent the generation of a unit of low-carbon energy for tracking and market purposes. However, EACs are not limited to electric and thermal energy, and they are now being expanded to cover other low-carbon commodities, such as sustainable aviation fuel (SAF), sustainable marine fuel (SMF), low-carbon cement, green iron, clean chemicals, and more.
There is serious market momentum for EACs, with a rising number of deals, market infrastructure providers, and carbon accounting standards explicitly allowing their use. This article explores how EACs work, what standards govern their use, and recommendations for making EACs a more effective tool for decarbonization. The scope of this article is limited to EACs focused on greenhouse gas emissions and book and claim chain of custody models; it does not address other kinds of environmental or social labels (e.g., USDA Organic, Fair Trade) or chain of custody models like mass balance or segregation.
Individual EACs are created based on the production of one unit of a low-carbon commodity. These units vary by the commodity. For example, RECs use megawatt-hours (MWh), RTCs use dekatherms (equivalent to one million British thermal units), and SAF certificates use one metric ton of neat (unblended) fuel.
Once the commodity is produced and all relevant reporting and auditing steps are completed, an EAC can be issued for the production with a unique serial number on a registry. A selection of EAC registries is provided at the end of this article. Depending on the commodity and the registry, EACs may be issued with additional attributes like the time and location of production, which may be necessary to enable more advanced emissions claiming approaches such as 24/7 carbon-free energy (24/7 CFE).
If some kind of carbon footprinting was part of the EAC certification process, it is also possible to list the emissions factor associated with the production of the low-carbon product with the EAC on the registry. In some cases, EACs may also involve an emissions baseline representing the emissions factor associated with the conventional production process of the commodity and possibly attempt to issue EACs based on the level of reduced emissions. As explained later, this may be useful in some cases but risks making EACs into glorified emissions reduction offsets.
After issuance, EACs are publicly listed on registries and can then be transferred to other entities and retired. Buyers can only claim the use of EACs once they are formally retired, which, in theory, prevents anyone else from making the same claim. Registries and associated market infrastructure providers are responsible for implementing measures to prevent, detect, and address double counting of EACs, which can include double issuance of EACs based on the same activity, double selling of the same issued EAC, and double claiming of the same retired EAC.
As EACs decouple the environmental attribute from the physical supply chain, it is necessary to ensure that the physical offtaker of the material is not also claiming low-carbon procurement unless the EAC is retired on their behalf. When an EAC is decoupled and sold to another party, the physical flow of the commodity must be assigned a "null" emissions factor that represents the average emissions associated with the production of that commodity minus the impacts of any clean production for which attributes have been claimed. At this time, there are not necessarily standardized or perfect approaches for null emissions factor assignment and validation of their use across all commodities.
Many of the same integrity principles and practices created for classic carbon credits can also apply to EACs. The Core Carbon Principles (CCPs) published by the Integrity Council for the Voluntary Carbon Market (ICVCM) can all be applied to EACs even though EACs are not currently assessed under this scheme. For example, ideal EACs involve transparent disclosure of project details, independent validation and verification of project activities and claims, additionality, no double counting, and adherence to environmental and social safeguards. Many of these same principles are directly reflected in Carbon Direct's report, "Criteria for High-Quality Environmental Attribute Certificates in the Concrete and Steel Sectors." Following these kinds of criteria contributes to harmonization of certification practices in the market, helps protect buyers and thus the growth of the market, and enhances the ability of projects to have an overall positive impact on society.
After working in or adjacent to the voluntary carbon market for years, I have learned a very important lesson: not everything that can be credited should be. Put more provocatively, carbon credits are like chemotherapy; they are necessary and beneficial in specific cases but harmful when overused. I could write methodologies to issue offsets on the basis of me not shaving my beard and storing carbon on my face, of people holding their breath, and of me not buying a pickup truck when I otherwise could. While these are ridiculous examples, some existing offset schemes are frankly not too far from these ideas. Certain activities here, such as crediting solar geoengineering and bringing it into the domain of market-based instruments, would be outright dangerous.
These lessons also apply to EACs. They are useful tools in select cases, particularly when companies are willing to pay for environmentally differentiated products but cannot physically procure those products due to their geography, place in the supply chain, or restrictions on which suppliers they can utilize. For example, a bank may find value in retiring SAF certificates to compensate for employee travel-related scope 3 emissions even though it does not purchase jet fuel directly and employees may or may not fly on flights physically using SAF. In another example, an aerospace company may be locked into a particular supplier for quality and contractual reasons but may still want to support innovative, low-carbon technologies for decarbonizing their inputs and purchase chemical EACs to accomplish this.
However, EACs are not a panacea. With the exception of instruments that play a role in mandated compliance systems (like RECs and RINs), it is unrealistic to expect that all global production will be covered by them any time soon, and any instrument that allows a party to keep emitting but simply buy a credit from another to claim lower emissions is likely not compatible with net zero. The use of EACs should remain limited to specific contexts where they provide the most value, and requirements surrounding in-supply-chain use (akin to 24/7 CFE for RECs) must be strengthened with time to prevent perverse incentives that could inhibit direct decarbonization. Standards like those from the AIM Platform are attempts to thread this needle.
Beyond electricity, transportation/freight, and fuels, EACs will likely provide the most value in cement/concrete, iron/steel, other metals, chemicals (e.g., methanol, ethylene, propylene), and fertilizer. EAC developments could be possible in other sectors as well, including agricultural products, pulp/paper, oil, glass, textiles, or even aspects of semiconductor manufacturing.
For all EACs, there are a few outstanding questions over what qualifies as an eligible use. Unlike emissions reduction credits that are used to make claims against any level of positive emissions, the use of EACs will be limited to a somewhat like-for-like manner by standards such as the GHG Protocol's (GHGp's) Actions and Market Instruments (AMI) guidance, e.g., buyers will not be able to apply cement EACs against their aviation-related emissions.
However, there is still uncertainty around how close of a match an EAC must be to the underlying source of emissions; there are many grades of steel and concrete, different types of jet fuel, and so forth. While there is currently an implicit understanding that EACs will be used at the general category level (e.g., steel for steel, concrete for concrete, jet fuel for jet fuel), it is difficult to escape subjectivity over where these categorizations begin and end. Again, standards from the AIM Platform and GHG Protocol's AMI provide initial guidance here, and more best practices will likely emerge over the next several years around which EAC users can hopefully converge.
The GHGp Scope 2 Guidance initially formalized the use of market-based and location-based emissions reporting for companies purchasing and retiring RECs. Under this standard, companies account for the electricity from their physical grid with a location-based claim and the renewable electricity they procure via retired RECs with a market-based claim. While years of debate over REC additionality and 24/7 CFE followed the establishment of this framework, the idea remained that corporate buyers could purchase market instruments representing the environmental attributes of products to affect a part of their emissions claims.
Today, EACs are receiving an unprecedented amount of coverage in a variety of standards.
ISO 22095 establishes terminology and requirements for different chain of custody models, which are the general approaches for tracking materials throughout value chains. This report from the ISEAL Alliance provides clear explanations on how different chain of custody models work, and the graphic below from RMI and Microsoft's steel and concrete book and claim report provides a comparison between these models relative to traditional carbon offsets.
ISO 22095-3 goes even deeper into book and claim in particular, which is the chain of custody model for which EACs are the most important. This standard uses the more general term "transferrable instrument with entitlement to claim (TIEC)" in place of "EAC," as this concept can apply to attributes beyond just environmental ones.
ISO is the largest international standards body with a deep focus on finding consensus across many industry stakeholders, allowing their standards to provide a widespread and well-regarded foundation for EACs.
ISO 14060 is currently a draft standard that sets requirements for net zero-aligned organizations. The standard explicitly notes, "The organization may consider the purchase of environmental commodity certificates with regard to emissions associated with its value chain, which it is not able to trace, directly address, or influence." It contains several additional provisions that reiterate the importance of only using EACs when direct reductions are not possible and providing corresponding disclosures. There are further, but still high-level, requirements around geographic matching, matching EACs to the types and volumes of GHG emissions sources for which they are used, and using EACs that correspond to quality criteria and frameworks for best practices.
The AMI white paper, which was primarily a request for information, signaled an intention to expand GHGp's reporting structure into a multi-statement framework. This framework contains a physical GHG inventory across all emissions scopes, a market-based GHG inventory across all emissions scopes (where EACs would be accounted for), a GHG impact statement covering consequential GHG impacts of specific actions, and a section for non-GHG indicators that represent important transition indicators.
If implemented, this would provide a complete picture of an organization's actions and progress on decarbonization, and it explicitly creates the reporting infrastructure necessary for claiming EACs across emissions scopes. GHGp and ISO are also collaborating on a unified corporate carbon accounting standard, so the structure proposed within AMI may eventually be formalized at the ISO level as well.
The new version of SBTi's Corporate Net Zero Standard, which establishes more normative guidance around target-setting as opposed to GHGp's reporting-centric frameworks, clarifies the role of market instruments and provides explicit integrity criteria for use of these instruments. These criteria include a focus on attributes such as additionality, no double counting, leakage prevention, attributional accounting, and rigorous quantification. While additional guidance and clarifications on how EACs can be integrated into targets are required, inclusion in SBTi's standard provides additional safe harbor for buyers seeking to use EACs.
The AIM Platform (not to be confused with GHGp's AMI work described above) is convened by C2ES, the Center for Green Market Activation (GMA), and Gold Standard and works on aligning stakeholders and building standards to address barriers to value chain decarbonization. Their recent Standard & Guidance document establishes guidelines around intervention quality and supply chain association that apply to market-based scope 3 claims. These requirements were collaboratively crafted to advance the field and ultimately contribute to compatible reporting under GHGp, SBTi, and ISO standards.
The Task Force for Corporate Action Transparency (TCAT) is a group of GHG accounting experts that published a report, "Mitigation Action Accounting and Reporting Guidance," detailing a supplementary corporate carbon accounting approach where the use of market instruments, such as EACs, is accounted for in a contractual inventory statement.
Based on the intended impact and current status of EACs, there are several actions that I believe market actors should take to increase the environmental effectiveness and the integrity of EACs.
RMI and GMA have convened buyer consortia such as the Sustainable Aviation Buyers Alliance (SABA), Zero Emission Maritime Buyers Alliance (ZEMBA), Sustainable Concrete Buyers Alliance (SCoBA), Sustainable Steel Buyers Platform (SSBP), and other GMA programs. These groups will play a vital role in socializing EACs, establishing and sharing best practices, and perhaps even centralizing procurement and connecting buyers and low-carbon suppliers. Establishing more of these groups and growing existing ones may help cut down on fragmentation and expedite EAC adoption.
The voluntary carbon market (VCM) has no shortage of structural issues, but there are many valuable, integrity-enhancing insights that actors within the VCM have learned over the past couple of decades. Incorporating financial and regulatory additionality, environmental and social safeguards, leakage prevention, project design documents and monitoring plans, validation and verification bodies, double counting prevention, and registry interoperability into EACs would leverage existing insights and contribute to harmonization and a shared vocabulary.
However, as with traditional carbon credits, questions surrounding the legal status of these instruments, what kinds of claims are allowed with them, which agencies regulate their use, how they can be traded across borders, and how they will be integrated into compliance regimes still need to be addressed. There may also be complicated double counting questions, e.g., if an EAC is decoupled and sold separately from the physical flow of a commodity good, how would that good's emissions be accounted for under an importer's Carbon Border Adjustment Mechanism (CBAM)? How should EACs be addressed in Nationally Determined Contributions (NDCs) under the Paris Agreement, and will corresponding adjustments be required for them as well? Who tracks and verifies the claims among corporate and national inventories? This is frontier territory without clear answers.
RECs have no inherent additionality, temporal matching, or geographic matching requirements, but energy system modelers have demonstrated that such requirements are ultimately necessary to accelerate adoption of clean energy. While other commodities differ from electricity and have simpler supply chains than the electric grid, the fact remains that net zero will require complete, absolute supply chain decarbonization paired with carbon removal for any residual emissions. This implies that EACs may not be able to be used as flexibly over time, but this creates a trade-off with their current core purpose, which is to connect willing buyers to low-carbon suppliers regardless of physical supply chain connectedness.
This issue can be resolved through completely transparent disclosure of location-based and market-based emissions paired with tightening requirements around which companies can use which EACs and when. There is a precedent for this tightening approach with the tightening requirements around the "three pillars" of energy procurement (incrementality, temporal correlation moving toward hourly matching, geographic matching) as seen with the EU's Renewable Fuels of Non-Biological Origin guidance and the U.S.'s debate around the 45V tax credit.
The AIM Platform's Standard & Guidance, which includes an explicit supply chain association test, also attempts to address this issue. The Value Change Initiative establishes some guidance for thinking through "supply sheds" in the context of food and agriculture. Version 2.0 of SBTi's Corporate Net Zero Standard also addresses this tension, and the organization will likely provide additional guidance on this point with time: "Actions at the activity pool or sector level, including the use of market instruments, can contribute to broader system-level decarbonization as interim measures until the opportunity to take direct action in operations and value chains is available."
Part of this tension will resolve itself as compliance measures expand. When decarbonization project activities become directly required by law, they will lose their regulatory additionality status and thus be unable to generate voluntary EACs. For such projects, the environmental attributes will simply accrue to the physical users of those products without a need for EACs. While this may shrink the voluntary EAC market with time, such systems may still be able to leverage existing market and verification infrastructure, and mandated clean production is arguably the ideal end point for climate action.
(Disclosure: My company works in this space; there is more on this at the end of the article.) Process- and technology-specific methodologies are currently a major gap for novel areas of EACs. There are numerous registries (e.g., SAFc, Avelia, 123Carbon), fuel certification schemes (e.g., ISCC EU, RSB), ISO standards (e.g., ISO 14404 and 20915), book and claim frameworks (e.g., Book and Claim Framework for the Iron and Steel Sector, Book and Claim for Cement and Concrete), and even emissions quantification standards (e.g., Steel Climate Standard, ResponsibleSteel International Production Standard). There are even relevant emissions reduction offset methodologies, such as Climate Action Reserve's Low-Carbon Cement Protocol. What there are not, however, are dedicated EAC methodologies that provide clear monitoring and data collection plans and tangible processes and rules for registry issuance. This is a gap that Absolute Climate is trying to close.
EACs should be issued and retired on an activity basis that corresponds to the physical amount of production and consumption of a commodity product. For example, producing one tonne of low-carbon cement should result in one low-carbon cement EAC with a corresponding low emissions factor, and this EAC should be able to be purchased and retired by a company that physically purchased (or had a supplier purchase) one tonne of conventional cement in their supply chain. The buyer should then be able to claim the certified low emissions factor for the cement in their market-based emissions inventory.
The main alternative to this approach would be tonne-denominated claims generated on the basis of the difference between the low-carbon product's absolute emissions factor and the baseline emissions determined by a standard setter. Some buyers and other market actors prefer this model because it makes the final EAC product more fungible; this approach effectively results in EACs that are emissions reduction offsets applied to specific commodities. These can be priced more easily and used to zero out emissions, including by value chain actors that are far downstream of the commodity. For example, one could argue that Walmart does not buy cement directly for its stores and thus does not have cement's emissions clearly represented in its scope 3 emissions, which would make the activity-based model more difficult to implement relative to simply buying reductions.
The challenge is that the reduction model replicates some of the same problems seen in the emissions reduction market. It creates a structural incentive to inflate baselines to generate more EACs for more revenue, which would detract from the integrity of the system. Emissions reduction offsets are also more of a consequential tool that belongs more in the GHGp impact statement part of the proposed GHGp AMI framework as opposed to the attributional market-based inventory.
In addition, the real baseline is determined not so much by an industry average as by the specific buyer. A company that buys EACs has more direct insight as to what their physical baseline is as it already exists in their physical, location-based emissions inventory, even if that value was estimated based on spending or other average data. This is ultimately the more specific and accurate value to use for comparisons and for allowing buyers to determine their particular willingness to pay for EACs. Notably, popular EACs to date such as RECs and RTCs follow this logic; they represent physical quantities like a MWh or a dekatherm of energy, not emissions reduced relative to some semi-arbitrary baseline.
Currently, REC retirement allows buyers to account for zero market-based scope 2 emissions for the amount of purchased and retired RECs. This is problematic as even renewable energy involves life cycle emissions, and it is ambiguous how the scope 3 emissions associated with renewable power generation should be passed along to REC buyers. Ideally, EAC emissions intensity scores will account for the complete cradle-to-gate or even cradle-to-grave life cycle emissions of the product and be distributed properly among market-based scope 1, 2, and 3 emissions for buyers. Carbon accounting standards will need to approach these claims carefully and comprehensively to mitigate double counting risks.
In addition, there are unresolved questions about how EAC buyers far downstream of a particular supply chain will be able to account for the purchase of an upstream EAC. As mentioned in the activity basis section above, it is preferable to use activity-based EACs rather than EACs denominated in tonnes of CO2 reduced relative to some baseline. However, if a company does not buy a commodity represented by an EAC directly and its emissions are embedded deep within that company's existing scope 3 inventory, it is difficult to imagine how it will be accounted for without complex disaggregation of the current scope 3 inventory contributors. This difficulty is partly why some buyers prefer the tonne-denominated approach, although as noted above, this approach poses risks to the integrity of EACs. The solution likely lies within better product carbon intensity standards and corporate carbon accounting frameworks that explicitly account for this possibility, although this may itself risk additionally limiting downstream EAC use to sophisticated buyers with large sustainability teams that can address this complexity.
If we acknowledge that EACs can be used to effectively claim lower-emissions production, can EACs be used by processes that intend to generate EACs? Can a steelmaker using conventional iron buy an iron EAC to embed in a low-carbon steel EAC? On the one hand, this may feel like a house of cards that threatens integrity and trust in the market, and it may be best to create a first-order limit on EAC use. On the other hand, restricting EAC use in this way may undermine the premise underlying EACs, which is that their purchase and retirement represents real, incremental low-carbon production for which the EAC buyer should get credit. Additionally, there are cases where EAC use is a required practice in order to claim the use of a low-carbon input, such as with RECs that must be retired in order to claim the use of renewable electricity.
This is yet another unresolved area. A temporary solution is full disclosure of this practice when used within any EAC issuance process, which will enable buyers and policymakers to be informed and make their own decisions regarding whether they find this tolerable. In addition, if a producer or methodology developer is trying to implement stacking, it likely makes sense to apply the same or similar standards to any EACs used within EAC-generating processes. For example, the iron EAC in the above case should also have to conform to any additionality and quantification requirements that would apply to the steel EAC. Otherwise, there is a risk of lower-quality EACs being implicitly embedded in higher-quality ones in a way that detracts from the integrity of and trust in the overall system.
The above recommendations could help create a more robust EAC market, but there are still many unresolved issues and areas where reasonable people may disagree. This level of unknowns points to a need for both full transparency to enable learning and a need to limit EAC generation and use, at least at first, to high-leverage, catalytic areas to reduce risks of poorly designed systems spilling over into the rest of the carbon accounting world. Through diligent planning, red teaming, risk management, open-mindedness, and experimentation, we will be able to craft an impactful EAC market.
To address the aforementioned lack of appropriate methodologies, my company, Absolute Climate, offers methodology development and certification for EACs. We develop monitoring, reporting, and verification (MRV) methodologies based on the Absolute Carbon Standard and provide certification of project activities to support EAC issuance. To mitigate conflicts of interest and enable project developers to work with deep specialists throughout the end-to-end process, we work with independent auditors that verify project activities and separate registries that issue the actual EACs based on our methodologies.
Absolute is initially focused on cement/concrete, iron/steel, other metals, chemicals, and fertilizer EACs, although we are open to chatting with any low-emissions producers to explore how EACs might be able to benefit their operations. If we do not already have a methodology covering a particular process, we target developing one in 60 days and then putting it through a private expert consultation and a 30-day public consultation before full adoption, all at no cost to the project developer.
This article is also published on Carbon-Based Commentary. illuminem Voices is a democratic space presenting the opinions of leading Sustainability Thought Leaders, their views do not necessarily represent those of illuminem.
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