Harnessing Data-Driven Accountability: How ‘Following the Money’ Can Track Fossil Fuels Across the Supply Chain  

The EU’s Methane Regulation captured significant attention when it was adopted in August 2024. In addition to establishing common sense rules to reduce methane emissions in the EU’s energy sector, it also included a landmark provision that mandated obligations on imported fossil fuels. The regulation marks the first effort of any jurisdiction to drive down these emissions outside its borders. 

Methane emissions trap over 80 times more heat than CO₂ over 20 years, and cutting these emissions is the fastest and least expensive ways to slow global warming. In the oil and gas sector, 75% of emissions can be cut with existing technology,¹ and because much of the captured emissions can be sold as energy, over half of these abatement solutions come at low or negative net costs. 

The EU is the largest importer of oil and gas, and the nations it imports from are responsible for 30% of global oil and gas methane emissions, meaning the new EU rules could have a major global impact in reducing methane emissions.² However, the systemic lack and poor quality of emissions data and the myriad of approaches to analysing this data present challenges.  

Enter the EU’s new methane rules on the energy sector

The EU’s new rules take direct aim at these systemic problems by phasing in new obligations on importers in three stages. The first phase of the EU’s import standard – detailed in Article 27 and Annex IX – concentrates on increasing availability of emissions data through reporting obligations – establishing for the first time where volumes of oil, gas, and coal were produced, by whom, and what the estimated associated emissions were. 

The second phase – detailed in Article 28 – increases the quality of the emissions data through Monitoring, Measuring, Reporting, and Verification (MMRV) obligations, aligned with the EU’s own rules and Oil and Gas Methane Partnership (OGMP 2.0) guidelines. And the final stage, in Article 29, leverages the data by setting the maximum emissions allowed for all fossil fuels placed on the EU market. While the final two phases have received the most attention, they won’t be possible without careful implementation of the first.  

Most of the EU’s gas suppliers don’t meet a 0.2% equivalent intensity

Immediate priorities: Article 27 / Annex IX and the trace-and-claim solution 

The Methane Regulation’s initial data reporting obligations start in May 2025, when importers will be required to show where the fossil fuels were produced and transported through before being placed on the market, as well as associated information on its estimated emissions intensity and the abatement activities undertaken to reduce emissions. With regards to the origin and transit path of fossil fuels, Annex IX requires importers provide geographic data at the statistical level of major socio-economic regions in a country, equivalent to NUTS Level 1³. It should be underlined that the imported volumes are not required to meet any standard for MMRV and emissions intensity until 2027 and 2030, respectively. However, the reported data will feed into a new Transparency Database and will be used to inform the forthcoming delegated and implementing acts that will clarify outstanding aspects of the Methane Regulation.  

With these initial data reporting obligations rapidly approaching, both companies and regulators assigned by Member States require a solution to reliably track the environmental attributes of oil and gas from the producer to the importer.

As fossil fuels move across complex supply chains and are co-mingled during transit, determining the origin and provenance requires importers to “follow the money” for the oil and gas they buy, rather than “follow the molecules.”

This approach, known as trace-and-claim, has been successfully piloted in other jurisdictions, and is the only appropriate solution to meet the initial reporting requirements in Article 27 and Annex IX of the Methane Regulation.   

Why existing tracking approaches won’t work for Article 27 and Annex IX compliance

In practice, tracking gas across the supply chain requires a different approach than tracking most tangible commodities. After all, the environmental attributes cannot be physically attached to gas as they can be with a product like timber. And existing approaches that have been developed for less tangible commodities, such as ‘book-and-claim’ systems for renewable electricity markets, also pose significant drawbacks for tracking oil or natural gas. 

‘Book-and-claim’ and mass-balance systems work by keeping track of how much of a commodity was produced at a certain standard and then allow those quantities to be ‘claimed’ by any end user willing to pay for a tradable certificate, allowing them to brand the product as ‘renewable’ or ‘low-intensity’. If such a system was applied to global gas markets, for example, high-intensity gas from North Africa could be imported into the EU as ‘low-intensity’ gas by simply purchasing surplus certificates from Norway or Qatar. A significant share of Norway’s exports is to the United Kingdom, which does not require any certificate or standard, meaning ‘low intensity’ certificates could be de-coupled from the gas volumes and sold to EU importers.  

Most of the EU’s crude oil suppliers don’t meet a 0.2% equivalent intensity

Even if a ‘book-and-claim’ or mass-balance system restricted trading to within a country, the risks persist. Within the U.S. for example, higher-intensity gas from the Permian basin could be exported to the EU but combined with a lower-intensity certificate from gas produced in the Marcellus basin. Likewise, lower-intensity certificates from oil production in Colorado could allow methane-intense oil produced in the Permian or Utah to be exported to the EU. A national book-and-claim or mass-balance system delivers little incentive for higher-intensity producers to abate their methane emissions – one of the principal goals of the Methane Regulation – and instead only incentivises abatement (or just higher production) where it is cheapest and easiest.  

It should be underlined that for the initial reporting requirements in Article 27 and Annex IX of the Methane Regulation, a global or national book-and-claim system is incompatible due to the granularity of data required in Annex IX. Importers must show the major socio-economic region in which the gas originated from, as well as the major regions it transited through to arrive in the EU.⁴ As there is no standard set for emissions intensity during the initial reporting phase, there is limited value to trade any attributes in a sub-national book-and-claim systems aligned with NUTS Level 1 reporting, however this could change upon implementation of Articles 29.  

How NUTS Level 1 Regions equate to US Region Census Divisions for meeting Annex IX reporting requirements 

U.S. Region Census Divisions (NUTS 1 Equivalent)	U.S. States Included
New England	Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont
Mid-Atlantic	New Jersey, New York, Pennsylvania
West North Central	Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota
East North Central	Illinois, Indiana, Michigan, Ohio, Wisconsin
South Atlantic	Delaware, Florida, Georgia, Maryland, North Carolina, South Carolina, Virginia, West Virginia, D.C.
West South Central	Arkansas, Louisiana, Oklahoma, Texas
East South Central	Alabama, Kentucky, Mississippi, Tennessee
Mountain	Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming
Pacific	Alaska, California, Hawaii, Oregon, Washington

Trace-and-claim as a path forward

Addressing the shortcomings of book-and-claim systems to establish hydrocarbon provenance requires an innovative approach that is straightforward to implement. A trace-and-claim system is one solution that would create a link between the producer and the importer by giving every volume of gas or oil a unique digital ID, allowing the volume and its associated data to be tracked back to the producer through sale and purchase agreements.  

Such a system does not attempt to ‘follow the molecules’ of fuel but rather ‘follow the money’. This ensures that environmental attributes can only be claimed when there is a plausible delivery path to the importing country – and it also ensures that the producers and midstream operators transporting the low-intensity gas are the financial beneficiaries of the value created by the low-intensity emissions data. This value may be manifested in several ways, including through access to markets, price premiums, or simply increased competitiveness due to avoided fees. Ensuring that the producers who abate emissions ultimately are the beneficiary of this value is critical to incentivise reductions.  

A trace-and-claim system is built on three main components: 

1. First, a robust data gathering system is necessary to produce unique digital ID profiles and certificates for specific volumes of fuel. If the volume is split up, the new batches receive a new ID that is a derivative of the original. 

2. Second, a trace-and-claim system relies on a standard format to include environmental attributes in sale and purchase agreements (SPAs). This standardisation is critical to allow buyers and regulators to have frictionless access to attributes. 

3. Third, the system relies on interoperable digital registries to store and track the movement of environmental attributes. In practice, these attributes would be stored on a secure registry until a subsequent SPA notifies the registry of a change and new destination. This system ultimately ensures that there is no double counting of the same volume.  

Looking ahead to Article 29 and the methane intensity performance standard

Building transparency on the provenance of fossil fuels across supply chains is not only required by Article 27 and Annex IX of the Methane Regulation, it helps build a foundation for the development of several credible approaches to support compliance with Article 29, which requires imported volumes to report emissions intensity and eventually meet a performance standard. These approaches include adding an innovative trading component to the trace-and-claim system for imported volumes, which would provide the liquidity offered by a mass-balance or book-and-claim system, with no reduction to the incentives to reduce emissions.   

Starting in August 2028, Article 29 requires importers to begin reporting emissions intensity at the level of the producer – based on the European Commission’s forthcoming methodology – and beginning in August 2030, imported fossil fuels must meet an emissions performance standard. As these obligations are imposed, the attributes of volumes that meet and exceed these standards will increase in value, but allowing broad tradability through a book-and-claim system would undermine the Methane Regulation.  

As previously noted, global or national book and claim systems that allow attributes to be widely traded reduce incentives for high-intensity producers to reduce emissions – it becomes more attractive to pay another producer across the country (or across the world) to purchase a certificate and claim the attributes of that gas. Additionally, under simple unrestrictive book-and-claim concepts, the actual emissions of the purchased gas would be unrestricted.  Minimizing these risks requires a new system for tradability that builds on the trace-and-claim system, and which, if designed correctly, could incentivize more emissions reductions above the required threshold.  

This trace-and-claim system with an Emissions Reduction Trading component would include three additional steps:  

• Issuing unique certificates, on an emissions mass basis, for produced volumes with associated emissions below the intensity target, with the certificate matching the difference between the legal target and the actual intensity. 

• Requiring any imported volumes with production emissions above the level of the import standard to purchase certificates to make up for exceedance of the target on an emissions mass basis, as described below. 

• Restricting trading of certificates for imported volumes to within geographic zones, such as those aligned with NUTS Level 1, to support eventual compliance with Article 29. Additionally, certificates are only valid for a limited period of time after they are generated. 

For the purposes of compliance with Article 29, for example, certificates under the Emissions Reduction Trading system would only be issued when a producer has a demonstrated emissions intensity below the limit established by the Methane Regulation (i.e. 0.2%).  The producer would be issued a volume of certificates limited to the amount they over-comply with the target.  For example, if the regulatory standard is 0.2%, a producer with a measured intensity of 0.12% would receive certificates for 0.08%, the difference between the regulatory standard and the measured intensity. In this instance, the producer would have a limited time-bound window to sell these certificates to another producer within the same sub-national geographic region, which would allow the certificate purchaser producing gas with an intensity that exceeds the regulatory standard by a limited amount to access the EU market.  

Continuing the example from above, if the first producer sold 100 million standard cubic meters (SCM) of gas with an intensity of 0.12%, they would be able to sell sufficient certificates to allow a second producer to sell 100 million SCM with an intensity of 0.28% to the EU. Alternatively, there would be enough certificates to sell 200 million SCM produced with an 0.24% intensity. 

For this Emissions Reduction Trading system to be effective, credible emissions data for both producers are required, in addition to credible evidence that the importer purchased the gas sold by the second producer, and that certificates are generated, tracked, and retired appropriately. A trace-and-claim foundation, with trackable data profiles assigned to volumes at production, remains necessary for the “surplus swap” to work effectively and to guarantee the environmental integrity of the Methane Regulation’s import standard. As there is no legal basis for any type of attribute trading in the Methane Regulation to comply with Article 29, this system would need to be carefully considered upon the legislation’s review in January 2028. 

Conclusion

The world is moving towards standards on globally traded oil and gas – with the EU encouraging some of the biggest steps to reduce potent methane emissions. As more countries look to implement standards on domestic and imported fossil fuels, it is crucial to recognise that these standards cannot be enforced without addressing the systemic lack of credible, trackable data in the methane space. 

As data on global supply chains inevitably becomes more credible and transparent, it becomes increasingly strategic for companies to proactively invest in reporting, emissions mitigation and solutions for regulatory compliance. Companies can increase their competitiveness as this transparency allows buyers to prioritise lower intensity fuels. Conversely, non-compliance can carry serious financial risks – the Methane Regulation allows maximum annual penalties of up to 20% of annual turnover, and could de-facto restrict market access due to decreased competitiveness. 

Time is running short, and ahead of the start of the Article 27 and Annex IX data reporting obligations in May 2025, stakeholders should take the following steps to ensure smooth implementation through a trace-and-claim approach: 

1. The European Commission should provide guidance to competent authorities of EU Member States to support the development of a standardised template for data reported under Annex IX. Standardisation of reporting will be critical to minimize administrative burdens on importers and exporters and maximize interoperability between different digital registries and trading platforms. The European Commission and EU Member States should leverage the existing work done in workstream 1.2 of the international MMRV initiative, initiated by the U.S. Department of Energy, which has drafted supply chain verification statements designed to track attributes of fossil fuels across supply chains.  

2. Existing certifiers and firms that offer tracking, certification, and data aggregation should work towards building interoperability between various digital registries in which environmental attributes are stored.  Stakeholders should consider existing work done by the North American Energy Standards Board (NAESB – Request R18007),⁵ which has developed a standard contract addendum and digital registry to allow attributes to be transferred through SPAs. Further consideration should be given to the international MMRV initiative’s workstream 3, which aims to coordinate the management of supply chain data on digital registries and repositories.  

3. Competent authorities of EU Member States with import facilities should collaborate to determine common standards for compliance with Article 27 and Annex IX, taking into account the existing solutions for tracking provenance and data on imported fossil fuels across supply chains. These Member States should ensure competent authorities have sufficient capacity to enforce Articles 27, 28, and 29 effectively, and consider common, dissuasive penalties for non-compliance to ensure companies are adequately incentivized to meet these obligations. 

Getting this system right is not only vital to set the foundation necessary for the EU’s forthcoming MRV and intensity standard obligations to work effectively, but also for the future credibility of differentiated gas.

While the EU Methane Regulation’s data reporting obligations are undoubtedly the least discussed aspect of the EU’s import standard, they present a considerable opportunity to deliver outsized impact by delivering data-driven accountability in global oil and gas supply chains.

---