17 Nov 2023

Explainer Series | Market Based Approaches for Scope 3 Emissions Accounting

Posted in: Measure and Report Emissions

Market Based Approaches for Scope 3 Emissions Accounting

The purpose of this Explainer is to introduce the concept of ‘market-based’ approaches in Scope 3 emissions accounting. It also looks at market-based uses, benefits, and requirements under Toitū’s carbon certification programme. This includes:

  1. Report market-based emission values.
  2. Use market-based emission values to contribute to their reductions.
  3. Use market-based emission values to reduce their offset requirement (for applicable programme members).

This document is an “Explainer” from Toitū Envirocare. Each of our Explainers provides an in-depth overview on a topic and will vary in length and detail, but all carry the same intent to inform our members and the public. As such, it delves into the models available, examples of how they are used, and a comprehensive list of factors for businesses to consider. Finally, amongst a wider picture of decarbonisation and climate change, there are opportunities with this approach to contribute beyond one's value chain and to wider environmental and social impacts.

To see this report with footnotes and sources access the pdf here: Download report

Introducing market-based approaches

At Toitū, we define market-based approaches as a model that tracks a physical product (or service) separately to specific attributes of a product (e.g., emissions or water consumption associated with manufacturing). The key feature of this approach is that it allows a customer to purchase the attribute(s) of the original product, decoupled from the physical product that they ultimately receive. This concept is seen in various forms and sectors, such as the emissions attributes of Sustainable Aviation Fuels, the renewable electricity sector, Round Table on Responsible Soy, and the Roundtable on Sustainable Palm Oil.

Market-based approaches are increasingly gaining interest and use globally as a tool to reduce Greenhouse Gas (GHG) emissions. Identifying the best approach is not always straightforward and is dependent on each business and the specific landscape they operate in.

Adherence to international best practices and current scientific understanding is crucial. These approaches are becoming particularly relevant for organisations required to report scope 3 emissions.

Reflecting this trend, Toitū's carbon certification programme, Toitū Elevate, will mandate from July 2025 that all organisations measure their entire value chain as part of the certification process. This aligns with the growing interest in comprehensive emissions accounting across industries.

Within scope

We consider the following examples to be ‘market-based’ approaches within the scope of this Explainer:

  • Chain of custody models - the general term to describe the approach taken to demonstrate the link (physical or administrative) between the verified unit of production and the claim about the final product.
    • Segregation – a model that ensures that certified product is kept separate from non-certified sources through each stage of the supply chain. This provides assurance that the ingredients within a particular product originate from certified [or equivalent] sources, with the same attribute(s). However, it may not be possible to identify which molecule came from which certified source.
    • Mass balance – this is an overarching term for variations on chains of custody that involve balancing. Mass balance may include physical mixing of products with different original attribute properties; hence the attribute of a product becomes disassociated from the physical product. However, under this model, the attributes of the original product (e.g., ‘low emissions’) can be allocated to any physical product leaving the system, provided the volumes are appropriately balanced. The volumes can be balanced at different levels such as batch, site, or group. Beyond batch level, there is no guarantee that any of a product used by the consumer will physically reflect the attributes the consumer has purchased.
  • Certificate trading – sometimes referred to as ‘book and claim’, where all product, with certified and non-certified attributes, flows freely through the supply chain. Certificates are issued at the beginning of the supply chain by an independent issuing body and can be bought by market participants, separately to purchase of the physical product. There is no physical traceability through the supply chain.
  • Book and Claim – synonymous to certificate trading but deserves additional note on definition to explain the origin of the wording. Book and Claim is a flexible model for verified information to flow that allows producers (e.g., of low-emission fuels) to “book” the attribute(s) (e.g., the emissions related to the product) of a good they’ve produced in one place, and customers to “claim” the benefit of low emissions from these goods in a different place. Figure 1 provides an illustration of the key features of a Book and Claim model.

Book and claim featuresFigure 1: Illustrative description of key features of book and claim, using Sustainable Aviation Fuel certificates as an example. Source: SFC, 2023.

Out of scope

We are aware of other activity in the Scope 3 space that could be a form of market-based approaches. Examples include:

  • Verra Scope 3 Initiative.
  • Value Change Initiative.

We are monitoring the development of these examples, and any other emerging examples we deem relevant for future publications.
To confirm, for more on market-based emissions in the Scope 2 part of inventories you can find more in our separate Explainer here on this Accounting for Energy Certificates.

Alignment to prominent discourse

Our position is grounded in international standards and best practice which is reflected in the programme rules we operate at an ISO level. Toitū establishes and maintains alignment to relevant, prominent discourse. Table 1 provides an analysis of positions in public commentary in the carbon space. Of particular note, much of the discourse refers back to GHG Protocol and/or ISO14064-1:2018 as the required measurement standards.

Analysis for each main market-based scenario against prominent discourse

Table 1: Analysis for each main market-based scenario against prominent discourse (non-exhaustive list). Please refer to the relevant footnotes in the report pdf for more on the positioning.

Examples of current practice

Several examples have been found of market-based approaches being used in the Scope 3 space, as summarised in Table 2. Notably, many Science Based Targets initiative (SBTi) validated companies are referred to as users, or pilot users, of these approaches. This suggests that these companies are anticipating such approaches to be an acceptable method for demonstrating reductions against their Science Based Targets, even though SBTi has not yet formalised a position.


Description of activity

Microsoft, United AirlinesMicrosoft is intending to use Sustainable Aviation Fuel (SAF) certificates to reduce their corporate travel “GHG lifecycle emissions”.
DHL Global ForwardingDHL have implemented access to Book and Claim processes for their customers in a selection of services.
Clean Skies for Tomorrow CoalitionThis coalition has developed a Sustainable Aviation Fuel certificate (SAFc) system, which will allow SAF emissions reductions to be claimed by travellers and cargo customers willing to pay.
Several signatories on the Clean Skies for Tomorrow Coalition are end-user customers, including Bank of America, Boston Consulting Group, Honeywell, LanzaTech, Ørsted, and McKinsey & Company
It is also noted that “Over the next year the Clean Skies for Tomorrow community will be working together to test these guidelines to support adoption across the entire value chain, including with standard setters such as Greenhouse Gas Protocol (GHGP) and the Science Based Targets initiative (SBTi).
Maersk Mc-Kinney Møller Center for Zero Carbon ShippingThe Maersk Mc-Kinney Møller Center for Zero Carbon Shipping, RMI, Danish Shipping, and Maersk Oil Trading have launched two publications outlining the design of their Maritime Book & Claim system, which will be piloted later in 2023.
This initiative provides a useful reference to four key ‘building blocks’:
1. Chain of custody procedures: the information needed to create a chain of custody between the GHG emissions and transport activity, including the ‘system unit’ used.
2. Market rules: rules around who can participate in the system, the actions taken with tokens [certificates], and the time considerations.
3. IT infrastructure: the key features needed for the system’s IT infrastructure.
4. Governance: the principles and procedures for verifying and validating data and transactions, and the overall governance structure.
It also acknowledges the need for ‘system acceptance’, noting the International Maritime Organization (IMO), the European Union (EU), and the Greenhouse Gas Protocol as examples of authorities on ‘system acceptance’.
Sustainable Business Council Low-carbon Freight Transformation via Renewable Freight CertificatesCurrently in the concept feasibility stage, this is a freight decarbonisation workstream aimed at facilitating the creation of a Renewable Freight Certificate (RFC). Toitū is a participant in this workstream.

Table 2: Examples of market-based approaches being used in Scope 3 emissions accounting (non-exhaustive list).

Benefits and challenges of position options

The previous sections illustrate there’s a range of market-based approaches emerging, and guidance and acceptance by prominent discourse for many of these either have no position stated or are not yet decided. Toitū encourages our programme members to seek out all credible opportunities to reduce their value chain emissions to the maximum extent, and as fast as possible. In this particular area, the complexity and ever-changing environment must be acknowledged.
Each of the approaches is analysed in Table 3 for benefits and challenges, across multiple position options covering reporting, claiming reductions, and reducing the final offset requirement.

Do not allow chain of custody and certificate trading emissions for reporting, reductions, or offsetting+ Simple, easy to understand by broad set of stakeholders
+ Likely minimised greenwashing risk
+ Conservative ‘wait and see’ for moving to alignment with future positions of prominent discourse
+ There are numerous precedent examples of the approach being used, hence this option may feel like a disadvantage in the context of industry norms
+ Limits options for members that are proactively seeking to optimise reduction opportunities in their Scope 3 emissions
+ Toitū programme members may find they are having to offset more than necessary
Allow chain of custody and certificate trading emissions for reporting+ Effectively dual reporting, enables agility to align to future positions of prominent discourse
+ Introduces additional visibility of Scope 3 profile to stakeholders
+ Next best option for minimising greenwash risk
+ As per above, plus:
+ It may be harder for stakeholders to understand why two sets of numbers are reported
+ Possible inconsistency in approach between reporting vs reductions and offsetting
Allow chain of custody and certificate trading emissions for reporting and reductions
Require physical emissions for offsetting
+ Increases client’s ability to reduce their Scope 3 emissions
+ Greenwash risk is still minimised by requiring members to offset using the higher, more conservative physical emissions values
+ May be harder for stakeholders to understand why two sets of numbers are reported
+ Greenwash risk is elevated due to potential stakeholder scrutiny on the integrity of the market-based approach(es) being used to show reductions
+ Toitū programme members may find they are having to offset more than necessary
+ Inconsistent approach between reporting and reductions vs offsetting
+ Risk of misalignment to future positions set by prominent discourse
Allow chain of custody and certificate trading emissions for reporting, reductions, and offsetting+ Optimises client’s ability to reduce their Scope 3 emissions because members can spend less on offsetting, and more on reductions in other parts of their Scope 3 inventory+ Harder for stakeholders to understand why two sets of numbers are reported
+ Greenwash risk is elevated due to potential stakeholder scrutiny on the integrity of the market-based approach(es) being used to show the reductions and reduced offset requirement.
+ Risk of misalignment to future positions set by prominent discourse (particularly GHG Protocol, and acceptance of reductions under SBTi)
Allow flexibility in approach used, subject to review against integrity and quality criteria+ Still optimises client’s ability to reduce (as per above)
+ Promotes members to increase their own understanding of market-based approaches
+ Toitū can moderate which approaches are acceptable, hence minimising reputational risk for client
+ Additional effort may be needed to transparently disclose the emissions
+ Additional effort required to review which approaches are acceptable
+ Risk of misalignment to future positions set by prominent discourse

Table 3: Benefits and challenges by option for Chain of Custody and Certificate trading. Analysis for these two types of market-based approaches has been combined due to the common findings against prominent discourse.

Additional considerations

Dual reporting:

A transparent accounting approach is to conduct dual reporting of both the gross emissions (for the physical energy consumed), alongside the market-based emissions. For example, an end user might physically travel on a flight that uses 100% conventional fossil fuel, emitting two tonnes CO2e. These emissions would be reported as the physical gross emissions. However, the end-user has purchased sufficient SAF certificates to cover their share of the energy demand of the same flight, hence a second value of zero emissions would be reported under a market-based approach.

Dual reporting is prevalent in the Scope 2 space of organisation inventories (location-based vs market-based electricity). In the Scope 3 space there may be a benefit in dual reporting if it is deemed to maintain integrity and credibility of the claim(s) being made by the programme member; and/or if it will help to increase emission reductions overall, i.e., either at the value chain, sector, or global level. However, our review has indicated that for most cases, it is currently not practical to dual report, due to data availability and/or the additional effort required to manage results in the inventory workings.

Preventing double counting:

For chain of custody models, it would also be appropriate to apply adequate due diligence in checking that the attribute (or certificate) purchased has been cancelled (or equivalent) on a registry. This is to ensure the same certificate is not double counted between schemes and/or sold onto another buyer to make a low-carbon claim within their inventory.

Emissions coverage:

Any market-based approaches need to be considered within the context of the full ‘cradle to gate’ coverage of the emission source activity. For example, if a market-based approach is covering the ‘Tank to Wheel’ (TTW) emissions, the ‘Well to Tank’ (WTT) emissions need to be captured to ensure the development of a fully complete Scope 3 inventory. This is consideration is applicable regardless of whether the low emission solution is, or is not, under a market-based approach.

Beyond carbon:

Consideration also needs to be given beyond GHG emissions, to the wider environmental and social impacts. For example, for biofuels, this includes biodiversity, water resources, and competition for food (first generation feedstocks vs second generation feedstocks). Therefore, acceptance of energy sources within a market-based approach should have adequate quality criteria to address wider environmental and social impacts. An example of this is the RSB (Roundtable for Sustainable Biomaterials) model, which includes a certification programme on the sustainability of the fuels. The ISCC (International Sustainability and Carbon Certification) is another example of a sustainability certification system for feedstocks.

Opportunity for programme members to contribute beyond the value chain:

Toitū supports programme members to ‘go beyond’ their own value chain and contribute to decarbonising across their industry sector(s), and/or nationally, and/or globally. Members have an opportunity here, whereby participating in market-based approaches can send demand signals that trigger a supply response (faster and more extensive than in the absence of a market-based approach), and expedite the use of low emissions solutions. This scaling up can be achieved by overcoming market barriers such as cost and geographic separation between the physical location of the product, and the buyer seeking to pay a premium for the product.

Conclusions and Toitū’s support

For market-based emissions under Chain of Custody and Certificate trading, Toitū will review and determine an acceptance position at the highest possible level of the approach. For example, a nationwide road freight certificate scheme will be reviewed at the scheme level, as opposed to individual road freight carriers participating in the scheme. Each review will confirm whether Toitū allows programme members to:

  • Report market-based emission values
  • Use market-based emission values to contribute to their reductions
  • Use market-based emission values to reduce their offset requirement

Additionally, ‘dual reporting’ is not mandatory, unless, on a case-by-case basis the programme determines that dual reporting:

a) provides the ability to increase emission reductions and/or

b) is needed to maintain the integrity and credibility of the claim(s) being made by the programme member.

Review criteria will include, but is not limited to, the following key questions:

  • Is it based on a relevant and reputable standard (or equivalent)?
  • What validation and verification has been conducted?
  • What level of transparency and traceability is there?
  • Are additional, material considerations beyond carbon required?
  • Is there active engagement with prominent discourse, for the purpose of alignment and acceptance of the approach?

This is a developing and complex environment, where approaches are in the early stages of establishment, with prominent discourse not yet settled on acceptance positions. Our position and indeed a core value of Toitū, is that this reflects the latest science and supports our members to proceed with their most suitable option, whilst supporting innovation in achieving Scope 3 emission reductions.

We will continue monitoring the development of market-based approaches and settling of acceptance by prominent discourse. As science and space evolve, so too will Toitū.

Read the full report here

Interested in keeping up with the latest science on reducing emissions? Sign up for our newsletter 'Toitū's Take' for more insights on how businesses can make a better impact on our planet.

Sign up for our newsletter