Transactability in the Differentiated Gas Market: Driving Emissions Reductions

Differentiated Gas Coordinating Council Blog

July 17, 2023

What does Transactability have to do with Differentiated Gas?

According to the International Energy Agency, despite sky-high energy prices that made methane emissions mitigation more economically viable than ever, methane emissions remained “stubbornly high” in 2022. This underscores the urgency and importance of the work being done by stakeholders in the differentiated gas market.

This problem also highlights the need for more robust and credible markets for secure transactions that promote and value additional reductions in emissions. It also emphasizes the importance of using high-quality, measurement-informed emissions data to drive real reductions.

Transactability refers to the ability of participants in the differentiated gas or voluntary carbon market to trade products based on their verified environmental attributes. Stakeholders, rating agencies, registries, and standards bodies are increasingly establishing criteria or best practices for differentiated gas markets, enabling contracting standards.

To promote the transactability of products based on emissions data, regulations should support—or at the very least not harm—the development of a differentiated gas market that contains data that is interoperable across multiple systems and the development of standardized, secure assessment processes for differentiated gas and related products.

Who Enables Transactability?

There is an opportunity to reduce friction in the environmental attribute market and create a common fungible currency that customers can buy and sell products based on digitally verified attributes of natural gas emissions data. This common currency must be interoperable across multiple digital systems, which requires a standard, secure certification process to transform environmental attributes into high-value assets for financial transactions and market products. This seamless environmental attribute market would continue to benefit from evolving emissions quantification methodologies.

There are many stakeholders involved in building a robust and credible market for secure transactions that promotes and values additional reductions in emissions. As a prerequisite to any transaction, emissions data must be measurement-informed to drive real reductions. Data collected  from multiple sources of operational systems and advanced measurement technologies can be recorded on a blockchain, which has the potential to accelerate the quantification, tracking, and reduction of emissions while simultaneously avoiding double counting and fraudulent claims. Currently, there are many players involved in the development of the tools used to secure transactions for differentiated gas and build trust in the underlying data.

Standards bodies and certifiers create common processes, rules, requirements, safeguards, and methodologies for differentiated gas projects. These entities go beyond the lowest standards for methane emissions set by regulations and allow companies to demonstrate mitigation and reduction efforts that meet or exceed local, national, and international requirements. Standards bodies include the North American Energy Standards Board and Oil & Gas Methane Partnership (OGMP) 2.0. Examples of organizations that quantify and measure emissions based on documented methodologies include Context Labs and Project Canary. These organizations also develop safeguards for digitally securing the emissions data and associated environmental attributes.

Registries are secure ledgers and exchanges where the environmental attributes of gas supplies can be managed, transacted, and retired. A common platform for all differentiated gas transactions provides buyers, regulators, sellers, and the public with transparency and security and prevents double-counting, allowing auditable claims of environmental credentials for emissions reporting.

For example, EarnDLT provides a fully integrated blockchain platform providing registry, trading, tracking, and retirement functionality, recording the complete and verified environmental profile of certified natural gas. This will allow producers and downstream market participants to value methane, carbon intensity, and other performance attributes within their differentiated gas. Context Labs has a proprietary environmental attribute platform, CLEAR Path™, which is a secure, digital ledger that creates, manages, transfers, and retires natural gas certificates and other environmental attributes across the natural gas supply chain. CLEAR Path™ allows users to oversee the creation, management, bundling, and transfer of an entity’s environmental attributes. At certificate retirement, a company can recognize and receive credit for the environmental attributes.  MiQ offers a solution through the MiQ Registry, a secure, digital ledger where all MiQ Certificates are held throughout their lifecycle.

The Role of Blockchain Technology

Currently, emissions accounting systems do not adequately avoid information asymmetry, double-counting, and fragmentation. This creates risks of greenwashing—fraud in climate accounting data.

Blockchain technologies can help ensure the security and transparency of environmental attributes in market transactions. Blockchain uses a distributed ledger technology, which facilitates the process of recording transactions and tracking assets through their lifecycle. Blockchain technologies provide real-time, shared, and completely transparent information stored on an immutable ledger, which can only be accessed by permissioned network members.

Distributed ledger technology enables globally integrated accounting architecture.A digital identity for each environmental attribute and project is unique, encrypted, and can be tracked along the value chain and across different jurisdictions. Data from the smallest unit of analysis, like a sensor at the project site or site-level operational data, to large units of analysis, such as regional atmospheric measurements, are considered. Then, the data is submitted to a virtual platform, where source-specific data and historical data are merged into a shared decentralized platform hub. The blockchain structure of the platform improves trust among parties and preserves privacy throughout the platform—eliminating the possibility of data tampering.

Examples of companies that are applying blockchain technologies to digital registries and exchanges include EarnDLT and Xpansiv, and Context Labs. These companies are leading innovation in differentiated natural gas transactability by preventing fraud, providing data transparency, and enabling seamless market access.

Growth of Bilateral Transactions

The need for seamless transactability is growing, as more frequent bilateral transactions for differentiated gas occur daily. In December 2022, Williams reached an agreement with Coterra Energy Inc. and Dominion Energy Virginia to provide full value chain differentiated gas from the shale patch in Northeast Pennsylvania to final delivery to the Virginia based utility. In the previous month, PureWest Energy signed a deal to provide a large West Coast buyer with 30,000 million British thermal units per day for one year facilitated by EarnDLT’s private blockchain registry and trading platform. The ability to bundle environmental attributes with long-term physical gas transactions, which typically trade bilaterally, enhances the sustainability of natural gas within the long-term energy mix by demonstrating the low-carbon attributes of operators who are investing in voluntary emissions reduction programs.

2023 will likely see increased bilateral transactions, which will pave the way for those hoping to source the cleanest available natural gas, but who may still have concerns about getting started. The DGCC looks forward to working with stakeholders to develop a way to showcase these transactions and continue to build confidence in the role that digitization plays in enhancing transparency and trust in natural gas emissions reductions.