# Background: Market-Based Scope 3 Carbon Reporting

Over the past decade, **Scope 3 emissions**—the indirect emissions throughout a company’s value chain—have taken center stage in corporate sustainability. Many organizations now recognize that their **largest climate impacts** often lie outside their direct operations, extending across suppliers, logistics, product use, and beyond. Addressing these indirect emissions is essential for meeting net-zero or Science Based Targets Initiative (SBTi) goals.

However, the **complexity** and **breadth** of Scope 3 can make it challenging to measure and manage effectively. Commodity supply chains, in particular, are global and involve multiple tiers of intermediate producers and distributors. **Market-based frameworks** have emerged as one potential way to **verify and allocate** emissions for specific materials, goods, or intangible environmental attributes (like renewable energy usage).

### 1. Emergence of Market-Based Frameworks

#### 1.1. Traditional vs. Market-Based Approaches

* **Traditional (Location-Based) Accounting**: Historically, companies used average emission factors to estimate upstream or downstream emissions (e.g., grid-average factors for electricity or industry-average factors for materials).
* **Market-Based Accounting**: By contrast, a “market-based” approach harnesses **contractual instruments** (certificates, Power Purchase Agreements, or other book-and-claim mechanisms) that tie emissions or renewables usage to **specific suppliers**, production sites, or project-level actions. This can yield more **granular** and **actionable** data, encouraging real-world emissions reductions.

#### 1.2. GHG Protocol Context

While the **GHG Protocol Scope 3 Standard** does not formally prescribe “market-based Scope 3,” companies are increasingly applying these principles. If a supplier can **prove** they used renewable energy or a lower-carbon process to produce goods, the purchasing company can adopt a **supplier-specific emissions factor** in its Scope 3 calculations. This can substantially **lower** the reported upstream footprint, mirroring the logic of market-based Scope 2 accounting.

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### 2. Similar Tracking Systems for Commodities

#### 2.1. Renewable Energy Certificates (RECs)

* **Electricity Sector**: RECs track the environmental attributes of renewable electricity generated in one location. Companies purchase RECs to claim lower (market-based) Scope 2 emissions, even if they physically draw power from a mixed grid.
* **Key Feature**: RECs are **book-and-claim** instruments—once retired, no other entity can claim those same MWh of renewable energy.

#### 2.2. Sustainable Aviation Fuel (SAF) Book-and-Claim

* **Aviation Industry**: The emerging SAF market offers certificates that represent the emission reduction attributes of jet fuel derived from sustainable feedstocks. Airlines or corporate customers buy these SAF certificates to offset or lower their Scope 3 aviation emissions—even if the physical SAF was used on a different flight.
* **Example:** SkyNRG launches [Project Runway](https://skynrg.com/skynrg-launches-project-runway-with-microsoft-as-a-founding-member/?_thumbnail_id=15984)
* **Challenges**: Ensuring **no double-counting** of the same fuel and establishing robust registries are still under development.

#### 2.3. Green Hydrogen Guarantees of Origin

* **Hydrogen Sector**: As “green hydrogen” gains traction, **Guarantees of Origin (GOs)** are emerging to track hydrogen produced from renewable sources. Buyers can purchase GOs to claim lower-carbon hydrogen usage in their supply chain.
* **Lessons Learned**: Transparent accounting and strong chain-of-custody systems are crucial to prevent gaming or misallocated attributes.

#### 2.4. Metals and Minerals (e.g., “Green Steel,” “Low-Carbon Aluminum”)

* **Hard Commodities**: Producers and certification bodies are piloting **low-carbon labels** or certificates for steel, aluminum, and other metals. A primary example is “ResponsibleSteel,” which encourages miners and smelters to adopt renewable power and better environmental practices.
* **Outcome**: If a buyer purchases “certified low-carbon steel,” they can incorporate a lower emission factor for Scope 3. The integrity hinges on third-party audits and robust registry systems.

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### 3. Examples of Voluntary Reporting & Market-Based Claims

#### 3.1. CDP (Carbon Disclosure Project)

* **Corporate Transparency**: Companies voluntarily disclose their emissions, including Scope 3, to CDP. Although CDP doesn’t enforce a market-based Scope 3 approach, many respondents **highlight** contractual instruments or supplier-specific factors to demonstrate progress.
* **Evolving Recognition**: As more corporations adopt renewable attribute certificates across their supply chain, CDP questionnaires increasingly ask for details on **supplier engagement** and **use of verified instruments**.

#### 3.2. Science Based Targets initiative (SBTi)

* **Ambitious Target-Setting**: SBTi pushes companies to set GHG targets consistent with the Paris Agreement. Several companies under SBTi incorporate “market-based” logic for their upstream power procurement—**extending** the concept to purchased goods & services or transportation.
* **Additionality Considerations**: While not strictly required by the GHG Protocol, SBTi often encourages companies to invest in new renewable capacity or high-integrity offsets to meet net-zero commitments.

#### 3.3. RE100 & Corporate Clean Energy Programs

* **RE100**: An initiative of large companies committing to 100% renewable electricity. While primarily focused on Scope 2, some RE100 participants extend the practice **downstream** to **supplier engagement** (Scope 3).
* **Apple & Walmart**: Apple’s Supplier Clean Energy Program and Walmart’s Project Gigaton are prime examples of corporations using **supplier-specific** or **market-based** approaches to reduce and report on upstream emissions. They incentivize suppliers to adopt renewables or more efficient processes, thus lowering the brand owner’s Scope 3 footprint.

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### 4. Positioning the Bitcoin Emissions Certificate (BEC) System

Within this broader context, **Bitcoin Emissions Certificates** (BECs) adopt a similar logic: **quantifying and attributing** the emissions for each BTC-day, allowing corporate holders or investors to claim a lower carbon impact when they hold BTC mined under verifiably greener conditions. By mapping well-established market-based frameworks to the decentralized Bitcoin mining process, BECs:

1. **Drive Miner Engagement**: Encourage miners to procure or generate renewable power, as verified by third-party audits and the BEC methodology.
2. **Enable Transparent Scope 3 Accounting**: Provide corporate BTC holders with a **standardized** and **verifiable** mechanism to account for the indirect emissions linked to their Bitcoin holdings.
3. **Build Trust & Credibility**: Tying BEC issuance and retirement events to on-chain inscriptions introduces a public audit trail, reducing the risk of double-counting or misinformation.

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## Conclusion

The **BEC registry** stands on the shoulders of other **market-based systems** that have successfully provided traceability and accountability in carbon reporting for commodities like electricity, hydrogen, SAF, and metals. By applying **similar design principles** and robust **governance**, BECs can offer an equally credible pathway for addressing Bitcoin-related emissions. This approach not only helps corporate Bitcoin holders **align** with Scope 3 best practices but also sets a forward-looking example of **sustainable innovation** in the crypto ecosystem.
