Session 4: Certification Requirements and Interoperability

Matthew Rudolf | Managing DirectorSCS Global Services

Overview of Different Traceability Systems

Purpose of Chain of Custody Systems:Allow product claims to flow across supply

chains and accurately reflect the sustainability characteristics of the material.

Identity Preserved Product Segregation

Mass Balance Book and Claim

Traceability Systems OverviewIdentity Preserved (IP)Principles of Identity Preserved Supply Chain Systems

• Dedicated Infrastructure Across the Supply Chain• Traceability to the Point of Origin• Strongest Possible Claim Indicating Origin of Material• Often Associated with Single Source Origin Chocolates and Coffee

• “This coffee was produced at the Cloud Forest Farm in the highlands of Costa Rica”

Traceability Systems OverviewSegregation (SG)Principles of Segregated Supply Chain Systems

• Dedicated Infrastructure Across the Supply Chain• Grouping of Materials with Similar Qualities• No link to specific farm, factory or place of origin• SG is often associated with food items, e.g. where the consumer wants to

know the good they are purchasing was produced according to certain standards, but the place of production is not important (e.g. Organic)• “Certified Organic”

• Interesting note: RSPO Certified Palm Oil is increasingly available via IP/SG, even though it is not a consumer product

Traceability Systems OverviewMass Balance (MB)Principles of Mass Balance Supply Chain Systems• Makes use of existing infrastructure• Mixing of certified and conventional product along the supply chain• Sustainability Attributes Tracked on a Virtual Inventory• Especially useful in the formation of a standard to reduce cost and friction of

sustainability claims, especially when the material being certified has no physical properties that distinguish it from the conventional product

Traceability Systems OverviewBook and Claim (Credit Trading)Principles of Book & Claim Systems

• Complete separation between certified supply chains and claims.• Typically a connection between the first site in the supply chain and the last. Credits usually can no longer be

traded once they have been sold. • Requires the use of a trading platform or registry with mechanisms to execute buy and sell transactions. • Claim may be related to supporting a particular cause “e.g. “smallholder palm farmers, or ocean free plastics”.

Chain of Custody Options

Progression of RSPO Scheme

IP

SG

MB

B&C

RSPO started with mostly Book & Claim to get certified product to market, which then decreased over time moving to mostly IP+SG and MB. B&C declining as more physical traceability is possible.

Mass Balance Accounting Principles• Certified Units maintain both a physical

inventory as well as a Virtual Inventory of sustainability credits or claims

• There is typically a mass balance accounting period that can vary from one week to one year. Many, but not all, systems uses a 3-month accounting period.

• Input material is mixed from both certified and uncertified sources. Output material is sold as certified using a conversion factor (ie. yield) applied to the amount of certified input

Key Methodological Considerations(not exhaustive)

Continuous Accounting or Fixed Inventory Period MB• (If Fixed Inventory Period) Length of MB Accounting Period• Ability to Overdraw (oversell) certified material within an accounting

period

Ability to carry over unused volumes from one period to another• Expiration of credit validity & limitations on carryover

Credit TransferFree Attribution• Using Mass, Heating Value, Chemical Value (Fossil Replacement)

Continuous or Fixed Accounting PeriodContinuous System

• Less flexible, but easier to manage• Certified volume tracked in real-time, no

ability to oversell• Most common approach used by RSPO

Supply Chain certification of food processors

Fixed Accounting Period• Main advantage is allowing operators to

“go negative”• Typical is a 3-month period (e.g. ISCC+,

RSB), and some schemes (e.g. REDcert 2) allow 12 months

Volume Carryover and Credit Expiration• Most Mass Balance schemes allow for a

carryover from one period to the next, however some have certain restrictions• RSPO SCC: No Restriction• EU RED: Only what is in physical inventory• ISCC PLUS: No restriction

• Operator can “bank credits” until prices are favorable creating a speculative market (maybe not a bad thing).

• In practice, MB certified product is more expensive, so banking indefinitely is unlikely

• Some schemes with Credit Trading (e.g. RSPO) have an expiration on credits, for example claims must be made within 12 months of the date of credit purchase.

Credit Transfer• The concept of credit transfer is a kind of

integration of Book and Claim concepts into a Mass Balance system, allowing for limited transfer of credits under certain conditions• ISCC PLUS: Same parent company, same

material, within same country or across one land border

• RSB Advanced Products: Within the same certification scope, no geographic boundaries

• Bonsucro: Within a multi-site chain of custody certificate, no geographic boundaries

• RSPO: Explicitly Not Allowed, even under a Multisite Certificate

Free Attribution Multiple Outputs, Multiple Inputs

In systems with multiple outputs (e.g. steam cracker), Free Attribution allows for all

sustainability claims to be assigned to any one of the outputs that could in theory be produced

from an input.

Multiple inputs is more complicated• Both RSB and ISCC allow for one feedstock to

overcompensate for the other• ISCC+ Based on Mass• RSB requires a normalization based on fossil

consumption to make a fossil substitution claim

ISCC+ SystemPercentages not reflective of reality

RSPO MB claim transfer cross referencing • RSPO allows for a transfer of claims on a

1:1 basis for Oils and Oil Fractions to Primary Oleochemcials to Secondary Oleoderivatives, no losses assumed.

• All claims can be transferred from down the supply chain to just one output.

• Published in the 2016 RSPO Rules for Oleochemicals and Derivatives document

• Aim of getting a sustainable supply of specific derivatives on the market

• Analogous to the notion of Free Attribution for Chemical Recycling

Lessons Learned From Other Commodities• Mass Balance Systems have largely been developed from

schemes that were not consumer facing. We are still learning how consumers will react to Mass Balance for Chemical Recycling• Parallels can be drawn to green electricity, which is more akin to Book

& Claim, and which consumers general have been supportive of.

• There are many different Mass Balance options, many of which have been explored in the past by other schemes. We can learn from what has been applied in other commodity contexts.

• The minutiae of Mass Balance accounting systems, while important to ensure the credibility with NGOs, are probably too complex for most consumers to understand.

Thank You

Matthew RudolfManaging Director, International OperationsSCS Global ServicesMRudolf@scsglobalservices.com+1.919.810.2295