In this article we will explain the general methods and requirements that allow auditing the Chain of Custody, within the scope of the ISCC EU document 203 Traceability and Chain of Custody.
Requirements and Methodologies
According to RED II, economic operators must demonstrate that the RED II sustainability and greenhouse gas emission reduction criteria have been met.
Evidence of the sustainability characteristics of materials is achieved through the application of an eligible chain of custody method.
The term ‘batch’ describes a specific quantity of material with the same sustainability characteristics.
The following text provides a detailed description of the methodologies for the two chain of custody options that can be applied under this standard to meet the requirements of RED II: physical segregation and mass balance.
Physical segregation is the most rigorous method and means materials with different properties are kept physically separate from each other on their journey through the supply chain.. Two types of physical segregation are possible:
– Identity preservation or Hard IP: physical mixing of unsustainable resources and sustainable material is not permitted. Furthermore, sustainable materials with different sustainability characteristics (for example, origin of raw material, GHG emissions, etc.) must be kept physically separate throughout the supply chain
– Bulk merchandise or Soft IP: the physical mix of non-sustainable products and sustainable material is not allowed. Physical mixing of sustainable material products with different sustainability characteristics is permitted throughout the supply chain.
Mass balance allows the physical mixing of sustainable materials with different sustainability and GHG emissions reduction characteristics (hereinafter referred to as sustainability characteristics) and unsustainable materials.
Information on sustainability characteristics and batch sizes with different sustainability and GHG emission reduction characteristics must remain assigned to the mixture. Mass balancing also allows batches of raw materials with different energy contents to be mixed for further processing purposes, since batch sizes are adjusted according to their energy content. The exact quantities and sustainability characteristics of sustainable material leaving any element along the supply chain must be documented and must never exceed the amount of sustainable material entering the respective element. According to art. 30 (1) of RED II economic operators must use a mass balance system.
A third chain of custody option known as book-and-claim is not permitted in RED II. Com o book-and-claim, traceability at any stage of the supply chain is not guaranteed and it is not possible to establish any link between sustainability characteristics and the actual flow of materials.
Inventory (or stock) is the physical quantity of sustainable and non-sustainable material that is held on site by the economic operator in storage facilities. Inventory is measured or estimated. It is the basis for calculating a mass balance, to determine credits at the end of a mass balance period and to check the plausibility of quantities of sustainable and non-sustainable material.
General Requirements
The following sustainability characteristics should be distinguished in quantitative accounting:
> Type of raw material
> Country of origin of the raw material
> GHG emissions information
> Scope of raw material certification (that is, whether the raw material has been certified according to the RED II sustainability criteria or meets the RED II definition of remainder/residue)
> Claim “ISCC Compliance” or “EU RED Compliance” (if applicable)
> For biogas supply chains: Declaration whether incentives/subsidies were received for the production of biogas and, in affirmative case, type of support scheme
When batches with different sustainability characteristics are physically mixed, the respective sizes and sustainability characteristics of each batch remain assigned to the batches in the bookkeeping of quantities. It means, for example, that if batches with different GHG emissions values are physically mixed, batches must be kept separate in quantity accounting. Creating an average of GHG emissions from different batches is not permitted. If batches with the same sustainability characteristics are physically mixed, Lot sizes can be summarized appropriately in quantity accounting. The sustainability characteristics will likely be the same, for example, for batches of the same type of raw material coming from the same country of origin and if the GHG emissions option (default values) is used for both. If materials are processed or material losses occur due to internal company processes, appropriate conversion factors should be used to adjust batch sizes accordingly.
If a mixture is fractionated, a set of sustainability characteristics can be assigned to any lot withdrawn. The sum of all batches removed from the mixture must have the same sustainability characteristics in equal quantities, that the sum of all batches added to the mixture. The certified party must split accounting of quantities for all materials with different sets of sustainability characteristics, even if the chain of custody method allows physical mixing of the material.
Accounting records must be separated according to:
> Different types of input materials (for example, crude oil, refined oil, biodiesel, HVO, etc.)
> Different sustainability characteristics (for example, type of raw material, country of origin of the raw material, GHG emissions, etc.)
> If more than one chain of custody option is applied at the location, separate quantity accounting must be maintained for each chain of custody option
Within the bookkeeping of quantities, batches of inputs can be mixed as long as they have the same sustainability characteristics and are moved under the same chain of custody option. Batches of incoming materials cannot be merged in accounting if they have different or no sustainability characteristics, or if they are handled under different chain of custody options.
Deviations may occur between the quantity of material physically in stock and the material documented in quantity accounting. This may be the case, for example, if the quantity of sustainable material indicated in a sustainability declaration is higher or lower than the quantity indicated on the scale for the material actually received. If during an audit a deviation of up to 0,5% between the material physically in stock and the material in stock according to the book of quantities this can be accepted without further explanation. Any deviations greater than 0,5% must be properly documented and verified during the audit. For accounting of quantities, actual quantities must be used, for example. quantities that can be proven by weighbridge protocols or other similar means. In case of incorrect information about the sustainability declarations received, the issuing party must be contacted.
The sustainability characteristics of a specific amount of sustainable material can only be used once and for a single application (for example, as a sustainable fuel within the scope of RED II). The so-called “multiple accounting” is not permitted by ISCC. Multiple accounting is a serious violation of ISCC requirements. The risk of multiple accounting increases if a company is simultaneously certified under more than one certification scheme.
Multiple accounting of individual sustainability characteristics, how to save GHG, is also prohibited. Example: If a company has installed methane capture devices that result in greater GHG savings in its production, These GHG savings can be counted under ISCC EU (that is, issuing a Sustainability Declaration). In this scenario, the company would not be allowed to use GHG savings also within other systems or regimes (for example, clean development mechanism, from that). Accounting for GHG savings related to a batch of material under ISCC and, once again, under another scheme or regime should not occur.
To minimize the risk of multiple accounting, an eligible, high-level staff member of the economic operator issuing the sustainability declarations must sign a declaration/declaration confirming awareness that multiple accounting is not permitted.
To ensure that multiple accounting does not occur, the auditor must check during the audit whether a company is certified in more than one certification scheme, checking audit reports, mass balances and other documentation of the schemes used.
Economic operators must declare the names of all schemes in which they participate and must provide the auditor with all relevant information and documentation on the schemes used (see also ISCC EU System Document 201 “System Basics”).
Each economic operator must operate an information system that is capable of tracking the quantities of sustainable materials purchased and sold. This could include, between others, a digital database, documentation with unique reference numbers for batches or similar.
Quantitative accounting and physical mixing of sustainable material is limited to certain periodic and spatial limits.
Periodic limits define the period within which the input and output of materials with specific sustainability characteristics must be balanced. The deadline (period) maximum is three months. Appropriate provisions are needed to ensure that the balance is respected.
The spatial limit defines the location (space entity) to which chain of custody requirements must be applied. mass balances, as well as both segregation methods, are at least location specific. This means they have to refer to a geographic location with precise boundaries (place of operation) within which materials can be mixed, for example, Am I content?, processing or logistics installation. A mass balance system can also be operated for a transmission and distribution infrastructure (for example, gas network). If more than one legal entity operates in one location, each legal entity is required to operate its own quantitative accounting (for example, mass balance).
The transfer of sustainability characteristics from biogenic materials to fossil materials is not possible, even if they have the same chemical composition. If biogenic and fossil materials are mixed in a joint conversion process (co-processed) or stored together in the same physical compartment (this is, in an individual tank or pipeline), then the equivalent amount of biogenic input can be considered sustainable. The same applies to biogenic materials with different phases or physical states, because these states are determined by different energy levels.
Sustainability characteristics can only, therefore, be transferred if these biogenic materials with different states are stored in the same physical compartment or processed together. For example, the transfer of sustainability characteristics from biomethane to bio-LNG is only possible if the respective quantities share the same physical storage facility or gas pipeline or are processed jointly. If sustainability characteristics were transferred from one material to another, the CB must verify during the audit that this has not been applied to materials with different energy states that have not been co-processed or physically stored in the same physical compartment.
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