Discussion Draft: Attributing Methane Performance Through Complex Natural Gas Supply Chains Background While an ultimate objective of the European Union Methane Emissions Regulation (MER) isthe creation and implementation of a methane performance or intensity standard for oil andnatural gas imported for use within the EU, the regulation creates a phased approach withincreasing reporting requirements focused on the production segment of the imported oiland gas. Each of these requirements falls on importers to gather and report information aboutproduction segment characteristics of imported oil and gas that, currently, is not routinelycommunicated across supply chains. The regulation does not prescribe a particularmechanism for providing evidence of compliance. This evidence must include demonstratingthe origin, transportation pathway, and other environmental attributes of imported oil andgas. The European Commission leaves the burden of providing evidence to industry andother stakeholders, including the development of necessary systems to gather and transmitsuch evidence. Member States and Competent Authorities will determine whether theevidence provided, and mechanisms used, are sufficient. While the MER’s implementationincludes the important work of setting robust MRV compliance standards, a methaneintensity methodology, and other requirements, this discussion draft focuses on the questionof determining origin or provenance through complex supply chains. Discerning environmental characteristics of commodities through supply chains is neithernovel nor prohibitively complex. But tracing the attributes of oil and gas across value chainscan vary significantly in difficulty, with complex supply chains presenting unique challenges.As discussed below, the best solution balances accuracy and environmental integrity withpracticality and minimization of cost, disruption to existing market function, and the need forextraterritorial regulation. This piece focuses on the natural gas supply chain, but similarprinciples should apply to crude oil as well. The Challenge For importers purchasing gas from companies or countries with unitary supply chains and littlecommingling of gas from diverse operators orfields (such as Qatar), production segmentemissions and monitoring, reporting and verification (MRV) information can more easily bediscerned and reported. However, for importers purchasing gas from more complex oil and gassupply chains (such as the US with many producers and producingfields; physical andcommercial comingling of volumes along supply chains, at trading hubs and on energyexchanges; and gas volumes being transacted multiple times), determining the attributes ofimported gas is a more complicated task. Below, we lay out a set of principles that we believe should guide any system for determining theattributes of EU gas supplies, consistent with the intent of the EU Methane EmissionsRegulation (MER). We briefly discuss three approaches being advanced by stakeholders andthen recommend a phased approach that best comports with the following principles. As used below, “system” refers to any approaches, methods, or frameworks used todemonstrate compliance with the MER’s import requirements, including gas provenance, MRV,and methane intensity reporting requirements. The discussion that follows the principles belowwill focus on how systems address gas provenance. Principles for Methane Emissions Accounting Framework: 1.The system must credibly attribute emissions performance data at the producer level to EUgas supplies, providing evidence that volumes meet or exceed an industry-leading methaneintensity threshold (e.g., 0.2% or lower) and enable price signals that will incentivize betterperformance globally.2.The system must minimize consumer price impacts and protect security of supply byminimizing transaction costs and complexity and maintaining adequate market liquidity andflexibility.3.The system should build on – and should be easily adapted to – existing approaches toglobal commodity trading, especially trading beyond EU borders, and should leverageleading measurement, monitoring, reporting, verification, and certification frameworks.4.The system must create a pathway for future improvements – specifically, the incorporationof full supply-chain emissions and direct tracing that links data and gas imports throughphysical, contractual, or volume-based mechanisms.5.The system should be as uniform as possible among the Competent Authorities of theMember States, both to create certainty for suppliers and to avoid a “race to the bottom” byauthorities.6.The system must be transparent, independent and free from conflict of interest.7.The system must be aligned with emissions data reliability and completeness requirements,ensuring the use of empirical measurement data and accurate estimation of methaneintensities representative of the relevant production regions. Existing Proposals As stated above, in other con