PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Brad Handler

May 8, 2026

Payne Institute Energy Finance Lab Program Director Brad Handler recently gave the following talk at Enverus’ EVOLVE conference in Houston, TX on creating digital tokens based on the environmental attributes of low fugitive methane-emissions natural gas. The talk reviews the creation of such tokens, their use in facilitating transacting in low emissions gas, and efforts to turn these tokens into a tradable asset.

Hello! It’s a pleasure to be here and I extend thanks to Enverus for giving me the opportunity to speak with you today.

In the Payne Institute’s Accelerated Methane Reduction initiative, we encourage the industry to leverage a competitive advantage for U.S. natural gas producers as they sell gas to Europe and Asian markets and climate-sensitive corporates.

Some of our research in this area has been on efforts to create systems to encourage investment in lower fugitive methane-emissions gas, sometimes referred to as certified or differentiated gas. This work has included discussion of certification systems themselves and, more recently, the technology efforts around capturing and conveying the necessary information, all with an eye on creating markets for this gas.

My comments today will focus on those market and technology efforts and in particular on tokenization. By tokenization, I mean the use of digital tokens to capture, track and make transparent the environmental attributes of natural gas. These attribute tokens are set to be a key commercial enabler in transacting low emissions gas. They also may evolve to be independently tradable stores of value.

Let’s start with a review of what it takes to tokenize natural gas.

First, there is the determination of the environmental attributes themselves. There have been great strides in fostering more direct measurement of methane emissions and moving away from emissions factors that have traditionally been applied to specific hardware. Various applications have been widely adopted in the upstream and there is progress in the midstream as well.

Next, systems have developed to take this methane emissions data and ingest it automatically into algorithms. These algorithms are bringing greater sophistication in integrating various sources of emissions data and, in an automated and transparent way, developing a clear representation of the environmental attributes of that gas.

These environmental attributes can be considered as an independent unit, referred to as an Environmental Attribute Certificate, or EAC. With respect to fugitive methane emissions, the EAC will contain the information about the gas’ aggregate carbon intensity, also referred to as a carbon emissions label.

The methane emissions intensity of the gas, along with the gas’ physical characteristics, are then represented as part of a digital twin of the natural gas molecule. And that digital twin is then made accessible for necessary parties via a permissioned blockchain system.

Finally, these digital twins are being tokenized, putting them into a format that allows automated evaluation of the token and execution against a contract to purchase that gas. In other words, rather than a purchasing manager having to read a lot of pdfs to make sure the gas fits their needs, agentic AI can make sure that it has the requisite characteristics and execute the purchase using Smart Contracts.

That leads us to consider the source of demand for these tokens, which in turn can drive how their commercial use evolves.

One set of buyers will be focused on buying gas that has certain attributes, in this case low carbon intensity. In other words, they will want the bundle of gas and its attributes.

Some of these buyers are acting because of regulatory requirement, such as European Union-based LNG importers as methane regulations are phased in. Unless implementation gets postponed, which is possible, sellers of LNG to the EU are supposed to have a carbon label starting next year. And then by 2030, that methane emissions intensity is supposed to meet a prescribed threshold.

That threshold and how emissions intensity is to be determined are still not finalized, and there is political pressure both within the EU and by the US to soften how restrictive this becomes. But it seems likely that some methane reporting will be part of the mix.

Other buyers in this same set looking for the bundled product will be those following voluntary corporate commitments to decarbonize. These buyers will need to demonstrate to stakeholders that their purchased gas indeed has a lower carbon footprint than conventional gas.

As an aside, some corporate buyers may prove to be more exacting than regulators. There is anecdotal evidence, from trading firms, that some buyers are seeking more stringent calculation and verification of carbon footprint than say OGMP2.0 Level 5 standards. More stringent processes could, for example, incorporate mass balance and validated Carbon Intensity scores.

So that is one set of demand for tokens.

And then there could be another set. These buyers are not necessarily buyers of natural gas. Instead they would look to these EACs as assets unto themselves, unbundled from the gas. These buyers will use the attributes either to make more general claims as offsets to their emissions, or perhaps to treat them as investment vehicles, i.e. they might have an eye on the attributes’ value rising over time.

Let’s look at what these two sets of buyers need in more detail and what that implies for the tokens themselves.

The first, the bundled buyer, needs detail about the provenance of the gas and the fugitive emissions associated with its path to market, from well to processing to pipelines to liquefaction to transport.

As I mentioned before, there have been great strides in just a few years in terms of direct measurement of gas. This is even true for pipelines, with the best example being Rockies Express, for which there is now continuous measurement of emissions at all two dozen-odd compressor stations.

But, as many of you know, just because the pipeline extends along a route, that isn’t actually how gas flows. Pipelines are managed for efficiency and thus dynamics such as displacement, backhaul and netting are intrinsic.

And so a buyer will not get the specific molecules that were produced with low methane intensity. Instead, the trick is to sort out how to trace the attributes of a reasonable path, and then of course also to only give one entity any of the rights associated with the low emission molecules.

This is being managed through what is called a Trace & Claim system. Trace & Claim maps out a reasonable physical path for the gas and associates it with emissions. It incorporates measured values for emissions where possible with emissions factors, such as those established in Argonne national labs’ GREET system, where it isn’t.

The EU rules for Trace & Claim are still being finalized. But in order for this system to be robust, these rules must retain enough attachment to the physical flow without ignoring pipeline reality. Presumably this happens with explicit disclosure that the claims are displacement based, with a clear indication that the molecules being purchased were produced at a similar time as the low methane-emissions molecules, and with reason to believe that these molecules intermingled with the low emissions molecules along the way in the value chain.

As an aside, it is worth noting that user friendly IT interfaces are in place to provide this information. EarnDLT’s Greentruth is one example.

And so these tokens are used as very specific tags attached to molecules. And this defines them as a legal construct. The tokens are considered digital tools. They are a method of conveying a compliance certificate and they give the right to the buyer to access that compliance information. The token is retired once the buyer takes ownership of the gas and makes the claim of its low carbon intensity.

And now let’s come back to that other buyer type, of the unbundled asset.

In this case, the buyer wants as standardized a product as possible because the goal is to create a large, liquid pool of these more standardized tokens. Think of an attribute certificate that confers the rights associated with one Mcf of natural gas produced with a fugitive emissions intensity of, say, 0.2% of the methane content of that gas.

This standardization allows these attributes certificates to become an asset unto themselves. This would grow the potential market for such tokens to corporates or any entity that might want to purchase them to offset their emissions.

This system would likely function more like Book-&-Claim and would resemble Renewable Energy Credits, or RECs, that are traded widely today.

Treating tokens as assets like these has interesting implications. First, the standardization and scale of trading these EACs points to the integration of its tokens on exchanges, again like RECs.

And then, if they are indeed to be assets traded independently and therefore treated as stores of value, then it creates a different legal definition of such tokens, opening them up to considerations of who is trading them and how to protect those buyers.

On this last point, both trading systems and considerations about regulating these tokens in the U.S. are emerging.

A regulated asset is one that follows the rules of a given government agency. And it brings certain credibility to that asset. Think about how the CFTC regulates commodities trading and the confidence that brings in terms of counterparties, clearing trades, etc.

The reason regulating trading of these tokens is so important is that it should allow a broader set of actors, including financial services, to get involved. If a buyer wants a working capital loan to help finance buying this gas or even just the environmental attribute, then the fact that it is regulated will allow it to be used as collateral for that loan. And so it becomes an enabler for the market to grow in ways that are much harder for that to work today.

There is one regulated digital methane token today. A company called Triangle Digital issues them. Triangle is domiciled in Bermuda, which is proving to be a home for regulated crypto and digital assets.

As an aside, as the graphic in this slide suggests, Triangle’s sources of EACs include various activities associated with carbon crediting, including soil management, forestry preservation, and oil well plugging as well as low methane intensity gas. All these activities are to yield a standardized carbon avoidance credit.

Regulating these tokens in the U.S. clearly brings more comfort than Bermuda, if it can get there. So far, that is not formally in place. The CLARITY act, which passed the House last year but not the Senate, does not include any provision for “tokenized commodities” or any digital representations of real world goods. There is a lobbying effort, however, led by Triangle Digital but including a consortium of corporate partners, to include this asset class, which would place them under CFTC jurisdiction.

And the current administration, which clearly is more open to crypto and digital assets in general than the previous one, does seem to be considering some form of regulation of Digital Commodities. For example, the SEC issued a Digital Asset Interpretation earlier this year, defining a taxonomy and starting to clarify when crypto-related activities will relate to federal securities laws. This included a Digital Commodity, which would by implication be regulated by the CFTC if authorized by Congress.

So we’ll see how the process goes, but it wouldn’t shock me at this point to see regulated gas tokens emerge say within a couple of years.

And with that, I’ll stop and welcome any questions. Thanks very much for your time and attention!

ABOUT THE AUTHOR

Brad Handler, Payne Institute Program Director, Energy Finance Lab, and Researcher
Brad Handler is a researcher and heads the Payne Institute’s Energy Finance Lab. He is also the Principal and Founder of Energy Transition Research LLC. He has recently had articles published in the Financial Times, Washington Post, Nasdaq.com, Petroleum Economist, Transition Economist, WorldOil, POWER Magazine, The Conversation and The Hill. Brad is a former Wall Street Equity Research Analyst with 20 years’ experience covering the Oilfield Services & Drilling (OFS) sector at firms including Jefferies and Credit Suisse. He has an M.B.A from the Kellogg School of Management at Northwestern University and a B.A. in Economics from Johns Hopkins University.

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