Insetting for chemicals and the brands that use them
Much of a brand’s footprint comes from chemicals made far upstream in its supply chain, at plants it has no contract with. Insetting lets the brand fund emissions reductions at those plants anyway.
Why insetting fits chemicals
Deeply nested chains
A packaging brand buys film from a converter, which buys polymer from a producer, which buys feedstock from a steam cracker. The brand has a contract only with the first link, yet the cracker’s emissions are part of its Scope 3. Insetting lets the brand fund a reduction at the cracker directly, with the credit recording the link.
A cost gap that policy will not close soon
The main decarbonization levers in chemicals include low-carbon hydrogen for ammonia, electrified steam crackers and carbon capture on process emissions. They cost far more per tonne of CO₂ than the carbon prices producers pay, and many producers outside the EU pay none. No policy is expected to close that gap for years, so revenue from downstream Scope 3 buyers can help bridge it.
Illustrative
Several tiers up
- Reduction
- At the producer
- Chain
- Mapped at scoping
- Credit
- Tied to the paying brands
Typical inset projects in chemicals
- 01
Low-carbon ammonia
Ammonia made with electrolytic hydrogen, or with gas-based hydrogen plus carbon capture, replaces conventional ammonia in fertilizer. The reduction per tonne of ammonia is allocated to the food companies whose crops are grown with it.
- 02
Electrified crackers
Steam crackers are heated with renewable electricity instead of burning fuel gas, which removes most of the combustion emissions of the cracking furnace. Early demonstration units exist, and the reduction is metered per tonne of ethylene and propylene.
- 03
Advanced recycling
Pyrolysis and other advanced recycling turn plastic waste into feedstock that replaces fossil naphtha. It is tracked by certified mass balance and allocated to packaging brands, against a baseline that includes the energy the recycling uses.
- 04
Bio-based feedstocks
Bio-naphtha, bio-ethanol or other renewable inputs replace fossil feedstock at the start of the chain. The life-cycle reduction depends on the feedstock, and sustainability certification is a precondition.
How a chemicals inset works
The plant is several tiers away from the brands. Mapping the chain is part of scoping.
- 1Producer and brands
Scoping and project definition
The producer defines the change (low-carbon hydrogen for ammonia, electrified heat, recycled or bio-based feedstock) and its baseline per tonne of product. Producer and brands trace which brands buy products made from it, often through converters several tiers down, and agree each brand’s share.
- 2Independent verifier
Validation report
An independent verifier confirms the scope, baseline, methodology and, for mass-balance projects, the chain-of-custody rules.
- 3Producer
Implementation
The plant runs the new process and records production, energy and feedstock data.
- 4Independent verifier
Verification report
The verifier checks the data and states the verified reduction.
- 5Project developer, on the Carbon3 registry
Issuance to the project developer
Realized credits, one per tonne in the verification report, are issued to the producer and recorded on the Carbon3 registry. Future credits can also be issued to it earlier, once the project is validated. They stay labeled Future, and buyers who take them carry the delivery risk.
- 6Producer
Allocation
The producer transfers credits to each brand by share.
- 7Brands
Sale or retirement
Each brand retires its share against purchased goods in Scope 3, or sells credits it does not need.
Linking upstream emissions reductions to brands
The brands that fund the project have no contract with the plant. The credit creates the link.
Chemical producer
Ammonia plant, cracker or polymer producer
Converter
Turns chemicals into film, fiber, fertilizer or parts
Brands
Consumer goods, food or packaging companies
The emissions reduction happens several tiers up. The credit links it to the brands that paid.
Lower-carbon ammonia at one fertilizer plant
A fertilizer plant replaces part of its gas-based hydrogen with electrolytic hydrogen. Two food brands whose crops are grown with its fertilizer fund the change.
Who pays what
Brand A (food)
Brand B (food)
| Funder | Share | Pays | Credits, years 1 to 5 | Of which future credits (years 1 and 2) |
|---|---|---|---|---|
| Brand A (food) | 55% | €990,000 | 18,480 t | 5,280 t |
| Brand B (food) | 45% | €810,000 | 15,120 t | 4,320 t |
| Total | 100% | €1,800,000 | 33,600 t | 9,600 t |
Future and realized credits in this example
1At validation
The 9,600 tonnes planned in years 1 and 2 are bought as future credits, so the money funds the implementation and the holders carry the delivery risk.
2After each verification
The 24,000 tonnes verified in years 3 to 5 are issued as realized credits, one per tonne in the verification report.
Cost per verified tonne
Spread over 5 years of credits, the project cost comes to €54 per verified tonne, a figure to compare with the internal carbon price or with the CBAM certificate cost an importer faces. Real prices are not shown.
Assumptions
- Project cost €1,800,000.
- Full rate of 8,000 t a year from year 3.
- Year 1 at 40% while the electrolyzer starts.
- Credits are split in line with what each funder paid.
- One credit equals one verified tonne of CO₂e.
- No real companies, prices or projects. Fees are not shown.
- Illustrative split: the credits for years 1 and 2 are bought as future credits at validation; later years are taken as realized credits after each verification. The real split is agreed project by project.
Five years of lower-carbon ammonia
Credits per year by brand.
Credits per year, in tonnes
- Brand A (food) (55%)
- Brand B (food) (45%)
- Future credits, bought at validation
33,600 t in total over 5 years
Assumptions
- Same output each year.
- Hydrogen supply stays steady.
- Real results depend on verification.
- Illustrative split: the credits for years 1 and 2 are bought as future credits at validation; later years are taken as realized credits after each verification. The real split is agreed project by project.
Chemicals rules and claims
Here is what the GHG Protocol and the SBTi are, how each treats a reduction inside the brand’s own chain compared with one elsewhere in the industry, and where CBAM applies.
CBAM prices imports into the EU of hydrogen and fertilizers. Brands several tiers down report the producer’s reduction in Scope 3 under the GHG Protocol and set targets with the SBTi on their physical inventory. The Carbon3 registry gives each inset credit one serial number and one holder, so each tonne is counted once.
- Chemical producerammonia plant, cracker or polymer producer
- CBAMA price at the EU border on imported hydrogen and fertilizers. Organic chemicals and polymers are not covered today.
- Converterturns chemicals into film, fiber, fertilizer or parts
- Brands’ reportconsumer goods, food or packaging companies
- GHG Protocol Scope 3A supplier’s reduction shows in Scope 3 when it is in the data the company uses, such as a supplier-specific factor.
- SBTiTargets are set on the physical inventory.
Counting each tonne once
Carbon3 registry: each inset credit has one serial number and one holder. A transfer moves it, retirement closes it.
SCHEMATIC, ILLUSTRATIVE. GENERAL INFORMATION AS OF OCTOBER 2026, NOT LEGAL ADVICE.
GHG Protocol: Scope 3 Standard
- What the standard is
- The Greenhouse Gas Protocol sets the accounting rules most companies use for their emissions. Its Corporate Value Chain (Scope 3) Standard, published in 2011, covers the emissions in a company’s value chain in 15 categories, from purchased goods and transport to the use of sold products. It has no market-based method for Scope 3, so purchased certificates or credits do not change the Scope 3 figure, unlike electricity in Scope 2.
- A reduction in the company’s own supply chain
- A reduction at a supplier the company buys from lowers its Scope 3 inventory when it shows up in the data the company uses, for example a supplier-specific emission factor for the goods it purchases. A spend-based average will not show it.
- One in its industry, outside its chain
- A reduction at a producer outside the company’s own supply chain is not part of its inventory under any method. It can be disclosed separately as an action, not as a lower Scope 3 figure.
- What an inset credit does
- When a supplier in the buyer’s own chain reduces emissions, the buyer’s Scope 3 goes down through lower supplier emissions data. The inset credit is the proof of that emissions reduction and who funded it, and it is not counted a second time. An emissions reduction outside the buyer’s own chain is reported separately, not as a lower Scope 3 figure. The GHG Protocol’s Actions and Market Instruments workstream is developing a market-based approach for Scope 3. A consolidated draft is expected for public consultation in the second quarter of 2027, and the revised standard in the fourth quarter of 2028. Each Carbon3 credit records the supplier, project, baseline and verification report, so it can be reported under the current rules and reassessed under the new ones.
Science Based Targets initiative (SBTi)
- What the standard is
- The SBTi validates whether a company’s emissions reduction targets are consistent with climate science. Its Corporate Net-Zero Standard V2.0 was published on 11 June 2026. Validations under it open on 1 February 2027, and it becomes mandatory for new target submissions from 1 February 2028. Targets already validated under the earlier version stay valid for their cycle. Target ambition is always set on the company’s physical inventory.
- A reduction in the company’s own supply chain
- Reductions that show up in the company’s inventory support emissions reduction claims. A project implemented by or on behalf of the company in its own value chain, with measured outcomes reported in proportion to its contribution, can support target implementation and an “alignment” claim.
- One in its industry, outside its chain
- Action in a shared system the company draws on, such as a supply shed or logistics network, or at sector level, counts only where direct action in its own chain is constrained. It supports a separate “system contribution” claim, reported apart from the inventory.
- What an inset credit does
- Projects must be measured, additional and verifiable. Their outcomes must be uniquely attributed, with serialized tracking to prevent double counting. Credits a company sells on cannot also count for that company. The SBTi plans interim guidance on reporting projects and market instruments for consultation in the fourth quarter of 2026, so how a received inset credit is assessed is not yet fully settled.
Carbon Border Adjustment Mechanism (CBAM)
- What the standard is
- CBAM puts a carbon price on imports into the EU of hydrogen and fertilizers such as ammonia and nitrates, as well as cement, steel, aluminum and electricity. Its definitive regime has applied since 1 January 2026. Importers declare embedded emissions and surrender certificates priced on EU ETS auctions. Organic chemicals and polymers are not covered today, though the Commission is reviewing an extension.
- A reduction in the company’s own supply chain
- When the company imports CBAM goods itself, lower verified embedded emissions in those goods lower its own CBAM liability.
- One in its industry, outside its chain
- A reduction at a producer whose goods the company does not import does not change its CBAM liability.
- What an inset credit does
- Inset credits are not CBAM certificates and cannot be surrendered against a CBAM liability. What lowers the liability is lower verified embedded emissions in the goods themselves. The same verified embedded-emissions data can serve as the baseline of an inset project, so a tonne is measured once.
Counting each tonne once
- What the standard is
- Double counting happens when two companies claim the same tonne, when one tonne is sold twice, or when a reduction is credited by two programs. Standards such as the SBTi’s now require serialized tracking to prevent it.
- A reduction in the company’s own supply chain
- Several companies in one chain can fund the same project. Each receives its own serialized credits, so no tonne has two holders.
- One in its industry, outside its chain
- The same rule applies wherever the tonne sits: one serial number, one holder, and no credit for a reduction already credited by another program.
- What an inset credit does
- Each credit has a serial number and exactly one holder on the Carbon3 registry. A transfer moves it rather than copying it, and retirement closes it permanently. A reduction already credited elsewhere is excluded at validation.
General information as of October 2026, not legal, accounting or reporting advice. Standards and regulations change; check the current text.
Chemicals questions
At scoping, the producer, converters and brands document the chain: which products from the plant end up in which brands’ goods, based on purchase records or mass-balance certificates. Each credit names the producer, the project, the baseline and the funders, and each brand holds its share in its own name.
Talk to us about a chemical value chain
Producers, converters and brands can see how one verified emissions reduction would be allocated along their chain.