“E-ledgers Carbon Accounting”: The Fatal Flaw Is the Lack of Property Rights

I. An Accounting Standard With No “Thing” to Represent

The E-ledgers Institute has built a strong carbon accounting architecture. E-ledgers accounting assigns every ton of emissions to a single holder (usually a specific product), ties direct emissions to a geological master ledger, and holds the whole system to the oldest identity in accounting: assets equal liabilities plus equity.¹ Importantly, it wants those product-level emissions to move between sellers and buyers through linked ledger entries.

As a data ontology, E-ledgers is close to right. As an accounting standard, it is incomplete to the point of being fantastical. The fatal flaw is that it has no property or market foundation to stand on. E-liabilities, the authors write, are not tradable. They are “a fundamental informational property of a good or service,” and they leave a ledger only when the good itself is sold.²

That construct has no basis in private commercial law, and it has been tried before. Fusing environmental attribute information to a product is the move the renewable energy certificate (REC) markets tried and abandoned twenty-five years ago. Greenness does not follow the electron, and carbon intensity does not follow the barrel, the bushel, or the copper cathode. A number that travels with inventory is a fact, a label. A label is not property, and a label cannot clear: it cannot convey a right to own the attribute beyond a single contract. The E-ledgers approach works only if emissions and removals, E-liabilities and E-assets, are constituted as environmental attribute certificates (EACs), meaning the carbon intensity is verified, recorded on a common system of record under a governed program, and controllable by one holder at a time. Raise this with the Institute and the answer is that it is a policy question. It isn’t. It is a question of private law, the very place the Institute should have started.

This briefing makes the case in four steps: what E-ledgers gets right, the REC and environmental market lesson it misses, why the law will not let information do what E-ledgers proponents and the business coalitions behind them need it to do, and what the fix looks like. The fix runs through a property instrument, the controllable electronic record, and an authoritative system of record. It does not run up to the financial accounting standard setters, which is where the Institute is looking.³ It runs down to the foundations of the transition economy, where E-ledgers, as a data ontology, would be very useful.

II. What E-ledgers Gets Right

The E-ledgers framework, and the Proto-Standard that accompanies it, deserve real credit. Their organizing commitment is single attribution: every ton counted once, by one party.⁴ The GHG Protocol (GHGP) does the opposite, which causes all kinds of headaches. Its scope structure counts the same ton two, three, or more times across a value chain, by design.⁵ That is why GHGP inventories cannot be reconciled with one another or with anything a business actually buys or sells, and why the GHGP has drifted permanently away from business logic.

E-ledgers also introduces inter-organizational journal entries, so the seller’s ledger and the buyer’s ledger move together, ideally forming a mesh network across the economy.⁶ That would be a breakthrough if those ledgers actually cleared carbon intensity. Unfortunately they don’t, and we will come back to why.

Finally, and on the side of the ledger that still needs a lot of work, E-ledgers requires reasonable assurance at three points (direct emissions, allocation to products, and transfer), reaches for tokens to carry audited metadata without exposing trade secrets, and plans for recursive adoption rather than a big-bang mandate.⁷ None of those goals can be implemented at scale without private law recognition that a product’s carbon intensity is something a person can own and transfer, and without an independent data utility maintaining an authoritative system of record and source of truth.

III. The REC Lesson the Paper Misses

The REC markets faced the exact problem of how attributes attach to products in the late 1990s. Electrons from a wind farm and a coal plant are indistinguishable on the grid, and green power sold on the basis of the megawatt-hour alone could not prove its greenness. To give the attribute a price and a way to move, the market made two moves. It severed the clean energy attribute from the commodity, and it constituted the attribute as its own legal object with an issuer, a serial number, a single owner, and a registry.⁸ Severance did not mean divorce, mind you. A REC and its megawatt-hour can still be sold together, bundled, but they move as two objects with two chains of title, and program rules decide when they must travel together (rules still being debated today).

Even the GHGP accepted the result. Its market-based method for Scope 2 relies on EACs and conditions their use on quality criteria that are, in substance, property rules: the instrument must convey the attribute, it must be the only instrument carrying that claim, and it must be tracked and retired by or for the party making the claim.⁹ The moral of the story is that attributes travel by property instrument, not by electron, not by product, and not as tokenized information.

E-ledgers walks itself backward into the problem environmental markets solved decades ago. Its electricity example has the utility record emissions and then pass them to the customer with the sale.¹⁰ Which emissions? Who says? Who verifies? Who enforces the product intensity rules? And what, exactly, is being passed? If we take the Institute at its word, what passes is information. No one seems to have told the Institute, or the accountants, that information is not property.

IV. Information Is Not Property, and a Token Does Not Make It One

Start with the product. A carbon intensity score is not an ingredient or an intrinsic component of a product. Food labeling law lists ingredients as the components that go into the food, declared by common name in order of predominance by weight, and a CI score is not a component.¹¹ It is a fact about how the product was made, and it varies with every unit produced.¹² Trade law has a name for that kind of fact, a non-product-related process and production method, because it leaves no physical trace in the good. The WTO likeness test looks at physical characteristics, end uses, consumer tastes, and tariff classification, and whether production method alone can distinguish two otherwise identical goods remains one of the most contested questions in trade law.¹³ Commercial law treats the number the same way. When a seller states a CI score on an invoice, Article 2 of the UCC treats it as an express warranty: a promise to the buyer, enforceable within the limits of privity, that passes title to the goods and nothing else.¹⁴ The downstream buyer can repeat the number to its own customers, but there is no chain of title to pass on. It is making a new promise each time, not conveying an old asset. Nor can the seller stop anyone else from repeating the number, because a fact belongs to no one. That is what the paper is really describing when it says the customer has “willingly assumed” the emissions: a contract right, not a property right that clears or conveys title to the low CI score.

Where the law has addressed attribute claims directly, it has rejected the idea that the attribute follows the product. The FTC’s Green Guides say that when a generator unbundles its output, selling the RECs to one party and the energy to another, the buyer of the power cannot claim to use renewable energy; it can only claim to buy energy. By selling the RECs to someone else, the generator has transferred the right to call that electricity renewable.¹⁵ FERC reached the same place from the other side, holding that a contract to buy a qualifying facility’s energy and capacity does not convey the RECs.¹⁶ The claim follows the EAC, not the plant and not the electricity. The EU’s Carbon Border Adjustment Mechanism collects embedded-emissions data on imported goods in a declaration, but the obligation is discharged only by surrendering a separate CBAM certificate.¹⁷ Even a regime built around product-level emissions data does not let the data do the work of an instrument.

Then take the information itself. American law has said for over a century that information as such is not property. The Supreme Court protected news only as quasi-property between competitors, never against the world, and has held that facts cannot be owned because no one authors them.¹⁸ An emissions figure is a fact. Data can be protected as a trade secret, but that interest is defined by secrecy and ends on disclosure, which is the opposite of a number designed to travel down a supply chain.¹⁹ English law is blunter still: information is not property, intangibles cannot be converted, and a database cannot be held under a possessory lien.²⁰

The paper’s answer is to tokenize emissions into units “indelibly linked to relevant units of inventory.”²¹ Tokenization does not change any of this. UCC Article 12 governs how a person obtains control of a controllable electronic record and protects good-faith purchasers of it, but it does not decide what rights the record carries. Apart from controllable accounts and payment intangibles, the effect of any link between a record and an asset outside it is left to other law, and the UNIDROIT Digital Assets Principles say the same thing.²² The English Law Commission reached the same place from the other direction: pure information is not a thing that can be owned, because it is not rivalrous.²³ A token that points at a CI score is a controllable record of a fact. Mint a thousand of them and the fact is still owned by no one. What makes a record carry rights is constitution of the EAC: rules, recognized in law, that say what the record is, who answers for its contents, and what holding it means. Code and authoritative systems of record can enforce those rules. They cannot supply them.

V. Three Consequences

No severance, so no market for the achievement. Under E-ledgers, avoidance cannot create E-assets; a reduction shows up only as a lower E-liability on the product.²⁴ The producer of low-CI copper or corn can capture that value only by selling the physical unit to a buyer who wants it, and only if the number survives every tier. Removals, by contrast, get a tradable instrument. The paper calls E-assets “nonduplicable property claims” and justifies trading them on Ricardian comparative advantage.²⁵ That concession gives the game away: the authors accept that an attribute must be a property claim to trade, and then decline to extend the same logic to emissions. Abatement, the thing the transition economy most needs to price, gets nothing.

No constitution, so no rights good against the world. When the CI score turns out to be wrong, the downstream holder owns nothing. It has no title, no exclusive control, no remedy beyond its seller in privity, and nothing a lender can take as collateral. The tokens do not cure this. A token representing an E-liability no one holds title to is a well-audited record, not an asset.

No system of record, so no single attribution. Single attribution is the paper’s best idea, but its own architecture cannot enforce it. Every firm keeps its own books. An inter-organizational journal entry is a bilateral agreement between two of them. Nothing in the E-ledgers design stops a producer from reporting the same low-CI ton in a product passport, selling it as an E-asset or offset somewhere else, and claiming it again in a sustainability report. Auditors assure each firm’s books one at a time; no one enforces or assures the network as a whole. Every environmental market that has controlled double counting has done it the same way, with a registry where each unit is issued once, held in one account, and retired once. Single attribution is a property law construct, and property rules are enforced by a system of record. E-ledgers builds nothing to enforce its own best idea.

VI. From Ledger Entry to Controllable Electronic Record

The fix keeps most of what E-ledgers wants to build and adds what it left out. It starts with three distinct objects: the environmental fact, the MRV record that evidences that fact, and the EAC that conveys rights in it. Each E-ledger entry becomes the evidentiary payload of an MRV record. With some legal innovation and closed-loop digital infrastructure governed by a data utility, the issuer could constitute that record as a controllable electronic record (CER) under UCC Article 12 and the UNIDROIT Digital Assets Principles, which means one person at a time has the power to use it, to exclude others from it, and to transfer it.²⁶ The issuer also takes responsibility for the truth of the payload. That puts accountability at the point of creation, where the data is made, instead of leaving it to downstream policing after the claim is already in the market.

An EAC issued against that MRV record on-system conveys rights in the achieved carbon intensity from source to end use, not because of the facts, but because of the system’s governance. It is retired at each transaction and reissued on each resale, so the chain from producer to consumer is a chain of title, not a chain of labels. The physical product and its EAC can still move together under tether rules, exactly as a bundled REC moves with its megawatt-hour, but the rights move by instrument.

All of this works only with an independent data utility, where records sit on an authoritative system of record, and that system has three jobs. The first is single attribution: each unit issued once, held by one holder, retired once, with the registry, not the honor system, as the enforcement point. The second is EAC integrity: every EAC traces to a warranted MRV record, the issuer answers for what that record says, and corrections flow through the record rather than around it. The third is clearance: inter-organizational journal entries settle against the registry, so the buyer’s and seller’s ledgers reconcile to a common record rather than to each other. Markets have been here before.

The securities industry nearly drowned in paper in the late 1960s because every firm kept its own books and reconciled them bilaterally. The answer was a central depository and a book-entry system of record that every firm reads from.²⁷ Power markets work the same way: grid operators settle the energy, and tracking systems issue one certificate per megawatt-hour. With a system of record underneath it, the E-ledger stops inferring ownership from inventory and starts reading holdings of title. The accountants keep their journal entries. They just finally have something real to journal.

VII. E-ledgers Should Not Live in the Clouds

In The Empire Strikes Back, the second Star Wars film, Cloud City is a gleaming mining colony floating high above Bespin, a planet made of gas.²⁸ It looks like a refuge. It has no ground under it. It is also where the deal keeps getting altered, and where Han Solo ends up frozen in carbonite. The temptation for the E-ledgers Institute is to go up into the representational world of financial accounting, and that is where its authors point: toward GAAP-style standard setting, a purpose-built emissions accounting board, and auditor oversight modeled on the PCAOB.²⁹ The natural homes for that project are FASB, the IASB, and the ISSB. That is Cloud City: polished, high-altitude, and floating over nothing but gas. Unlike Cloud City, though, an accounting standard with nothing under it cannot float at all.

Here is why it will not hold. Accounting standards measure and report rights and obligations that law has already created. They do not create them. FASB defines an asset as a present right of an entity to an economic benefit and a liability as a present obligation to transfer one. The IASB’s Conceptual Framework says the same: an asset is an economic resource the entity controls, an economic resource is a right, and a liability is a present obligation to transfer an economic resource.³⁰ By the paper’s own account, an E-liability is not an obligation owed to anyone, and an emissions token is not a right anyone holds. Under the accounting profession’s own definitions, neither is what it is called. A standard setter asked to recognize a liability owed to no one and an asset no one has a right to will alter the deal every time. And the ISSB has already built its climate disclosure standard on GHGP measurement, so E-ledgers would be asking for a seat at a table that is already taken.³¹ Assets = Liabilities + Equity is a powerful formula, and a welcome one next to the GHGP, but borrowing its grammar does not borrow its legal predicate.

The better move is for E-ledgers to look down, not up. As a data ontology, E-ledgers is excellent. Its allocation rules, its product-level carbon intensity, its journal-entry grammar, and its three assurance points are exactly the schema an MRV record needs. Allocation standards, at the product level and the company level alike, are data standards. They are inputs into the evidentiary record, which makes them first-floor work, and first-floor work is what E-ledgers does best. As an accounting standard it is out of its league, not because the accounting is weak but because there is nothing yet for it to account for. Let E-ledgers be the schema. Let the registry hold title. Let the accountants report what the registry says. The accounting standard comes last, once there is a right to count.

VIII. What Follows

E-ledgers is incomplete, not baseless. It is first-floor ontology work for a better, business-aligned market model, dressed up as an accounting standard with nothing to account for. The fix is to keep the ledger and add the instrument: treat each E-ledger entry as the evidentiary payload of an MRV record, constitute that record as a controllable electronic record, issue the achieved carbon intensity as an EAC, and run the whole thing on a system of record that enforces single attribution and clears the inter-organizational entries the paper already designed. The two compose. Accountants keep their journal entries, and the market gets something it can own, transfer, and finance. Without that step, E-ledgers will print the most accurate labels ever made and still produce no market. Carbon accounting is a system of data without property. E-ledgers perfects the data and leaves the property out.