Canada’s Environment Minister, Jim Prentice, recently announced that the government is moving forward with its offset credit system for greenhouse gases. Two draft guides were published in the Canada Gazette on 12 June 2009 to set out proposed rules and guidance for offset project proponents and for verification bodies, each of which is described in further detail below. Environment Canada’s overview document describing the offset system was also updated. The two draft guides are respectively entitled ‘Program Rules and Guidance for Project Proponents’ (the guidance rules) and ‘Program Rules for Verification and Guidance for Verification Bodies’ (the verification rules). To put these two guides in context, reference should be made to the report of 16 April 2009 entitled ‘National Round Table on the Environment and the Economy’.
The comment period for the draft programme rules and guidance documents closed on 12 August 2009. Final versions of the two programmes’ rules and guidance documents, together with the ‘Guide for Protocol Developers’ (a draft of which was published in the Canada Gazette on 9 August 2008), are expected to be published this month.
Offset system
The objective of the offset system is to establish tradeable credits and thereby to encourage cost-effective reductions in domestic greenhouse gas emissions in sectors that will not be subject to the proposed federal greenhouse gas regulations. Agriculture and forestry are two examples of such sectors.
Once the offset system is established, regulated and unregulated businesses, organisations, and individuals will be able to acquire and use the offset credits created under the system to offset greenhouse gas emissions resulting from their activities. These offset credits may be used by companies that are subject to greenhouse gas emission regulations to assist them in achieving compliance with their emission targets.
Guidance rules
The guidance rules set out draft rules and guidance on the requirements and processes that are to be used to create offset credits. The rules are to include step-by-step instructions for preparing the required registration, reporting and verification documents. The draft rules set out six principal eligibility criteria that greenhouse gas reductions must satisfy to be eligible to receive offset credits:
- The greenhouse gas reduction must occur in Canada and must achieve reductions in one or more of the specified greenhouse gases.
- The reductions must be real, meaning that the project includes one or more specific actions that result in a net reduction of greenhouse gases that could not be achieved as a result of decreasing the level of activity or production of the project vis-à-vis a comparable baseline.
- The reductions must be considered incremental, meaning:
- the project must have started on or after 1 January 2006;
- the reductions must have occurred on or after 1 January 2011;
- the reductions go beyond the applicable baseline;
- the reductions must also be surplus to all legal or regulatory requirements; and
- the reductions must not be subject to any other climate change incentives.
- The greenhouse gas reductions must be quantified as specified in an applicable offset system quantification protocol.
- The emission reduction or removal must be verifiable by an accredited third-party verification body ensuring that its quantification is accurate, transparent and replicable.
- A particular greenhouse gas reduction can only be used once to create an offset credit.
Verification rules
The verification rules provide rules and guidance on the processes and requirements that must be satisfied to verify the eligible greenhouse gas reductions or removals that are achieved by a registered project.
alberta
In the Canadian context, it should be noted that, to date, Alberta is the only Canadian province with a mandatory greenhouse gas reduction regime in place. This regime has been in place since July 2007 and applies to Alberta facilities that emit greater than 100,000 tonnes of CO2 equivalents (CO2e) annually. Like the proposed federal offset system, Alberta’s facilities subject to the province’s regime are able to comply with their greenhouse gas emission obligations by, among other options, purchasing emissions offset credits.
In Alberta, offset credits arise when an entity with emissions less than 100,000 tonnes of CO2e per year (ie a non-regulated entity) produces a product or completes a process in a manner that releases less CO2e than the business as usual or baseline case. The difference between the CO2e actual emissions and the business as usual case represents an emissions offset credit. Regulated emitters who cannot otherwise meet their required reduction requirements can purchase emissions offset credits and use those credits to offset their CO2e emissions. To qualify under the Alberta regime, emissions offset credits must:
- occur in Alberta;
- not be otherwise required by law;
- arise on or after 1 January 2002;
- be real, demonstrable, quantifiable and measurable;
- have clearly established ownership;
- only be used once; and
- be verified by a third-party verifier.
To assist in calculating the business as usual or baseline case, and thus calculating emissions offset credits, Alberta has enacted 24 emissions quantifications protocols.
In a press release entitled ‘Backgrounder: Canada’s Offset System for Greenhouse Gases’, Environment Canada states:
‘As we finalise the [Canadian] offset system, we will explore approaches to harmonise the federal and various provincial offset systems, with an objective to ensure that carbon trading markets can function efficiently.’
Alberta’s experience in reducing greenhouse gases offers Canada valuable guidance in the area of offset credit systems. Hopefully, Canada will take advantage of it.
read more
Further information concerning the draft offset rules may be found on the Environment Canada website for Canada’s offset system for greenhouse gases.
By Richard Corley, partner, and Matt Flynn, associate, Blake Cassels & Graydon LLP.
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