Canada’s Offset System for Greenhouse Gases
http://www.ec.gc.ca/doc/virage-corner/2008-03/526_eng.htm
Overview
Additionality and Quantification Procedures
Overview
Type of Standard and Context
Canada has committed to an overall emissions reduction target of 20% below 2006 levels by 2020. Canada’s Offset System for Greenhouse Gases will serve as a compliance mechanism for facilities that will be regulated under the Government of Canada’s planned greenhouse gas regulations. The Government has stated that it will announce a full suite of specific policies covering all major sources of Canadian greenhouse gas emissions in fall 2009, and complete the detailed regulatory development work in 2010. Details of other compliance mechanisms available to regulated facilities may be announced as part of the full suite of specific policies covering all major sources of Canadian greenhouse gas emissions in fall 2009.
In June 2009, Environment Canada released an overview of the Offset System and two draft guides for public comment: Program Rules and Guidance for Project Proponents and Program Rules for Verification and Guidance for Verification Bodies. The draft Guide for Protocol Developers was previously published in August 2008. Final versions of the three Program Rules and Guidance documents are expected in the fall of 2009. The following information is based on the draft documents and should therefore not be considered final.
Standard Authority and Administrative Bodies
The Minister of the Environment will have overall authority over the design and operation of the offset system, which will be administered as a voluntary program under the Canadian Environmental Protection Act, 1999, section 322 (Environment Canada, 2009a).
Regional Scope
Only GHG reductions or removals achieved in Canada are eligible for generating offsets under Canada’s Offset System for Greenhouse Gases (Environment Canada, 2009a).
Recognition of Other Standards/ Linkage with Other Trading Systems
The offset system overview states that if formal linkages are established with other regulatory-based systems in North America or abroad, including offset systems, consideration will be given to the mutual recognition of credits among systems.
Market Size and Scope
Tradable Unit and Pricing Information
The tradable units will be referred to as an “offset credit”, which is equivalent to one metric tonne of CO2e emissions reduced or removed (Environment Canada, 2008b). No pricing information is currently available as the program is not yet in force.
Participants/Buyers
Sellers in the offset system can be any legal entity developing an eligible offset project. Buyers may include facilities complying with their reduction targets under the regulations, or any other entities purchasing the credits voluntarily for trading or for compliance under other regulatory systems. Other participants in the offset system may include technical service providers, third-party verifiers, aggregators and traders.
Current Project Portfolio
There are currently no offset projects as the scheme is not yet in force.
Offset Project Eligibility
Project Types
A draft schedule for reviewing protocols for different project types has been made available for public comment (Environment Canada, 2009a). The final approved schedule is expected to be released with the Program Rules and Guidance for Protocol Developers in the fall of 2009. The draft schedule references external protocols from other programs that may be adapted under the Canadian program. These are as follows:
• Afforestation
• Landfill Gas Capture and Combustion
• Reduced or No Tillage
• Wind
• Forest Management
• Wastewater Management
• Anaerobic Biodigesters
The draft schedule indicates that, tentatively, the review of the first four of the project types listed above will begin in November 2009, and the review of the last three project types will begin in February 2010. The schedule will be updated with new project types on a quarterly basis.
As the system matures and resources become avilable, it is anticipated that one-of-a-kind preojcts and quantification methodologies will be reviewed to determine wether they meet the requiremetns of the offset system.
Project Locations
Offset projects must result in GHG emission reductions or removals in Canada (Environment Canada, 2009a).
Project Size
There are no limitations on project size. Similar smaller projects may be aggregated or bundled to reduce project application costs (Environment Canada, 2009a).
Start Date
Projects must have started on or after January 1, 2006 (Environment Canada, 2009a). For projects susceptible to easy reversal (such as no- or reduced-tillage projects in agriculture), a normalized baseline may be specified that projects can use regardless of start date (Environment Canada, 2009a). Reductions occurring on or after January 1, 2011 are eligible for offset credits (Environment Canada, 2009a).
Crediting Period
The crediting period for an offset project is equal to or less than the length of the registration period (Environment Canada, 2009b). The registration period lasts for 8 years and typically begins on the registration date, either the date of acceptance of the project application or any date up to one year after this acceptance if requested (Environment Canada, 2009b). In the case where a project has started to achieve reductions before a quantification protocol is approved for the project type, and the application form is submitted within six months of the publication of an approved protocol, the project proponent may select a registration period starting in the year that the project began reducing emissions.
Registration periods may be renewed once after the first period of eight years with the following restrictions: the registration periods must be contiguous, agricultural sink projects may register for up to 3 registration periods, and forestry sink projects (excluding avoided or reduced deforestation) may register for up to 5 registration periods (Environment Canada, 2009a).
Co-benefit Objectives and Requirements
Offset projects have to comply with existing environmental regulations but do not have to achieve additional co-benefits. Projects may also be required to identify and address the negative impacts of other air pollutant emissions.
Additionality and Quantification Procedures
Additionality Requirements
The project’s emission reductions/removals must go beyond the baseline scenario identified in the project quantification protocol (Environment Canada, 2009a). Emission reductions or removals from an offset project must be surplus to all federal, provincial/territorial and regional legal requirements and other climate change incentives (Environment Canada, 2009a). Exceptions to this regulatory surplus requirement include cases where: the project reductions are surplus to the performance standard or emission reduction benchmark legally required; a normalized baseline has been prescribed in the quantification protocol; or where the project developer can demonstrate an alternate cost-effective way to stay in compliance with the legal requirement without undertaking the project (Environment Canada, 2009a). If legal requirements vary significantly across the country, the quantification protocol may specify the use of a normalized baseline to ensure jurisdictions with GHG regulations are not disadvantaged (Environment Canada, 2009a). Projects are eligible to receive credits up until the date that a legal requirement comes into force. To receive credits beyond that date reductions must be surplus to legal requirements (Environment Canada, 2009a). Climate change incentive programs will not affect eligibility if an agreement to receive funding from the incentive program is entered into prior to January 1, 2011, or a tax incentive is claimed under terms that are in effect as of June 15, 2009, unless otherwise specified (Environment Canada, 2009b).
Quantification Protocols
The quantification requirements presented in the most recent draft guide for protocol developers, from August 2008, are based on the framework and principles of International Organization for Standardization (ISO) standard ISO 14064-2: Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements (Environment Canada, 2008b). Following a period of public comment and review, the final version of the Program Rules and Guidance for Protocol Developers will be published in the fall of 2009 (Environment Canada, 2009a). A top-down approach is outlined in the draft guide, which requires that all projects are quantified using protocols that have been pre-approved by Environment Canada. Offset System Quantification Protocols (OSQPs) are developed by protocol developers external to the federal government. OSQPs set out the quantification approach, monitoring and data management requirements that must be followed by a project proponent when implementing and reporting on an offset project. Protocol developers may choose from a range of approaches for baseline quantification development, including a historic benchmark, a performance standard, and comparison-based, projection-based, pre-registered and normalized baselines; or they may propose another approach. Protocol developers must provide justification for the baseline approach proposed in the Base Protocol Plan they submit for review to Environment Canada. Review and development of quantification protocols will be in accordance with the protocol submission schedule posted on the offset system website.
Permanence of carbon sequestration projects is addressed through a 25-year liability period (Environment Canada, 2009b). Project proponents must submit evidence and a certification statement to confirm that carbon storage is maintained for 25 years after the last offset credit is issued (Environment Canada, 2009b). Certification statements must attest that no reversal has occurred and provide evidence that quantification protocol requirements are maintained, however verification of the certification statement is not required (Environment Canada, 2009b). If there is a reversal during the liability period or if a certification statement is not submitted, then the project proponent must replace all previously issued credits with an equivalent number of credits that are accepted for compliance by the federal greenhouse gas regulations, to ensure that the environmental integrity of the offset system is maintained (Environment Canada, 2009b). To address the risk that a project proponent may not be able to replace the credits when a reversal occurs, a discount factor, specified in the quantification protocol, will be applied to all offset credits from carbon sequestration projects (Environment Canada, 2009b).
Project Approval Process
Validation and Registration
The first step in the offset credit creation process is project registration. To register a project, the project proponent must make an assessment of the project’s eligibility to generate offset credits, and ensure that there is an approved applicable Offset System Quantification Protocol. If no Offset System Quantification Protocol has been approved for the project type, the project proponent can work to develop a new Offset System Quantification Protocol. Once the project proponent has performed this initial assessment, the project proponent must prepare the project application form provided in the Program Rules and Guidance for Project Proponents, demonstrating that the project will satisfy the offset system eligibility criteria. The completed application must be submitted for review. Environment Canada will review the application to ensure that the documentation is complete and to make a preliminary assessment that all eligibility criteria are likely to be satisfied if the project proceeds as per the application. The project application form will be posted on the offset system website for public review and comment. Once the application has been accepted, the project will be registered as an offset project.
Monitoring, Verification and Certification
Monitoring, data quality assurance, quality control, and record keeping requirements for offset projects will be specified in the quantification protocol for each project type (Environment Canada, 2009b). Offset credits generated must be verified by an accredited third-party verifier, referred to as a “Verification Body”, as defined by the Program Rules for Verification and Guidance for Verification Bodies (Environment Canada, 2009b). Environment Canada will certify the issuance of offset credits from an offset project by issuing a certification report and depositing the designated number of offset credits in project proponent’s account in the tracking system once all certification conditions have been met (Environment Canada, 2009b).
Registries and Fees
Each verified offset credit will be assigned a unique serial number (Environment Canada, 2009a). The offset credits will be managed by an online tracking system that is currently under development (Environment Canada, 2009b).
The Offset System is expected to operate on a cost-recovery basis. Fees may be charged for registration and certification, and to cover the cost of operating the unit tracking system. Fees will not be charged at the outset of the program to facilitate a quicker start to the Offset System. The fee structure is currently under development.
Selected Issues
Canada’s Offset System for Greenhouse Gases is still under development. All program rules are drafts and have been published for public comment. Final program rules are expected to be published in fall 2009.
References
Environment Canada (2008a). Turning the Corner: Regulatory Framework for Industrial Greenhouse Gas Emissions. Environment Canada. Environment Canada, March 2008.
Environment Canada (2008b). Canada's Offset System for Greenhouse Gases, Guide for Protocol Developers. Environment Canada. DRAFT FOR CONSULTATION. August 2008.
Environment Canada (2009a). Canada’s Offset System for Greenhouse Gases. Overview. Environment Canda. DRAFT FOR PUBLIC COMMENT. June 2009.
Environment Canada (2009b). Canada’s Offset System for Greenhouse Gases. Program Rules and Guidance for Project Proponents. Environment Canada. DRAFT FOR PUBLIC COMMENT. June 2009
Environment Canada (2009c). Canada’s Offset System for Greenhouse Gases. Program Rules for Verification and Guidance for Verification Bodies. Environment Canada. DRAFT FOR PUBLIC COMMENT. June 2009