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Canada’s Department of the Environment released draft regulations last week for the use of carbon offsets under the federal output-based pricing system (OBPS). The announcement follows shortly on the heels of last month’s announcement of the Department developing offset protocols for advanced refrigeration systems, forest management, landfill methane management, and “enhanced soil organic carbon” (essentially regenerative agriculture).
(You can read more about the OBPS and Ontario’s industrial pollution pricing system here. You can also read about the government’s planned OBPS review here.)
The draft regulations show the Department planning to manage a closely-monitored federal carbon offset marketplace. Participants would register greenhouse gas (GHG) emission reduction projects by submitting detailed applications verified by accredited third parties, and for each tonne of carbon (or equivalent) removed by means of an approved offset project, the Environment Minister will issue one credit. Credits can then be sold to OBPS participants who have exceeded their emission cap and must either pay for excess emissions at the federal carbon price or pay for credits representing reduced or offset emissions.
A percentage of all offset credits issued will be deposited into an “environmental integrity account”, which will act as a form of insurance allowing the Minister to cancel or replace credits as needed in cases where things go wrong.
Approved projects cannot be part of any other program that credits the same GHG reductions (i.e., no double counting offsets). Projects will also be subject to periodic regulatory reports to be verified by accredited third parties, with such reports then subject to further review by Department personnel. The Department contemplates “carbon trade exchanges and brokerage services” assisting with transactions.
The Department also released more details regarding offset protocols. The protocols will define or provide a method for determining a business-as-usual scenario emission baseline for each offset project type. Offset credits will be issued to the extent project activities reduce or remove GHG emissions in relation to the baseline.
Despite their increasing popularity among governments and businesses as a means of economically reducing carbon emissions, offsets remain controversial among environmental groups and advocates. The Energy Mix’s piece on the announcement provides coverage of Canadian environmental groups’ responses to the proposed regulations.
Interested parties are asked to submit comments on the draft regulations to ec.creditscompensatoires-offsets.ec@canada.ca by May 5th.