GHG Offset System in Canada

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GHG Offset System in Canada

• NEG - ECP Workshop
• Regulatory Requirements Market-Based Trading
  Mechanisms (February 5, 2008)
• Judith Hull

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History of Offset System Development in
Canada
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PERT (Pilot Emission Reduction Trading)

• Covered NOx and SOx (and later GHGs)
• Industry led initiative building on NESCAUM work
• Participants from industry, environmental/health
  groups, Ontario and federal government
  (Environment Canada)
• Started in fall1995 as learning-by-doing
  exercise (no system rules for the first few
  years)
• Most/all credits purchased by Ontario Hydro to
  offset a voluntary commitment
• Success was in three key areas
• education
• quantification methodologies and review processes
• proved value of baseline-and-credit system --
  picked up in Ontario regulations

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GERT (Greenhouse Gas Emission Reduction Trading)

• Considered only GHGs
• Initiated by British Columbia to meet a
  commitment in BC GHG Action Plan
• Participants from industry, environmental/health
  groups, most provinces and 3 federal departments
• Launched in June 1998 with PERT rules adapted for
  GHGs and assistance from Oregon state final
  report in 2001
• Success was in three key areas
• education
• baseline setting for GHGs (picked up by IETA)
  quantification methodologies, review processes
  and tracking system
• supply but ahead of demand (no buyers)

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PERRL (Pilot Emission Reduction/Removal and
Learning) Initiative

• GHG focus only
• Design led by federal government (EC) with
  assistance from provinces with GERT/PERT
  experience
• Objectives
• encourage incremental GHG reductions and removals
  in key areas via financial incentive (federal 15
  M reverse auction)
• develop Canadian capacity and expertise
  (especially in verification)
• inform analysis and development of future policies

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PERRL (2)

• PERRL purchased GHG reductions in four project
  areas - landfill gas capture and combustion,
  renewable energy, biological sequestration
  (forest agriculture)
• Projects must be located in Canada
• Reductions/removals must be real, measurable,
  verified, surplus (not otherwise required by
  law), incremental (start project after contract
  signed)
• Stages of the procurement process
• 1. Request for submissions
• 2. Project submissions
• 3. Tentative selection based on price
• 4. Project validation
• 5. Purchase agreements6. Verification of
  reductions/removals7. Delivery of reductions and
  payment

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PERRL (3)

• Three purchase rounds (reductions purchased to
  the end of 2007)
• Fall 2002 (5 million) -- landfill gas
• Spring 2004 (5 million) -- renewable energy, bio
  sequestration
• Winter 2005 (3.2 million) -- open to four
  project types
• Status
• 14 contracts completed
• 1.2 Mt reductions/removals purchased by end of
  2007
• average price lt 6.00/tonne
• learning used in design of proposed Offset System
  for Canada
• www.ec.gc.ca/PERRL

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Proposed GHG Offset System for Canada
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Background

• Objectives
• provide an incentive for voluntary emission
  reductions outside of regulated activities by
  issuing credits for GHG emission
  reductions/removals that meet system
  requirements, and
• provide a flexible compliance mechanism for
  industry by allowing regulatees to use offset
  credits to meet their compliance obligation.
• Design principles
• Environmental Benefits offset projects should
  achieve GHG reductions / removals and a net
  environmental benefit
• Maximum Scope to the extent practical, the
  system should promote projects in all sectors and
  of all project types
• Administratively Simple to the extent possible,
  the system should be simple and cost-effective to
  administer and the burden for participants should
  be minimized
• Build on Experience from Canadian pilots and
  other jurisdictions

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Background (2)

• Voluntary program under CEPA
• Start prior to entry into force of the GHG
  regulations to provide time for projects to
  generate reductions
• but characteristics of offset credits for
  regulatory compliance (bankable, tradable,
  restrictions on use) will be established in the
  regulations no guarantee of regulatory value
  until regulations completed.
• Approach to reviewing individual offset projects
• Consideration of a project only after guidance
  documents for the project-type have been
  pre-approved by Government
• Consideration of any project against the
  eligibility criteria
• Sufficient transparency to help assess
  environmental integrity and entitlement

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Eligibility Criteria

• Eligibility criteria under consideration
• Real
• Specific action taken to reduce GHGs
• Net reduction of the six GHGs and mitigation of
  adverse impacts on air pollutants
• Functional equivalence
• Quantifiable
• Requires measurement and monitoring or
  scientifically-based emission factors or
  calculations
• Follows a prescribed framework (ISO-14064)
• Requires an existing pre-approved Quantification
  Protocol
• Project types could be phased-in as
  Quantification Protocols are developed
• Project-specific methodologies may be accepted
  once the system has matured

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Eligibility Criteria (2)

• Eligibility criteria under consideration
• Verifiable
• Reasonable level of assurance
• Quantification approach is transparent,
  replicable, and raw data used for quantification
  are available for verification
• Incremental
• Cut-off date for project eligibility
• Beyond business as usual baseline at time
  project implemented
• Surplus to legal requirements and government
  incentives
• Unique
• Reductions only used once (exception stacked
  requirements)

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Credit Creation Process

• Credit creation process
• Project registration
• Project Proponent submits Project Document
• Program Authority validates project
• Program Authority registers project
• Reporting and verification of reductions
• Project Proponent prepares Reductions/Removals
  Report
• Recognized verification body submits Verification
  Report and Reductions/Removals Report
• Certification and issuance
• Program Authority certifies all requirements met
  for the issuance of credits
• Program Authority authorizes deposit of offset
  credits into accounts in the domestic carbon unit
  tracking system
• Tracking system operator tracks credits from
  creation to use

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Project-types

• Eligible project types will depend on the scope
  of the GHG regulations, but could include for
  example
• landfill gas capture and flare/use
• afforestation / reforestation
• frest management
• soil management
• biodigestors
• biofuels
• energy efficiency and demand-side-management
• renewable electricity generation (non-emitting)
• carbon capture and storage
• transport (e.g., modal shift)

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Project-types (2)

• Sink Projects
• In sink projects, the stored CO2 could be
  released back to the atmosphere (reversal)
• To manage this risk, proponents could have two
  options
• Permanent credits with required credit
  replacement in the event of a reversal
• Temporary credits that represent storage for one
  year and used only to defer a regulatory
  obligation for one year
• Adverse Impacts on Air Pollutants
• Some types of GHG reduction projects will
  increase emissions of the air pollutants that
  will be regulated under the Framework
• Require assessment of air pollutant impacts
  during the development of quantification protocol
  for each project type
• Negative impacts must be addressed where
  significant (mitigation action or offsetting)

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Program Delivery

• Government
• Establish system rules
• Recognize offset credits as compliance units in
  GHG regulations
• Validate projects, certify all system
  requirements met, issue offset credits
• Oversee tracking system for tradable units
• Private sector could have the following roles
• Implement projects
• Develop quantification protocols for government
  approval
• Participate in validation once sufficient private
  sector expertise is available and system has
  been refined based on experience
• Verify emission reductions/removals
• Provide all infrastructure and services required
  for the trading of offset credits

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Program Delivery (2)

• Program guidance material
• Overview of Offset System
• Guide for Protocol Developers
• Guide for Project Proponents
• Guide for Verification Bodies
• Verification
• recognised third-party verification bodies paid
  for by project proponents
• system for certification of verifiers and
  accreditation of verification bodies being
  developed by Standards Council of Canada and Eco
  Canada

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• Contact information
• Judith Hull
• Environment Canada
• judith.hull_at_ec.gc.ca
• [phone]