Challenging plan for offset market… The Canadian Carbon Economy takes its first steps forward.

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Federal Greenhouse Gas Offset System

From: Environment and Climate Change Canada

Backgrounder

As one of the commitments in the Government of Canada’s strengthened climate plan A Healthy Environment and a Healthy Economy, the Government is developing a Federal Greenhouse Gas (GHG) Offset System under the Greenhouse Gas Pollution Pricing Act (GGPPA). This system has been built on the recommendations in the Pan-Canadian Offset Framework (PDF) for the design of offset systems agreed to by the Canadian Council of Ministers for the Environment and published in October 2019.

The Federal GHG Offset System will encourage voluntary project activities across Canada that reduce GHG emissions or remove them from the atmosphere by allowing the generation of offset credits. These credits can be used by industries regulated under the federal Output-Based Pricing System as a way to meet their compliance obligations and help reduce the overall cost of compliance. The Federal GHG Offset system will create further incentives to reduce emissions and will generate additional economic opportunities in sectors such as agriculture, forestry and waste.

Under the Output-Based Pricing System, when facilities exceed their emissions limits, they may provide compensation through one or a combination of the following:

  • paying an excess emissions charge; or,
  • remitting surplus credits, federal offset credits, or recognized units (eligible provincial offset credits).

Each GHG offset credit represents one tonne of carbon dioxide (or equivalent) reductions, or removal enhancements.

Offset project activities must be in addition to what would have occurred anyway. That is, in order for the project to generate offset credits under the Federal GHG Offset System, project activities must result in GHG reductions or removals that go beyond business-as-usual practices and legal requirements, and must not already be incentivized by carbon pollution pricing. For projects that involve biological sequestration, monitoring and reporting must continue for 100 years after credits have been issued to ensure the permanence of GHG reductions.

Businesses and governments across Canada are also increasingly adopting carbon-neutral or net-zero commitments to reduce emissions. This may generate additional demand for federal offset credits.

Federal offset protocols

To be eligible to generate offset credits, all projects will be required to achieve real, additional, quantified, verified, unique, and permanent GHG reductions or removals by following an approved federal GHG offset protocol.

Federal offset protocols will set out a consistent and approved approach for quantifying GHG reductions or removals for a given project type. A protocol also sets out requirements for project implementation, including setting project baselines, monitoring permanence, and risk management, minimizing leakage and data management that must be followed by a project proponent when implementing an offset project.

Example of an offset project: Landfill methane management

Methane is a powerful greenhouse gas with 25 times the global warming potential of carbon dioxide. A federal Landfill Methane Management Protocol is under development that would enable generation of offset credits from projects that reduce methane emissions from open or closed landfill sites.

Following this protocol, once it is in place, a municipality with a closed landfill site that is not regulated could, for example, install gas collection wells and measurement devices to collect methane that was previously emitted into the atmosphere and convert it to carbon dioxide.

The municipality would earn federal offset credits equivalent to the total amount of GHG emissions reduced and could sell these credits to industrial facilities regulated under the federal Output Based Pricing System to help them comply with their annual emissions limit.1

GHG reduction or removal activities can generate offset credits once an offset project is registered in the federal offset system. Before credits are issued, an offset project report must be submitted to Environment and Climate Change Canada and be independently verified to confirm that GHG reductions or removals have been quantified in accordance with the protocol, and that regulatory requirements were met. For project types that involve carbon sequestration, the federal offset protocol will specify requirements for monitoring and mitigating permanence risk of the GHG removals.

The first federal offset protocols being developed are:

  • Advanced Refrigeration Systems;
  • Improved Forest Management;
  • Landfill Methane Management; and,
  • Enhanced Soil Organic Carbon.

As the initial protocols are completed, work on new protocols will begin. Subsequent project types under consideration for federal offset protocol development include Aerobic Composting, Afforestation/Reforestation, Livestock Feed Management and Avoided Conversion of Forests.

Opportunities for the Agriculture Sector

Environment and Climate Change Canada recognizes the important role Canadian farms have to play in reducing greenhouse gas emissions through implementation of conservation activities or adopting new management practices or technologies.  

The proposed Enhanced Soil Organic Carbon protocol aligns with increased interest in potential climate benefits from the adoption of regenerative agriculture land-management practices that go above and beyond business as usual. Farmers who reduce or remove GHG emissions through regenerative agriculture practices carried out in accordance with the protocol may be able to generate offset credits which can then be sold, providing a financial incentive.

The specific practices that can generate offset credits will be determined during the protocol development process. A technical expert team will be established to provide advice on the latest science related to regenerative farming practices and members of the public will have an opportunity to comment on draft protocols as a part of the protocol development process.

Another agriculture-related federal offset protocol that is under consideration for development is Livestock Feed Management. Depending on the results of further analysis and pilot projects, protocols for Avoided Conversion of Grasslands, Reduced Nitrogen Oxide Emissions from Agriculture Fertilizer and Livestock Manure Management may also be considered. These would provide a range of options for generating federal offset credits for on-farm sustainable practices and activities that achieve real, additional, quantified, verified, unique, and permanent reductions and removals of greenhouse gas emissions.

Environment and Climate Change Canada will also consider developing protocols for additional project types in the future as more information or data becomes available and as their potential evolves.

1Notes:

  • The Landfill Methane Management protocol is in the early stages of development.
  • GHG reductions are measured against the baseline scenario where no landfill gas capture occurs and methane is released into the atmosphere.
  • This project is only eligible provided there are no regulatory requirements in place.

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