Canada: Federal Government shortlists eight types of projects for the development of carbon offset protocols

Contents
 

Key Takeaways

• The Government of Canada has released a discussion paper outlining key policy elements, design considerations, and protocol development details for the Federal Greenhouse Gas Offset System (the “Federal GHG Offset System”).
• Environment and Climate Change Canada will develop regulations and protocols for the Federal GHG Offset System. Each shortlisted type of carbon offset project will have a corresponding protocol.
• Environment and Climate Change Canada will focus on eight shortlisted project types for protocol development: advanced refrigeration systems, aerobic composting of organic waste, afforestation/restoration, anaerobic digestion, improved forest management, landfill methane management, livestock manure management, and soil organic carbon.
• Protocol development eligibility depends primarily on the “additionality” of a project type. A project is “additional” if its greenhouse gas emissions reduction goes beyond the legal requirements and business-as-usual expectations.
• Environment and Climate Change Canada is seeking written comments on the discussion paper by September 4, 2020. Draft regulations are targeted to be published in the Canada Gazette this fall.

In Depth

The Greenhouse Gas Pollution Pricing Act, which came into force in June 2018, established the Output-Based Pricing System (“OBPS”) for emissions-intensive and trade-exposed industrial facilities. Under the OBPS, industrial facilities that emit 50 kilotonnes or more of carbon dioxide equivalent (“CO2e”) per year are required to compensate for greenhouse gas (“GHG”) emissions that exceed the facility’s annual emissions limit. One method of compensating for GHG emissions is through offset credits. Each offset credit generated by an offset project is one tonne of CO2e removed or avoided.

On July 2, 2020, the Government of Canada released a much-anticipated discussion paper on the proposed Federal Greenhouse Gas Offset System (the “Federal GHG Offset System”) that clarifies how the protocols for offset credits will be developed for specific project types. The discussion paper builds on an earlier paper published in June 2019 on options for the federal carbon pollution pricing system. The federal government has now shortlisted eight project types for the development of offset protocols. These shortlisted project types are: advanced refrigeration systems, aerobic composting of organic waste, afforestation/restoration, anaerobic digestion, improved forest management, landfill methane management, livestock manure management, and soil organic carbon. Each type of project eligible for offset credits will have a corresponding protocol, developed by Environment and Climate Change Canada (“ECCC”). ECCC is inviting stakeholder comment on the discussion paper, and intends to publish draft regulations by this fall.

Application of Federal GHG Offset System

• The Federal GHG Offset System will be national in scope.
• In provinces or territories where offset programs exist for the same type of project, the federal protocols will not apply.
• If an overlapping provincial or territorial protocol is published after the federal protocols come into place, projects that are already registered under the federal system may continue to generate federal offset credits for the duration of the applicable crediting period, but they will not be able to renew under the federal system and will be transitioned to the provincial or territorial protocol.

Eligibility for the Federal GHG Offset System

• To respond to concerns raised following the initial June 2019 discussion paper that the proposed carbon offset system would disadvantage projects that receive government funding, project eligibility will be linked to entitlement to the offset credits, and not to whether the project proponent has received direct financial incentives for the project.
• A project that satisfies all other eligibility criteria will be eligible if the project proponent can demonstrate entitlement to the GHG emissions reductions generated by the project, or a funding program has provided direct financial incentives in exchange for a portion of the offset credits.
• A project is not eligible if the funding program requires the project proponent to participate in another crediting program only, or the funding program claims entitlement to some or all of the GHG emissions reductions generated by the project.

Federal Offset protocol development approach

The federal offset protocols will set out a consistent approach for quantifying GHG emissions reductions for any given project type. The protocols will be partially based on “additionality”, which is deemed to exist when GHG emissions reduction results from an activity or action that goes beyond the legal requirements and business-as-usual expectations.^[1] The diagram below provides a high-level summary ECCC’s intended approach to assessing additionality:^[2]

If a project type is deemed not additional through this review process, ECCC may revise or withdraw the protocol.

Priority project types for federal offset protocol development

The eight priority project types that have been proposed for the initial phase of protocol development are:
 

Next Steps

ECCC has invited stakeholders to submit comments on the proposed Federal GHG Offset System by September 4, 2020. The Government of Canada has indicated that it intends to finalize the subset of priority protocols and publish draft regulations by the fall.​

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[1] ECCC’s approach to additionality is informed by the United Nations Framework Convention on Climate Change (UNFCCC’s) “Tool for the demonstration and assessment of additionality“.

[2] Source for diagram: https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system/carbon-pollution-pricing-considerations-protocol-development.html.

*Many thanks to Teng Rong for his assistance with preparing this article​.