Canada’s Environment Minister Jim Prentice recently announced that the government is moving forward with its offset credit system for greenhouse gases. Two draft guides were published in the Canada Gazette on June 12, 2009 to set out proposed rules and guidance for offset project proponents and for verification bodies, each of which is described in further detail below. The Environment Canada overview document describing the Offset System was also updated.
The two draft guides are respectively entitled Program Rules and Guidance for Project Proponents and Program Rules for Verification and Guidance for Verification Bodies. To put these two guides in context, readers may wish to refer to the April 16, 2009 report of the National Round Table on the Environment and the Economy.
The objective of the offset system is to establish tradeable credits and thereby to encourage cost-effective reductions in domestic greenhouse gas emissions in sectors that will not be subject to the proposed federal greenhouse gas regulations. Agriculture and forestry are two examples of such sectors.
Once the offset system is established, regulated and unregulated businesses, organizations and individuals will be able to acquire and use the offset credits created under the system to offset greenhouse gas emissions resulting from their activities. These offset credits may be used by companies that are subject to greenhouse gas emission regulations to assist them to achieve compliance with their emission targets.
Canada’s offset system, which is established under s. 322 of the Canadian Environmental Protection Act, 1999, defines an offset credit as representing one tonne of greenhouse gas emissions reduced or removed from the atmosphere. Before an offset credit will be awarded for any project, there are four major stages that must be completed: project registration, project implementation, verification and reporting of GHG reductions, and certification and issuance of offset credits. The document “Program Rules and Guidance for Project Proponents” provides the details of these stages and is described below.
For the first stage, the project proponent will first need to determine the project’s eligibility to generate offset credits and ensure there is an approved offset system quantification protocol available for its project type. Mechanisms exist to develop new protocols in the case that none exists for a specific project type. Next, the project proponent must create a description of the project and how it will reduce or remove greenhouse gases, a description of the baseline, and a description of the baseline’s conformance with the relevant offset system quantification protocol. The baseline year must be the year in which the registration begins. Supporting evidence must be gathered where necessary. All of this information will be used to prepare a project application form, which the project proponent will submit to the Minister of the Environment for approval.
Upon receipt of the project application form, the Minister may issue up to two information/revision requests. Project proponents will have fifteen business days in which to respond to the request. If, after the application is revised the information is insufficient, the Minister will refuse the project. If the Minister accepts the project application, it will be posted on the offset system website for thirty days of public review and comment. Within ten days following this review period, a Public Comment Report and, if required, an amended project application form must be submitted. The Minister will not accept a project application until satisfied that all public comments have been addressed. If the Minister accepts this final application package, the project will be registered in the offset system. If the project is registered, the information will remain publicly available for the duration of the registration period and the Minister will continue to evaluate comments submitted on the project relating to the entitlement of the project proponent to the offset credits.
An offset project registration will last for eight years and will receive offset credits for the time, during this period, that it is achieving eligible reductions.
Offset projects may be aggregated or bundled. Aggregation allows a group of project developers working on projects of the same project type (i.e. using the same offset system quantification protocol) to submit all of their projects as a single project. Bundling allows a project proponent to bundle together projects that share a common element (e.g. project location, data set, or baseline) and submit them as one project. Each sub-project must satisfy all offset system eligibility criteria. Additionally, locations, timelines, offset system quantification protocols, and an identification/justification of baselines must still be provided.
The “Program Rules and Guidance for Project Proponents” sets out draft rules and guidance on the requirements and processes that are to be used to create offset credits. The rules are to include step-by-step instructions for preparing the required registration, reporting and verification documents. The draft rules set out six principal eligibility criteria that greenhouse gas reductions must satisfy in order to be eligible to receive offset credits:
1. The greenhouse gas reduction must occur in Canada and must achieve reductions in one or more of the specified greenhouse gases.
2. The reductions must be real, meaning that the project includes one or more specific actions that result in a net reduction of greenhouse gases that could not be achieved as a result of decreasing the level of activity or production of the project vis-à-vis a comparable baseline.
3. The reductions must be considered incremental, meaning:
(i) the project must have started on or after January 1, 2006,
(ii) the reductions must have occurred on or after January 1, 2011,
(iii) the reductions go beyond the applicable baseline,
(iv) the reductions must also be surplus to all legal or regulatory requirements, and
(v) the reductions must not be subject to any other climate change incentives.
4. The greenhouse gas reductions must be quantified as specified in an applicable offset system quantification protocol.
5. The emission reduction or removal must be verifiable by an accredited third-party Verification Body ensuring that its quantification is accurate, transparent and replicable.
6. A particular greenhouse gas reduction can only be used once to create an offset credit.
Comment period closed August 12. Final versions of the two program rules and guidance documents, together with the Guide for Protocol Developers, (a draft of which was published in the Canada Gazette on August 9, 2008) are expected to be published in the fall of 2009.
Adapted from bulletins by Richard Corley and Matt Flynn, Blake, Cassels and Graydon LLP; and Adam Chamberlain, National Chair, Climate Change Group, with Jennifer Kirton and Tasha Schmidt, Summer Law Students, at Borden Ladner Gervais LLP.