On July 2, the Government of Canada released a discussion paper titled Carbon Pollution Pricing: Considerations for Protocol Development in the Federal Greenhouse Gas Offset System. Offset credits are a key element of the federal Greenhouse Gas Pollution Pricing Act1, which establishes a levy on fossil fuels and an Output-based Pricing System (OBPS) for industrial facilities. Under the OBPS, to cover greenhouse gas (GHG) emissions in excess of annual limits, facilities must make payments or remit compliance units (including offset credits from eligible projects, as quantified pursuant to offset protocols). The discussion paper is the next significant step toward the development of those protocols.
The discussion paper builds on a June 2019 proposal by Environment and Climate Change Canada (ECCC) that discussed options for a federal GHG offset system. After considering public comments, ECCC has now outlined a further refined approach for offset protocol development, including the following:
ECCC is seeking public comments on the discussion paper until September 4. It also plans to hold an information webinar on the topic (details to be announced).
The federal GHG offset system will function as a national backstop. If a province or territory has an active, published protocol for a given type of project activity, the corresponding federal protocol will either not apply or cease to apply after 6 months from the date such jurisdiction publishes its protocol. In order to generate credits for use under the federal OBPS, provincial protocols must meet the eligibility criteria prescribed by the Output-Based Pricing System Regulations and arrangements must be in place for the tracking and use of the provincial offset credits.
After a provincial or territorial protocol is published, projects covered by such protocol that are federally registered will be able to continue generating federal offset credits for the duration of their crediting period, but will not be able to renew their federal registration for the subsequent period.
ECCC is now proposing to link project eligibility under the federal system with a proponent’s entitlement to offset credits. In the initial proposal, projects were ineligible if their emissions reductions were not incremental to what would have occurred from the receipt of financial incentives under a funding program. More specifically:
Under ECCC’s current proposal, the federal offset system will not accept projects registered in another program that provides GHG emissions reduction credits (including the Clean Fuel Standard, a complementary policy that is under development as part of Canada’s climate change plan). Proponents will need to choose which program to participate in.
Offset protocols set out the rules for quantifying emissions reductions for a project type. According to the discussion paper, ECCC in developing federal offset protocols will aim to ensure that:
Due to regional differences, ECCC proposes to apply an “umbrella” approach, which will establish a basic set of requirements in each protocol that are unlikely to vary across jurisdictions and will be supplemented over time by modules that account for specific locations, practices and applications.
Federal offset protocols will generally apply standardized baselines, such that all projects using the same protocol are subject to quantification using the same emission factors, methodologies and assumptions. However, a protocol may include multiple approved quantification methodologies where it is appropriate to reflect individual project conditions.
ECC will develop offset protocols in parallel with the development of the federal offset system regulations, having regard to the principles of ISO 14064-22, including:
ECCC will also explore the adaptation of existing protocols from domestic and international compliance programs and voluntary markets as well as mechanisms for voluntary participation in the protocol development process.
Once a project type is selected for protocol development (selection criteria is discussed in the section below), ECCC will post an online notice to interested parties and establish a technical team to advise the development process. ECCC will then prepare a high-level scoping document for the protocol based on stakeholder feedback. If ECCC decides to proceed with development, it will draft the offset protocol based on the scoping document and post the draft for public comment. Once a protocol is finalized and published, proponents will be able to register offset projects using that protocol.
Fundamental to the selection of protocols for development is an assessment of “additionality” (i.e., to ensure that project activities are above and beyond a baseline scenario). The criteria to assess additionality (either for developing new protocols or reviewing existing protocols) will include:
Under its phased development approach, ECCC will: 1) in the initial phase, target identified priority project types; and 2) in later phases, focus on newer or more complex project types. Based on its preliminary assessment, ECCC has developed a shortlist of priority project types that includes: advanced refrigeration, aerobic composting of organic waste, afforestation/reforestation, anaerobic digestion, improved forest management, landfill methane, livestock manure, and soil organic carbon. ECCC expects to publish a protocol development schedule once the priority list is finalized.
The public comment period for the discussion paper is open until September 4. Parties wishing to provide comments and/or register for updates regarding the protocol development process are invited to do so by email to ECCC3.
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1 Each offset credit represents one tonne of carbon dioxide equivalent (CO2e) GHG emission reductions from activities taken voluntarily to reduce or avoid emissions or increase removals by carbon sinks, as measured relative to a baseline scenario (i.e., in the absence of the offset activity).
2 ISO 14064-2: Specification with Guidance at the Project Level for Quantification, Monitoring, and Reporting of GHG Emission Reductions or Removal Enhancements.
3 By emailing [email protected].
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