Canada’s Greenhouse Gas Offset Credit Regulations: Now in Force

On June 8, 2022, Canada launched its closing Greenhouse Gas Offset Credit System Regulations (Rules). The Rules present a roadmap as to how greenhouse gasoline (GHG) emission offset credit generated by acceptable initiatives can be utilized by amenities to satisfy GHG emission discount necessities underneath the output-based pricing system (OBPS) side of Canada’s Greenhouse Fuel Air pollution Pricing Act (GGPPA). For a dialogue relating to the mechanics of the GGPPA, together with carbon pricing underneath the OBPS, see our December 2018 Blakes Bulletin: Federal Carbon Pricing System Coming Into Force January 2019: How Will it Impact Your Business? Though many elements of the Rules are much like the draft regulation issued in March of 2021 (see our March 2021 Blakes Bulletin: Canada Issues Proposed Federal Greenhouse Gas (GHG) Offset Regulations), there are additionally some vital distinctions, a number of of that are mentioned herein.

BACKGROUND

The federal OBPS applies in these provinces and territories that don’t in any other case have an equal carbon pricing regime for big emitters. At the moment, these provinces and territories embrace Manitoba, Saskatchewan (for sure amenities), Prince Edward Island, Nunavut and Yukon. Below the OBPS, offset credit are generated by registered initiatives wholly situate inside Canada that generate GHG reductions (by stopping GHG emissions or eradicating GHGs from the ambiance) compared to “enterprise as common” GHG emissions. As soon as generated, offset credit can be utilized by amenities topic to the OBPS for compliance functions. Alternatively, they can be utilized to satisfy company net-zero commitments or situations of an Impression Evaluation Act approval.

NOTEWORTHY ASPECTS OF THE REGULATIONS

At its most simple stage, the Rules describe the method by which offset credit will be generated underneath the GGPPA pursuant to a suitable offset protocol. Nonetheless, there are a number of noteworthy elements of the Rules, a lot of which differ from, or weren’t addressed in, the draft regulation, or just bear repeating, together with the next:

1. Producing Offset Credit
2. Environmental Integrity Account
3. Sequestration and Danger Administration Plans
4. Mission Length and Renewals
5. Compendium of Federal Offset Protocols

A. Producing Offset Credit

Offset initiatives will be restricted to a single undertaking or embrace an mixture of initiatives. If a undertaking (aggregated or in any other case) is located in multiple province, the parts situate in every province have to be registered as distinct initiatives. Each federal undertaking have to be registered and the undertaking generator requires a federal GHG offset credit score system account. Earlier than any offsets are finalized, they have to be verified by an impartial third-party verification physique (verifier). The undertaking can’t be registered underneath every other offset credit score system. Particularly, a undertaking won’t be eligible to generate credit underneath the GGPPA if the province through which it’s situate has a suitable offset credit score regime and an offset quantification protocol that covers the identical actions. This latter requirement is vital and reinforces Canada’s place that the GGPPA solely applies as a “backstop” in these jurisdictions that don’t in any other case have equal provincial OBPS regimes.

B. Environmental Integrity Account (EIA)

The EIA is basically a reserve created to make sure the integrity of the federal offset credit score system. A minimal of three% of all offset credit generated by a registered undertaking is yearly deposited to the EIA. Within the occasion there may be an involuntary reversal of GHG reductions (akin to a forest fireplace that destroys a forest-related carbon sequestration undertaking), the Minister can revoke the corresponding variety of offset credit deposited into the EIA. The EIA can also be used as a final resort to switch offset credit when undertaking proponents fail to adjust to alternative necessities.

C. Sequestration and Good Stewardship

The Rules differentiate between forestry-related sequestration initiatives and non-forestry sequestration initiatives (which would come with different organic/agricultural sequestration initiatives in addition to non-biological/agricultural sequestration initiatives). Though the particular mechanics will not be outlined, the Rules present that forestry-related sequestration initiatives primarily based solely upon good forestry stewardship practices can generate offset credit. In our view, that is essentially the most nebulous side of the Rules. It stays to be seen how offset credit will be generated from good forestry stewardship practices if the enterprise as common situation can also be good forestry stewardship. The idea of excellent stewardship is bolstered by the selection of three various GHG quantification strategies for sequestration initiatives, specifically the tonne-tonne technique; tonne-year technique; and hybrid tonne-year technique. Mission proponents concerned with any sequestration undertaking should specify the actual quantification methodology of their undertaking utility.

The tonne-tonne technique calculates the GHGs sequestered throughout the reporting interval, making an allowance for the monitored amount of GHG emissions to, and faraway from, the ambiance with respect to the undertaking for 100 years. For instance, a forest-sequestration undertaking is taken into account to facilitate everlasting carbon removing supplied the forest stays uncut (and unburnt) for 100 years.

Conversely, the tonne-year technique and hybrid tonne-year technique contemplate the local weather good thing about withholding carbon from the ambiance (or delaying its launch into the ambiance) yearly over a reporting interval versus over 100 years. Extra notably:

The tonne-year technique calculates the GHGs faraway from the ambiance primarily based on the local weather profit from withholding carbon from the ambiance over the reporting interval and for which a proponent isn’t required to observe the amount of GHG emissions to, and faraway from, the ambiance with respect to the undertaking;

The hybrid tonne-year technique calculates the GHGs faraway from the ambiance primarily based on the local weather profit from withholding carbon from the ambiance over the reporting interval and for which a proponent takes into consideration the monitored amount of GHG emissions to, and faraway from, the ambiance with respect to the undertaking.

From an offset credit score technology perspective, extra credit might be generated by initiatives utilizing the tonne-tonne technique compared to the tonne-year or hybrid tonne-year strategies. Nonetheless, the latter two options could also be enticing to some proponents, notably these concerned in agricultural sequestration initiatives the place making certain particular land-use and agricultural practices for 100 years could also be impractical or unrealistic.

D. Mission Length and Renewals

The interval through which a undertaking can generate offset credit varies relying on the character of the undertaking, and except in any other case set out within the relevant protocol, is:

• 30 years for a forestry-related sequestration undertaking;

• 20 years for a non forestry-related sequestration undertaking; and

• 10 years for all different initiatives.

If a undertaking was beforehand registered in provincial offset system and transitions into the federal offset system, the period over which the undertaking was registered within the provincial system might be deducted from the crediting interval within the federal offset system. Mission crediting intervals will be renewed as follows:

• as much as 70 extra years for forestry-related sequestration initiatives (i.e., not more than 100 years together with all renewals); and

• all different initiatives will be renewed not more than two extra instances primarily based upon their preliminary offset credit score intervals (i.e., as much as 40 extra years for non forestry-related sequestration initiatives and as much as 20 extra years for all different initiatives).

E. Compendium of Federal Protocols

Mission proponents can solely generate offsets pursuant to permitted offset credit score protocols set out within the Compendium of Federal Offset Protocols (Compendium). In March of 2021, when Canada launched the draft regulation, it acknowledged it was prioritizing the next 4 protocols for improvement: (i) superior refrigeration methods; (ii) landfill methane administration; (iii) improved forest administration; and (iv) enhanced soil natural carbon. In live performance with the discharge of the Rules, Canada has added a fifth protocol precedence: livestock feed administration. Moreover, it finalized and issued the Federal Offset Protocol for Landfill Methane Recovery and Destruction, which is presently the one acknowledged protocol within the Compendium.

CONCLUSION

However the Rules at the moment are in drive, except and till extra protocols are developed and acknowledged as a part of the Compendium, they has restricted utility. The one acknowledged protocol underneath which offset credit will be presently generated is the Landfill Methane Recovery and Destruction protocol.

We are going to proceed to observe developments with respect to the technology and measurement of offsets from organic sequestration initiatives and extra notably whether or not these initiatives actually symbolize emission reductions past enterprise as common.