Federal Government Releases Greenhouse Gas Offset System Discussion Paper

On July 2, 2020, Environment and Climate Change Canada (ECCC) released its discussion paper on the federal Greenhouse Gas (GHG) Offset System entitled Carbon Pollution Pricing: Considerations for Protocol Development in the Federal Greenhouse Gas Offset System. The paper builds on a previous discussion paper which sought input on offset project eligibility, monitoring, and operationality.

ECCC is seeking comment from industry and interested parties as it further develops the Output-Based Pricing System (OBPS), under Part II of the Greenhouse Gas Pollution Pricing Act. Parties wishing to comment on any aspect of the discussion paper are invited to provide written comments to ECCC by September 4, 2020. ECCC also plans to host a webinar later in the summer.

Facilities covered under the OBPS are required to provide compensation for their GHG emissions through excess emissions charge payments and/or the remit of compliance units, which include offset credits. (Note: Compliance units include surplus credits, offset credits, and recognized units. Offset credits represent voluntary GHG reduction or removal. Each credit represents one tonne of CO2e compared to no action under the Federal GHG Offset System.)

Federal GHG Offset System

National in scope, the federal GHG offset system will enable offset project development in provinces and territories that currently do not have offset programs. If a province or territory subsequently develops and publishes its own protocol for a project type, the corresponding federal protocol would, after a six-month transition period, no longer apply. Projects that were registered under the federal protocol would continue to generate federal offsets but would not be eligible for renewal at the end of the relevant crediting period.

Federal Offset Protocols

Generally, federal offset protocols will apply standardized baselines to all projects using the same protocol. Applying to the system as a whole, the development process will seek to ensure that reductions (i) occur in Canada, (ii) complement existing climate policies, (iii) are administratively simple, and (iv) build on experience. The quantification, monitoring and reporting requirements for federal offset protocols will be based on the framework and principles of the ISO 14064-2, Specification with Guidance at the Project Level for Quantification, Monitoring, and Reporting of Greenhouse Gas Emission Reductions or Removal Enhancements.

Offset Protocol Development

Priority areas. ECCC is adopting a phased approach to protocol development. The first phase will target priority areas, including: advanced refrigeration systems; aerobic composting of organic waste; afforestation / reforestation; anerobic digestion; improved forest management; landfill methane management; livestock manure management; and soil carbon. Subsequent phases will focus on newer or more complex project types.

Protocol Scoping. At the beginning of the protocol development process a protocol scoping document will be created, with the following key elements and considerations:

  • assessment of existing protocols or protocol elements;

  • project boundary definitions;

  • description of how the protocol meets Federal GHG Offset System eligibility criteria;

  • potential supply or uptake of the project type, and expected marginal cost of GHG emissions reductions;

  • assessment and comparison of sources, sinks, and reservoirs in baseline and project conditions;

  • rationale for approaches selected for quantification of baseline emissions and project GHG emissions reductions; and

  • evaluation of factors contributing to or reducing GHG reversal risk for sequestration projects. ​

Additionality. Additionality of project types will be assessed and used to ensure the integrity of the federal GHG offset system based on the United Nations Framework Convention on Climate Change’s “Tool for the demonstration and assessment of additionality”. The following criteria are proposed to assist in assessing the additionality of proposed project types:

  • GHG emissions reductions resulting from project activities must not be required by any federal, provincial or territorial law or regulation

  • Sources of GHG emissions reduced from project activities must not be covered by federal, provincial, or territorial carbon pricing systems

  • If the activity is a new approach to achieving GHG emissions reductions, the proposed project type will be considered additional

  • Where penetration rate is determined to be a good proxy to assess additionality, ECCC is proposing to use a threshold of 40% to assess whether project activities are additional

  • Supplemental barrier testing may be conducted to determine if any financial, technical and/or social barriers exist that could influence a project proponent’s decision to carry out an offset project.

Next steps. The next step in the protocol development process includes finalizing a sub-set of priority protocols, and engaging with experts, provinces and territories, Indigenous organizations, and stakeholders on design options.

ECCC will specifically seek input on how Indigenous perspectives can be considered in the development of the Federal GHG Offset System, including federal offset protocols. This will include engaging with the National Indigenous Organizations (NIOs) through the Senior Bilateral Tables to determine the path forward.

For additional information, please contact Lisa DeMarco at lisa@demarcoallan.com.

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