On June 10, 2009, the Government of Canada announced the release of two draft "Program Guides" for the creation of Canada's Offset System for Greenhouse Gases (Offset System). The Offset System is an important step in the creation of a carbon market in Canada, establishing tradable credits for greenhouse gas (GHG) reductions that will work in conjunction with the planned federal GHG regulatory regime. Under that regime, the Government will place a cap on GHG emissions and allow firms that do not meet set targets to buy credits from those with a surplus as an alternative to reducing their emissions. The creation of a carbon market is part of the Government's commitment to reducing total GHG emissions by 20% below 2006 levels by 2020.

The Program Rules and Guidance for Project Proponents provides the rules, requirements and processes for offset credit creation, addressing registration of eligible projects right through to the issuance of credits and requirements after issuance. The Program Rules for Verification and Guidance for Verification Bodies sets out the rules for processes to verify the eligible GHG reductions or removals achieved from a registered project. The two Program Guides, together with the Guide for Protocol Developers (released August 2008), form the basis of Canada's Offset System.

The draft Program Guides are available on the Environment Canada website and were announced in the June 13, 2009 Canada Gazette. They are open for a 60-day public comment period ending August 12, 2009. After the comment period, final versions of the Guides will be prepared for expected release in the fall of 2009.

Overview

The Offset System will be a voluntary program administered under the Canadian Environmental Protection Act, 1999. Overall responsibility for the design and operation of the system will be granted to the Minister of the Environment, including establishment of the Offset System program rules; approving protocols used to quantify GHG reductions; registration of projects; and issuance of offset credits to eligible projects.

Each offset credit developed under the Offset System will represent one tonne of GHG (CO2 equivalent) that has been reduced or removed. Credits will be both tradable and bankable, and the system will include and a procedure for tracking all offset credits from issuance to retirement.

Key Elements

Program Rules and Guidance for Project Proponents

Registration

A proponent can apply to register a single project or an aggregated or bundled project.

The registration period is effective for eight years. An offset project may apply for re-registration one time only, for a second eight-year period, and registration periods must be contiguous (an exception to this rule is agricultural and forestry sink projects, which may register for three and five registration periods respectively).

Eligibility

  • In order to be eligible to receive offset credits, projects must be within the scope of the Offset System and achieve quantifiable, real, incremental, verifiable and unique GHG reductions.
  • Offset credits will only be available to projects that lead to reductions in Canada.

Claiming Offset Credits

  • Offset credits will only be issued after an eligible verification body has verified the project proponent's GHG reduction claim.
  • The Minister of Environment is responsible for the certification and issuance of all credits. Issued credits will be deposited in the project proponent's account in the tracking system.

Program Rules and Verification and Guidance for Verification Bodies

Verification Body Eligibility

  • Verification activities for projects in the Offset System must be conducted by an accredited verification body.

Verification Standard

  • All credit verifications for the Offset System must be conducted in accordance with the National Standard of Canada CAN/CSA-ISO 14064-3, Specification with Guidance for the Validation and Verification of Greenhouse Gas Assertion.

Conflict of Interest Assessment

  • To ensure that verification is conducted by a third-party verifier, the proposed verification body must complete a conflict of interest assessment prior to agreeing with a project proponent to act as a verifier.

What's Next

The Government has indicated that it will continue to monitor developments in the U.S. before finalizing certain aspects of the Offset System (such as project eligibility criteria), so as not to disadvantage Canadian project proponents. However, the manner in which the Offset System will interact with other carbon trading programs, including the Western Climate Initiative, British Columbia's carbon trading system, proposed systems being developed in Ontario and Quebec, and even a future North American program, remains unclear.

On a broader scale, Canada will surely continue to keep a close eye on U.S. policy and legislative developments relating to cap-and-trade. The Hon. Jim Prentice, Minister of the Environment, has stated that as Canada's economy is deeply integrated with that of the U.S., with which we share the same environmental space, the two countries must work toward the same climate change objectives.