Offset Guide Illuminates Need for Consumer Education and Standards
July 31, 2009
Purchasing Carbon Offsets: A Guide for Canadian Consumers, Business, and Organizations was released this week. The Guide was prepared by the David Suzuki Foundation (DSF) and the Pembina Institute to “help consumers, businesses and organizations assess the quality of carbon offsets and the reliability of the vendors that sell them”. The findings were based on surveys of 14 Canadian offset vendors as well as six international vendors. It is recommended reading for those interested in both the voluntary carbon market and offset systems generally.
The Guide applied the following criteria to assign the vendors a total percentage based score:
1) Additionality;
2) Auditing;
3) Permanence; and
4) Unique ownership.
Those scoring above 80% were considered to have strong performance, those scoring between 50 and 79% were considered to have average performance and those scoring under 50% were considered to have weak performance. Of the 20 vendors surveyed six had strong performances, eight had average performances and six had weak performances. The six vendors with strong performances were:
- Less – www.less.ca (Canada)
- Climate Friendly – www.climatefriendly.com (Australia)
- Atmosfair – www.atmosfair.de (Germany)
- Planetair – www.planetair.ca (Canada)
- CarbonZero – www.carbonzero.ca (Canada)
- LivClean – www.livclean.ca (Canada)
The guide is careful to suggest that it cannot be relied on exclusively to assess the quality of offsets sold by these vendors. It is a valuable starting point; however, consumer diligence is required to identify vendors with high quality offsets. This is largely due to the lack of a regulatory system or dominant Canadian-applicable standard.
With the recent announcement that the Voluntary Carbon Standard (VCS) can now be applied to qualifying Canadian projects, without the cancellation of Kyoto emission allowances, we may see movement towards standardization of offset projects at home. Voluntary Carbon Units (or VCUs) were unavailable to Canadian based projects over fears of double counting vis-à-vis Canada’s Kyoto Protocol reduction commitment. The July 23, 2009 VCS press release states:
The VCS Board concluded that [the requirement to demonstrate units will not be double counted] is not applicable to Canada because there is no regulatory framework to implement the Kyoto Protocol, none is likely to emerge, and the country is unlikely to achieve its Kyoto Protocol reduction commitment.
That statement, although painful to read, is absolutely accurate.
Until we have a clear regulatory framework it will be up to the voluntary market, and private offset developers to set standards of offset credits. Consumers will need to educate themselves. Although it should be noted that some do not agree with the assumptions and criteria used in the DSF/Pembina Guide, it should aid in that endeavor.
Ontario Green Energy Act getting press in interesting places
July 31, 2009
First Validation of Reforestation Project Under the Voluntary Carbon Standard
July 23, 2009
Forestry projects are projected to make up a significant block of offset credits in domestic and global offset regimes; however, they have yet to be fully accepted as credible by the voluntary market. This is changing. Green Resources, a Norwegian forestry and carbon offset company, is the first to receive validation under the Voluntary Carbon Standard (VCS). The verified project is located in Tanzania and was launched back in 1997. It will reforest 10,814 hectares of degraded land and conserve 7,565 hectares. The audit process for this project took two-years and was finally verified on July 17, 2009 by the German carbon offset project verifier
Draft Rules for Federal Greenhouse Gas Offset System Released
July 16, 2009
Environment Canada released two new draft rules and guidance documents to develop and implement its proposed Offset System for Greenhouse Gases on Wednesday June 10, 2009. The draft documents are now subject to a 60-day comment period. Final documents are expected in the fall of 2009, the release of which will launch the Offset System. The Offset System will be part of the federal framework to reduce greenhouse gas emissions which will include a cap-and-trade system. Credits created under the Offset System will be eligible for compliance purposes in a future regulatory regime, the details of which have still not been released. The system will be administered by the Government of Canada under the authority of the Canadian Environmental Protection Act, 1999.
The announcement indicates that the government is moving forward with its Offset System, albeit with caution and at a slower than originally advertised pace. The draft documents indicate projects that began on or after January 1, 2006 will be eligible to create credits for reductions achieved on or after January 1, 2011. These documents suggest that the crediting system will not be up and running until January 1, 2011. Previous iterations of the government’s plan suggested projects that began on or after January 1, 2000 would be eligible and reductions achieved on or after January 1, 2008 could earn credits. The previous plan also indicated that the regulatory system would be up and running by January 1, 2010.
The documents released include the Program Rules and Guidance for Project Proponents and the Program Rules for Verification and Guidance for Verification Bodies.
To be eligible under the Canadian Offset System credits must be real, incremental, quantifiable, verifiable and unique. Offset credits can be generated in those sectors of the Canadian economy which will not be subject to a future cap on greenhouse gas emissions, and for projects where an established Quantification Protocol exists. An offset system aims to incent innovation in non-regulated sectors to reduce greenhouse gases, while reducing the cost of compliance for those regulated entities that may find reducing emissions very difficult.
The draft rules establish guidance for all of the steps a Project Proponent must take to create a credit. The draft documents indicate that the quantification, monitoring and reporting requirements are to be based on the framework and principles of the international standard ISO 14064-2. The documents include increased detail and proposed timetables for each step in the process, which are listed as follows:
- Establish Quantification Protocol for the Project type;
- Registration of the Project in the Offset System (subject to mandatory public consultation and ministerial approval);
- Implementation of the registered project and monitoring of data;
- Reporting and verification of reductions from the registered project; and
- Certification of reductions and issuance of offset credits.
Once issued, an offset credit may be traded, banked or used for compliance purposes. The market will set the price. It is expected that, in the future, Canadian offset credits may be eligible for compliance purposes in other jurisdictions.
Environment Canada will be the body responsible for establishing and enforcing the Offset System rules, approving protocols, registering projects and issuing offset credits. It has suggested that some of these roles may be handed over to private sector organizations in the future. Initially, private sector services that will be required include technical experts, aggregators, and verification bodies.
Project Proponents will be responsible for implementing the project and engaging accredited third-party verification bodies. These verification bodies must be accredited by the Standards Council of Canada. More information on verification body accreditation can be found on the Offset System Website.
In his announcement, Environment Minister Prentice indicated that the release of these documents marks a milestone towards establishing a carbon market in Canada and that the government aimed to complement established and emerging provincial and regional carbon markets, “not supplant or duplicate them”. He also indicated that the federal government will pursue equivalency agreements with the provinces where appropriate.
There are some key differences with the proposed federal system and the offset system already in place in Alberta. Under the Alberta system offsets submitted for compliance purposes can later be found to be invalid and ineffectual. The proposed federal system attempts to address the uncertainty surrounding offsets by requiring Ministerial Certification of credits that have been verified by a third-party before credits are issued. Under the proposed federal system, if reductions are later found not to have occurred, the Project Proponent will be required to source new credits to ensure the integrity of the system, but the original credits will remain valid for compliance purposes.
Although providing some certainty that a greenhouse gas regulatory system is developing, the documents released acknowledge that changes may be required to ensure fungibility with a future U.S. system and eventually a global market.
For more information please see the news release and backgrounder issued by Environment Canada and theOffset System website.
The government is currently soliciting comments on all draft documents.
Originally appeared in Climate Change @ Gowlings - http://www.gowlings.com/.
Ontario Begins Consultative Process for Design of Greenhouse Gas Cap-and-Trade System
July 15, 2009
Ontario had previously stated its intention to develop a greenhouse gas cap-and-trade scheme. On June 2, 2008, Ontario and Quebec signed a Memorandum of Understanding to establish a joint cap-and-trade system, inviting other provinces and territories to collaborate, to be implemented as early as January 1, 2010. Additionally, Ontario is a partner in the Western Climate Initiative (the “WCI”), and has committed to be part of the regional WCI cap-and-trade system which is slated to come into effect in 2012. The Ontario Government has expressed the desire to get out in front of the WCI system in the hopes of providing Ontario entities with a competitive advantage in the new regional, and potentially North American-wide regime.
The consultative process began with the release of a document entitled Discussion Paper: A Greenhouse Gas Cap-and-Trade System for Ontario (the “Discussion Paper”). It outlines the intentions and various proposed details for the regime and invites interested parties to comment. The main aspects of the Discussion Paper are outlined below.
Targets
Ontario proposes using the cap-and-trade system as a main tool to bring emissions in line with its greenhouse gas (‘GHG”) reduction goals, which are:
~ 6% below 1990 levels by 2014 (a reduction of 61 megatonnes relative to business-as-usual)
~ 15% below 1990 levels by 2020 (a reduction of 99 megatonnes relative to business-as-usual)
~ 50% below 1990 levels by 2050
Linkages
The Discussion Paper recognizes the need for Ontario’s system to efficiently and effectively link with other cap-and-trade systems around the world; in particular, it needs to be able to work with the WCI system. The need to be flexible and use internationally accepted base years and offset criteria is crucial. As the Discussion Paper states at page 16:
By starting earlier, Ontario would provide our industries with greater experience in all aspects of emission trading, including familiarity with the market approach and full range of compliance options. This would prepare Ontario’s industries for future Cap-and-Trade programs, such as WCI or Cap-and-Trade systems that are implemented.
The Discussion Paper acknowledges that in order to ensure the early-start has the desired effect, any system must ensure linkages are possible and easily made.
GHGs Covered
Ontario proposes to use the full set of six GHGs included under the Kyoto Protocol. These are: Carbon dioxide; Methane; Nitrous Oxide, Hydrofluorocarbons; Perfluorocarbons; and Sulphur Hexafluoride.
Cap Setting and Thresholds
The cap will be set considering Ontario’s Climate Change Action Plan targets, requirements for federal equivalency, and the need to be as stringent as other existing or emerging international trading systems for linking purposes.
Ontario has proposed that caps will initially be placed on any facility or corporate entity that has GHG emissions over 100,000 tonnes of carbon dioxide equivalent (CO2e). In 2012, the threshold will be lowered from 100,000 to 25,000 to be consistent with the WCI, which has indicated it will begin with a threshold of 25,000 tonnes CO2e.
Sectors that would be caught by the initial threshold include electricity generation, iron and steel manufacturing, cement, petroleum refining, pulp and paper, lime, base metal smelting, and chemicals. The Discussion Paper acknowledges that additional sectors may be phased into the cap-and-trade system over time starting in the 2012 period.
It is proposed that caps would be reduced on a linear basis or stepped down at predetermined intervals. Electricity generation would be regulated at the corporate or facility level. Electricity imports would be regulated at the point-of-sale to the Ontario grid. Industrial sources would be regulated at the point of greenhouse gas emission.
The Discussion Paper clearly states the intention to create a system that can be the most effective while minimizing administrative costs and complexity. The Government is seeking comments that address these intentions.
Allocation of Allowances
The Discussion Paper acknowledges the ongoing debate as to whether allowances should be distributed gratis (i.e. free of charge) or through an auction process. The WCI proposes a minimum of 10% auctioned allowances initially, rising to 25% by 2020 (potentially rising to 100%) being auctioned.
The Ontario Discussion Paper proposes a combined approach to be used, employing both gratis and auctioning distribution initially, with the transition towards higher levels of auctioning in the future. However, it does make not recommendations or proposals for the appropriate allocation mix, stating that decisions must be made regarding the gratis/auction split while ensuring the overall design is administratively simple, transparent and cost effective.
Offsets
Offsets are created through emissions reductions undertaken by unregulated entities (those not subject to a cap). Ontario has proposed the inclusion of offsets into the cap-and-trade system, acknowledging they allow cost-effective compliance and create incentives for non-regulated entities to make emission reductions and develop emission-reducing practices and technologies.
Ontario has expressed the desire to place a limit on the amount of compliance that can come from offsets. The WCI Partners have recommended limiting the use of offsets to no more than 49% of the total emission reductions from 2012-2020 in order to ensure that most of the emissions reductions occur in the capped sectors.
The Discussion Paper flags the need to consult on the use of offsets from other systems, such as the Clean Development Mechanism, and the use of existing protocols for offset creation (e.g. protocols from Alberta or the CDM).
It appears that offsets will form an important part of any cap-and-trade system in Ontario, however the details remain uncertain.
Credit for Early Action
The Discussion Paper emphasizes the importance of providing credit for early action and proposes that Ontario comply initially with the plan for Early Reduction Allowances under the WCI. Under the WCI, recognition will be given for early actions between January 1, 2008 and January 1, 2012. The Discussion Paper recognizes that each WCI Partner jurisdiction has the discretion to recognize early actions other than those eligible for the Early Reduction Allowances within their respective allowance budgets.
Ontario has asked for comments on the recognition of early actions before January 1, 2008 and has indicated that it will need to consider action taken by Ontario industry beyond the 15 Mt limit currently discussed in the federal framework.
Banking
Ontario is considering the availability of banking of allowances for use in future compliance periods to give more flexibility to regulated emitters. However, there will be no consideration of borrowing from future compliance periods. The details of the banking provisions are under discussion.
Compliance and Reporting
The Discussion Paper acknowledges that reporting is a critical aspect of any successful greenhouse gas management strategy. Ontario has indicated that all regulated emitters, including emitters that apply for offsets, would be required to report emissions. Under the WCI there will be mandatory reporting for all entities and facilities with emissions equal to or greater than 10,000 tonnes/year of CO2e, beginning in January 2010. Ontario is currently considering whether reported emissions will be subject to government audit, or will be required to have independent third party verification.
Multi-year compliance periods allow for greater flexibility and are preferred in the Discussion Paper. The WCI Partner jurisdictions have recommended three year compliance periods to commence in 2012. Ontario intends to harmonize the compliance periods with the WCI, therefore, the first compliance period will be a short one, from 2010-2011. Future compliance periods will be based on the 3-year, WCI compliance periods.
Comments on the discussion paper can be made by email to Heather Pearson of the Air Policy Instruments and Program Design Branch, Ministry of Environment via heather.e.pearson@ontario.ca.
More information, including a link to the Discussion Paper and presentations from the December 10th launch of consultations, is available at:
http://www.ene.gov.on.ca/en/air/climatechange/capAndTrade.php
Previously published on http://www.gowlings.com/.
