The Canadian government has unveiled its first carbon offset trading protocol, the initial step in creating a carbon exchange for federally regulated industries.
For companies that must meet targets, the government allows for up to 75 per cent of emissions reductions being achieved through internal reductions and/or through the purchase of federally recognized offsets (25 per cent must always be paid to the government each year at the government’s own “price on pollution”).
The first protocol, announced on June 8, covers methane emissions from the landfill industry — four more protocols are in the works, with the next protocol, for the refrigeration industry, expected this fall.
“Registered participants can carry out projects following a federal offset protocol, and generate one tradeable offset credit for every tonne of emissions they reduce or remove from the atmosphere,” says Environment and Climate Change Canada. “Once a credit is earned, it can be sold to others to help them meet their compliance obligations or emissions reduction goals.”
There is a distinction between these federal credits and an open, voluntary market. Federal carbon offsets will likely run at a 10 to 20 per cent discount to federal pricing, as discussed in a technical briefing held Wednesday.
“Compliance offsets” are not necessarily the only credits a company will be allowed to use to meet its emission targets, however voluntary/open market offsets must meet the federal criteria in order to count. These must be real, additional, quantifiable, unique, verifiable, and permanent, says ECCC.
Currently, the federal cost for one tonne of carbon equivalent is $50, but that number is set to climb to $170 by 2030.
To participate in this offset exchange, projects and participants must go through a verification process using one of two accreditation companies recognized by the government.
Anyone is eligible to purchase these credits, however ECCC says it’s anticipated that most purchasers will be regulated industry members who have annual emission limits set under the federal system. Companies will first focus on reductions in-house, then use offsets to achieve the full annual reduction required.
All offset projects must be registered under the Credit And Tracking System (CATS) found here. It should be noted that CATS is not an exchange. “CATS tracks registration, reporting, and the issuance and tracking offset credits, such as credit transfers, remittances, and voluntary cancellations. CATS is not a carbon exchange,” ECCC says.
Instead, third-party exchanges or brokers or even private agreements is how actual purchasing will happen. Information on registered offset projects and offset credits issued will be available on a public registry after the first offset project is registered under Canada’s GHG Offset Credit System, the ministry says.
Following the refrigeration protocol, the government plans to published protocols for forest management on private land, livestock feed management, and then soil organic carbon. Without a published protocol, offsets cannot be generated for the regulated exchange from these sectors.