Canada Launches Greenhouse Gas Offset Credit System

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On June 8, 2022, the Federal Government launched Canada’s Greenhouse Gas Offset Credit System (the “Federal GHG Offset System”), with the publication of the Canadian Greenhouse Gas Offset Credit System Regulations (the “Regulations”). Under the Federal GHG Offset System, registered participants can carry out projects following a federal offset protocol, which sets out a consistent approach for measuring greenhouse gas (“GHG”) emissions reductions or removals for specific types of projects. These projects can generate one tradeable offset credit for every tonne of GHG emissions they reduce or remove from the atmosphere. Once a credit is generated by a regulated project, it can be sold to others to help them meet their compliance obligations under the Federal Output-Based Pricing System (OBPS) or internal GHG emissions reduction goals.Offset credits enable compliance flexibility for regulated emitters and provide an economic incentive for carbon-capture innovation.

Federal GHG Offset System

In an earlier post, we discussed the Federal Government’s carbon pricing regime under the Greenhouse Gas Pollution Pricing Act (the “Act”) and the Governor in Council’s ability to enact regulations under the Act to establish an offset credit system. The Regulations, which were published on June 8, 2022, are established pursuant to Section 195 of the Act and set out a regulatory framework to govern the operational elements of the Federal GHG Offset System. The Regulations address, among other things, registration and application requirements for project developers, project eligibility criteria, crediting and reporting procedures, environmental integrity measures, project verification, project type protocols (as described below) and consequential amendments to the Federal OBPS Regulations. Offset credits that are generated under the Federal GHG Offset System can be purchased and used by facilities regulated under the Federal OBPS to compensate for emissions that exceed their annual GHG emissions limit. In this way, an offset credit is a substitute for direct emissions reduction, and helps reduce compliance costs for Federal OBPS participants and maintain business competitiveness. Federal offset credits can also be used by individuals or organizations for other purposes, including corporate net-zero commitments and GHG emissions reduction goals.

Federal Offset Protocols

In the spring of 2021, Environment and Climate Change Canada published a list of project types associated with the Federal offset protocols (the “Protocols”), which we discussed in an earlier post. The Protocols establish the approved approach for quantifying GHG emissions reductions for a given offset project type.

On June 8, 2022 the Minister of Environment and Climate Change launched the Landfill Methane Recovery and Destruction Protocol (the “LMRD Protocol”), which is the first Protocol to become operational under the Federal GHG Offset System. Under the LMRD Protocol, municipalities and other landfill operators will be able to generate offset credits for recovering landfill gas from their operations and destroying it or repurposing it into energy with technologies such as flares, boilers, turbines, and engines. Reducing GHG from waste (responsible for 7% of Canada’s GHG emissions) is a key component to achieving Canada’s emissions reduction targets. Additional offset protocols are currently in development for activities such as advanced refrigeration, agriculture, and forest management.

Conclusion

The availability of offset credits is expected to help stimulate innovation and private sector investment in economic activities to reduce emissions, thus keeping Canada competitive in a decarbonizing economy. We will continue to monitor the developments associated with the Federal GHG Offset System.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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