Canada’s Offset System for Greenhouse Gases Dean Stinson O’Gorman New Brunswick Climate Change Hub meeting October 7, 2009

Page 2 Overview of the Offset System Helps Canada meet its goal of 20% reduction in total GHG emissions from 2006 by 2020 Encourages cost-effective domestic GHG reductions in activities or sectors that are not covered by the planned federal greenhouse gas regulations Provides an incentive for voluntary GHG reduction projects by issuing offset credits –1 offset credit equals 1 tonne of carbon dioxide equivalent reduced or removed from the atmosphere Regulated entities can use offset credits towards compliance obligation

Page 3 Eligibility Criteria for Offset Projects Offset credits will be issued for GHG reductions that satisfy the following six eligibility criteria: –Scope –Real –Quantifiable –Verifiable –Unique –Incremental

Page 4 Eligibility: Scope, Real Scope Reductions must occur in Canada Project must achieve reductions in one of the following six greenhouse gases: CO 2, CH 4, N 2 O, HFCs, PFCs, SF 6 Real Project must be a specific and identifiable action that results in a net reduction of GHGs Project and baseline must be “functionally equivalent” – i.e. cannot achieve reductions simply by reducing production

Page 5 Eligibility: Quantifiable, Verifiable, Unique Quantifiable Eligible reductions must be quantified as specified in an Offset System Quantification Protocol (OSQP) Verifiable Eligible Verification Body must be able to provide a reasonable level of assurance that reductions have been monitored, quantified, and reported as set out in the OSQP Unique The GHG reduction can only be used once to create an offset credit

Page 6 Eligibility: Incremental Five components: 1.Projects must have started on or after January 1, 2006 except for projects that are susceptible to easy reversal, for which we may specify a normalized baseline 2.Reductions must have occurred on or after January 1, Reductions must go beyond the baseline defined for the project type baseline specified in quantification protocol for that project type

Page 7 Eligibility: Incremental (cont.) 4.Reductions must be surplus to all legal requirements (federal, provincial/territorial and regional). –Ineligible if there are legal requirements to take action that reduces GHGs from any of the relevant sources, sinks or reservoirs, except where: legal requirement specifies performance standard or benchmark; a normalized baseline is prescribed; or can demonstrate an alternate cost-effective way to stay in compliance without the project. –Eligible to receive credits only until the legal requirement comes into force, regardless of the date for compliance

Page 8 Eligibility: Incremental (cont.) 5.Reductions are beyond what is expected from receipt of other climate change incentives (federal, provincial/ territorial) –Defined as: government funding program or tax incentive that includes GHG reductions as a goal or publicly reports on GHG reductions; government program that purchases GHG reductions; or “technology fund” program –Will not affect eligibility if accepted prior to January 1, 2011, or if a tax incentive is claimed under terms as of June 15, 2009 –Projects that accept an incentive may be eligible only if the program has established a reduction benchmark

Page 9 Offset System Quantification Protocols Developed for each project type –Developed by third parties, reviewed and approved by Environment Canada –Available free for use by any project proponent Provides the quantification approach and monitoring and data management requirements to be followed Key verification criteria document used by a Verification Body when verifying reductions Based on the framework and principles of the international standard ISO

Page 10 Projects Registration –Eight year period; typically from the date of project registration –Exceptions: could be delayed up to 1 year, could start on a historical start date Implementation – as per OSQP specified monitoring and data management requirements Reporting – 1 st report within 1 year or 100,000 tonnes, then at discretion of Project Proponent (some exceptions) Verification – Eligible Verification Body provides a reasonable level of assurance that reductions claimed are accurate, and that the project satisfies eligibility criteria

Page 11 Issuance, Use and Trading of Offset Credits Offset System will certify reductions, issue credits into Project Proponent’s account in the tracking system –Tradable and bankable The planned federal GHG regulations will set out the conditions under which regulated entities will be able to use offset credits for compliance purposes Trading will take place in the private sector Financial value of offset credits will be determined by supply and demand in the marketplace

Page 12 Biological Sequestration Projects Several agriculture and forestry project types identified among first protocols to be developed (tillage, biodigesters, afforestation, forest management) –Schedule to be updated with new project types every quarter Permanence: –Key to ensuring the environmental integrity of the credits –Proposed 25-year liability period after last credit issued, during which reversals must be replaced –Also a small discount factor proposed to reflect risk that credits cannot be replaced (e.g. due to bankruptcy) –No temporary credits option (not likely to be fungible)

Page 13 Notional Protocol Submission Schedule Deadlines are notional Will be updated quarterly with additional project types Website identifies external protocols eligible to be adapted for each project type Project typeBase Protocol Plan Submission Deadline AfforestationNovember 1, 2009 Landfill Gas Capture & Combustion November 1, 2009 Reduced or No Tillage November 1, 2009 Wind PowerNovember 1, 2009 Forest ManagementFebruary 1, 2010 Wastewater Management February 1, 2010 Anaerobic biodigesters February 1, 2010

Page 14 Draft program rules for Canada’s Offset System Program rules will be set out in three guides Draft Guide for Protocol Developers was published for public comment in August 2008 –Comment period ended October 2008 Two remaining draft guides published for public comment in June 2009 –Program Rules and Guidance for Project Proponents, and Program Rules for Verification and Guidance for Verification Bodies –Public comment period ended August submissions received, currently being reviewed

Page 15 Next Steps Currently reviewing all comments, considering options for final program rules Plan to release final program rules once this review is complete Once final rules published, will launch the quantification protocol development process –first Protocols may be available in early 2010 (?) Project applications will be accepted for review once approved quantification protocols have been made available publicly Could issue first offset credits by mid-2011 (?)