Canada develops GHG offset regulations

Canada’s Climate Plan, announced at COP26, includes a goal of net-zero carbon emissions by 2050.  The Canadian Net-Zero Emissions Accountability Act, proclaimed in 2021, enshrined this goal into law.  The Act requires that the Canadian federal government establish its 2030 Emissions Reductions Plan by March 2022. 

Part of the 2030 Emission Reductions Plan is the Federal Greenhouse Gas (GHG) Offset System, being swiftly developed by Environment and Climate Change Canada. The System will encourage cost-effective domestic GHG emissions reductions from activities not currently covered by carbon pollution pricing and that exceed current legal requirements. Successful projects will earn fungible carbon credits equivalent to the number of tonnes of carbon dioxide equivalent (CO₂e) eliminated.

The System will work in tandem with existing provincial and territorial systems with the goal of developing a consistent suite of requirements that could be mutually recognized for transferring and trading offset credits across Canada.[1] It will also increase the supply of offset credits available to covered facilities.

Why it matters: Voluntary carbon markets

The nascence of voluntary carbon markets (VCM) means models face the challenge of accounting for a wide variety of unknowns regarding such factors as how international carbon credits will be standardized and how credits will trade across systems.  But the markets are growing rapidly.

Data from the State of the Voluntary Carbon Markets shows that as of August 31, 2021, VCMs had already posted US$748.2 million in sales for 239.3 million credits, reflecting a 58 percent year-to-date jump in value (up from US$472.9 million), and growth in credit volume of 27 percent over 2020 performance (up from 188.2 million credits transacted).[2]

The Taskforce on Scaling Voluntary Carbon Markets recently modelled different scenarios that predicted the voluntary carbon market would rise to anywhere between US$5 billion and -US$180 billion by 2030.[3]

International carbon markets remain fragmented, and the relative value of offset credits originating in Canada in international markets is not yet clear.  It is hoped that the development of a comprehensive system of documenting reductions and credits in Canada will lead to greater participation in global markets and represent an opportunity for producers of Canadian offset credits to realize more value for their credits.

What’s next: Commenting on System protocols

While comments have closed for the System, the development of various protocols that will govern the planning and implementation of applicable projects within the System are rolling out. Currently, two protocols are open for public consultation until February 18, 2022: 1) Landfill Methane Recovery and Destruction and 2) Reducing Greenhouse Gas Emissions from Refrigeration Systems.   Submissions may be made to creditscompensatoires-offsets@ec.gc.ca

DLA Piper’s Commodities group is experienced in helping to assess companies’ GHG reduction and documentation systems, as well on advising on new developments as the Canadian federal government continues to develop these protocols.  Learn more by contacting us vis DLAPiperCommodities@dlapiper.com for any questions and/or comments with regards to this Commodities Alert.