Canadian Government Advances Federal Offset Program
On March 5, 2021 the Canadian government released the framework for its Federal Offset System which aims to reduce greenhouse gas emissions (GHG) for regulated industries and encourages voluntary project activities that generate carbon offset credits. Like California’s cap and trade program, the Canadian system (called the Output-Based Pricing System) uses offsets as a way for companies to reduce their overall cost of compliance. Under the Output-Based Pricing System (OBPS) if a facility exceeds their emissions limits, they must either pay an excess emissions charge or submit credits. Those credits can be surplus credits purchased or accrued, or offset credits issued by a Canadian province or the federal system.
Like California’s successful cap and trade program offset credits must represent additional GHG reductions or removals from a business-as-usual scenario and cannot be required by law. The OBPS intends to administer a self-insurance mechanism called the Environmental Integrity Account. Offset projects would contribute at least 3% of their offsets to this account to protect against a project underperforming due to unintentional reversals (e.g., natural disasters). Forestry and other biological projects may see higher buffer pool rates as the final rules are worked through.
The proposed Canadian program will manage the OBPS registry in-house and will require offset projects be located in Canada, and the owner of those projects must be a Canadian citizen or business entity. Four project types are being prioritized: improved forest management, landfill methane management, advanced refrigeration systems and soil carbon enhancement.
The Canadian offset program has been in the works for over two years. Although covid-19 slowed the development process down somewhat, it is exciting to see that North America will have yet another large scale GHG emissions reduction program in place by the end of 2021.
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