Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – October 23, 2017
| Bottom line | Ontario has proposed a better framework for managing potential offset invalidations, replacing California’s buyer liability with a combination of an insurance pool and seller liability. California and Oregon should take note. |
At the beginning of this month, Ontario released its Draft Ontario Offsets Credit Regulation. This proposes a significantly improved process for invalidation (or what it calls “reversal”) which California, Oregon and other jurisdictions should consider as new rules are drafted.
While California currently requires the buyer to be liable for any invalidation, Ontario relies on a combination of seller liability and an insurance pool instead. Offset projects surrender 3% of issued credits to an “environmental integrity account.” If credits are invalidated and the reason for that invalidation is listed by the protocol, then credits from the environmental integrity account replace invalidated credits. (The Ontario landfill gas protocol, for example, specifies potential for reversals from Errors, Omissions or Misstatements; if a calculation mistake was missed by the verifier, registry and regulator and then later discovered, the buffer pool would compensate for any inaccurately issued credits.) For invalidations not specified by the protocols (like fraud on the part of the project developer), then the offset project is responsible for replacing any invalidated credits.
This framework creates the proper incentive structure. Offset project developers are liable for the items they can control, like acting in good faith. More difficult to manage potential sources of invalidation, like regulatory compliance issues at dairy digesters, can be specified by the protocol and protected by the environmental integrity account.
With less than 0.1% of all offsets issued to date invalidated, California’s system of buyer liability unnecessarily limits offset use to the largest emitters, which have the budget, capacity and expertise to manage buyer liability. California has already endorsed Ontario’s improved approach; in preparing for linkage, the Governor’s Transmittal Response to CARB on Findings under SB 1018 wrote “While Ontario uses a different mechanism to correct any failure or invalidation of an offset, the approach is equally effective…both protect the program in the event that an offset is invalidated.”
Draft Ontario Offsets Credit Regulation
October 2017
Offset Initiative Protocols for Ontario’s Cap and Trade Program
October 2017
Governor’s Transmittal Response to CARB on Findings under SB 1018
California Office of the Governor, March 2017
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Image credit: Flickr/Bemep
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