The system goals to stimulate innovation in GHG-reduction actions as a part of the nation’s 2030 Emissions Discount Plan.

On June 8, 2022, Canada launched the Greenhouse Gasoline (GHG) Offset Credit score System (the System) to create a “market-based incentive to undertake progressive initiatives that cut back greenhouse gases.”[1] The System, which will likely be administered by Setting and Local weather Change Canada (ECCC) and can apply throughout the nation, represents a key ingredient of Canada’s 2030 Emissions Discount Plan to scale back GHG emissions to 40–45% under 2005 ranges by 2030.

Necessities for Federal Offset Credit score Era

The System was created beneath Canada’s federal carbon air pollution pricing system generally known as the Greenhouse Gasoline Air pollution Pricing Act. It establishes a course of for municipalities, foresters, farmers, indigenous communities, and others to create GHG-reducing initiatives that generate tradeable offset credit, in addition to a system to handle possession and remittance (or retirement) of these credit.[2]

A mission should adjust to one of many Federal Offset Protocols developed by ECCC and revealed within the Compendium of Federal Offset Protocols to be eligible for federal offset credit score technology. Thus far, the one protocol revealed is for Landfill Methane Restoration and Destruction, although the next protocols are presently beneath improvement with ECCC, which can also be anticipated to start growing the Direct Air Carbon Seize and Sequestration this summer season:

• Decreasing Greenhouse Gasoline Emissions from Refrigeration Techniques
• Improved Forest Administration
• Enhanced Soil Natural Carbon
• Livestock Feed Administration
• Direct Air Carbon Seize and Sequestration

The System’s environmental integrity necessities are typically in keeping with the main offset credit score buying and selling packages. All federal offset credit should end result from GHG reductions which can be actual, further, quantified, verified, distinctive, and everlasting, and this system prohibits double counting and requires third-party verification. Undertaking proponents have to be people who reside in Canada, or an organization with a place of job in Canada, although the laws don’t explicitly require that initiatives be geographically situated in Canada.

Use of Federal Offset Credit

Federal offset credit will be bought and used to satisfy compliance obligations beneath the Output-Primarily based Pricing System (OBPS) and to satisfy voluntary emissions discount commitments.[3] The OBPS, which got here into impact in 2019 as a part of Canada’s Greenhouse Gasoline Air pollution Pricing Act, regulates over 200 entities that report emissions of 50 kilotons or extra of CO2 and are situated in Ontario, New Brunswick, Manitoba, Prince Edward Island, Yukon, Nunavut, and components of Saskatchewan. Beneath the OBPS, coated services are topic to an emissions restrict and should compensate for any emissions exceeding their restrict by both paying a penalty or remitting compliance items.

The launch of the System is predicted to extend the present provide of compliance items obtainable for remission beneath the OBPS. In line with the Regulatory Influence Evaluation Assertion of the System, “with out the flexibility to generate and promote credit, proponents could not have a ample financial incentive to hold out actions that generate further GHG reductions. As well as, within the absence of laws that set up a federal offset system, services within the federal OBPS have fewer choices to satisfy their compensation obligations beneath the Act and the OBPS Laws.”[4]

Latham & Watkins will proceed to watch developments concerning the System and what it means for corporations.

This publish was ready with the help of summer season affiliate Michael Hengerer.

Endnotes

[1] https://www.canada.ca/en/environment-climate-change/information/2022/06/canada-launches-greenhouse-gas-offset-credit-system-to-support-a-clean-green-economy.html

[2] https://www.canada.ca/en/environment-climate-change/information/2022/06/canada-launches-greenhouse-gas-offset-credit-system-to-support-a-clean-green-economy.html

[3] https://www.canada.ca/en/environment-climate-change/companies/climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system/federal-greenhouse-gas-offset-system.html

[4] https://gazette.gc.ca/rp-pr/p2/2022/2022-06-08/html/sor-dors111-eng.html