The federal government plans to move forward in development of an offset system for greenhouse gases, on its way to setting up a Canadian carbon market that will put a value to ag practices such as reduced or zero-tillage.
"This system is one of several steps we are taking as we finalize our domestic regulatory framework for greenhouse gas emissions, and marks a major milestone as we move towards establishing a carbon market in Canada," federal Environment Minister Jim Prentice said in a release Wednesday.
Canada's offset system is expected to establish tradable credits and encourage cost-effective domestic greenhouse gas reductions in areas that will not be covered by planned federal greenhouse gas regulations, such as the ag and forestry sectors.
"For example," the government said, "potential offset projects could include methane capture and destruction from landfill gas, the creation of new forests, or agricultural soil management."
For example, farmers using reduced or no-till farming methods, which help store carbon in their fields, could be eligible to receive offset credits for the amount of carbon stored.
Similarly, a wind turbine could be eligible to receive offset credits for the emissions avoided from the displaced electricity.
In turn, companies that are subject to greenhouse gas emissions regulations would be able to buy offset credits on a Canadian carbon market and use those credits for compliance with their regulated targets.
Other parties such as small businesses and travellers would also be able to buy and use these credits to voluntarily offset the greenhouse gas emissions from their activities, the government said.
Five tonnes, five credits
As an example of the process, the government cited a hypothetical no-till farming project. The hypothetical zero-tiller in Alberta generates, say, five tonnes of atmospheric carbon dioxide reductions with his registered offset project.
That farmer would then receive five credits from the federal offset system. A company in Quebec then buys five credits from the farmer to satisfy federal greenhouse gas regulations. The farmer then gets payment "equivalent to current market value of carbon credits."
The new offset system, Prentice said, will help achieve bona fide greenhouse gas reductions "by establishing a price for carbon in Canada -- something that has never been done before in this country.
"And as business leaders, I don't need to tell you what happens when you put a price on something that used to be free," Prentice said in a speech to the Economic Club of Canada on the subject. "Suddenly, your (chief financial officer becomes very interested in carbon."
Two draft guides are to be published in the Canada Gazette on Friday (June 12), proposing rules and guidance on the requirements and processes used to generate offset credits and to verify the eligible greenhouse gas reductions achieved from a registered project. Interested parties will then have 60 days to comment on the guidance documents.
Canada's offset system, Prentice said, "is not about creating an abstract world where 'paper credits' are bought and sold like some complex financial product. Every offset credit will represent a real and verified emission reduction, equal to the equivalent of one tonne of carbon dioxide."
The government, he said, "will be rigorous in ensuring that credits will only be issued for projects that actually reduce the amount of greenhouse gas emissions in this country."
Other provinces have already taken steps to create a carbon market, and Alberta already operates one, Prentice said. The federal initiative, he said, "will complement those efforts, not supplant or duplicate them."
When the federal government issues offset credits, they create a "currency," he said, a means of exchange which can be traded the way commodities or stocks are traded. Markets such as the Montreal Climate Exchange will provide a platform on which the credits can be bought and sold.
"This, in turn, provides a transparent signal to markets with respect to the value of carbon," Prentice said. "And once companies have that signal, they can start making more informed investment decisions -- decisions that will spur innovation and drive the transition to a low-carbon economy."