Canada’s Greenhouse Gas Offset Credit System

Backgrounder

Delivering on commitments made in A Healthy Environment and a Healthy Economy, and Canada’s 2030 Emissions Reduction Plan, the Government has developed Canada’s Greenhouse Gas (GHG) Offset Credit System under the Greenhouse Gas Pollution Pricing Act (GGPPA). This system was built based on the recommendations for the design of offset systems in the Pan-Canadian Offset Framework (PDF), agreed to by the Canadian Council of Ministers for the Environment and published in October 2019.

Canada’s GHG Offset Credit System will encourage voluntary project activities across Canada that reduce GHG emissions or remove them from the atmosphere. For every tonne of carbon dioxide equivalent reduced, a project is awarded one offset credit. These credits can be used by industries regulated under the federal Output-Based Pricing System as a way to meet their compliance obligations and help reduce the overall cost of compliance. These credits can also be used by businesses and governments across Canada, for example toward meeting carbon‑neutral or net-zero commitments to reduce emissions. Canada’s GHG Offset Credit System will create further incentives to reduce emissions and will generate additional economic opportunities in sectors such as agriculture, forestry, and waste.

Under the Output-Based Pricing System, when facilities exceed their emissions limits, they may provide compensation through one or a combination of the following:

  • paying an excess emissions charge; or
  • remitting surplus credits, federal offset credits, or recognized units (eligible provincial offset credits).

Offset project activities must be in addition to what would have occurred anyway. That is, in order for the project to generate offset credits under Canada’s GHG Offset Credit System, project activities must result in GHG reductions or removals that go beyond business-as-usual practices and legal requirements, and must not already be incentivized by carbon pollution pricing.

For more information on eligibility criteria, protocols, and registration for offset projects, please visit the Federal GHG Offset System webpage.

Federal offset protocols

To be eligible to generate offset credits, all projects will be required to achieve real, additional, quantified, verified, unique, and permanent GHG reductions or removals by following a published federal GHG offset protocol.

Federal offset protocols will set out a consistent and approved approach for quantifying GHG reductions or removals for a given project type. A protocol also sets out requirements for project implementation, including setting project baselines, monitoring permanence, managing risk, minimizing leakage, and managing data that must be followed by a project proponent when implementing an offset project.

GHG reduction or removal activities can generate offset credits once an offset project is registered in the federal offset system. Before credits are issued, an offset project report must be submitted to Environment and Climate Change Canada and be independently verified to confirm that GHG reductions or removals have been quantified in accordance with the protocol, and that regulatory requirements were met. For project types that involve carbon sequestration, the federal offset protocol will specify requirements for monitoring and mitigating the permanence risk of the GHG removals (i.e. the risk that the carbon stored by a project is released in the future).

In addition to the published Landfill Methane Recovery and Destruction protocol, Environment and Climate Change Canada is currently developing the following federal offset protocols:

  • Reducing Greenhouse Gas Emissions from Refrigeration Systems
  • Improved Forest Management
  • Enhanced Soil Organic Carbon
  • Livestock Feed Management

ECCC has also identified additional project types for the next set of protocols to be developed in Canada’s GHG Offset Credit System. In summer 2022, ECCC will initiate the development of a protocol for Direct Air Carbon Capture and Sequestration. As protocols are completed, work on new protocols will begin, including protocols for:

  • Improved Forest Management on Public Lands
  • Bioenergy Carbon Capture and Sequestration
  • Livestock Manure Management
  • Anaerobic Digestion

Example of an offset project: Landfill Methane Recovery and Destruction

Methane is a powerful greenhouse gas with twenty-five times the global warming potential of carbon dioxide. The recently published federal Landfill Methane Recovery and Destruction protocol enables the generation of offset credits from projects that reduce methane emissions from open or closed landfill sites.

Following this protocol, a municipality with a closed landfill site that is not regulated could, for example, install landfill gas collection wells and destruction devices, such as flares, to collect methane that would have been emitted into the atmosphere and convert it to carbon dioxide.

The municipality would earn federal offset credits equivalent to the total amount of GHG emissions reduced and could sell these credits to industrial facilities regulated under the federal Output-Based Pricing System to help them comply with their annual emissions limit.1 Offset credits will reduce compliance costs, maintain environmental integrity and market credibility, and encourage emissions reductions in non-covered sectors, thereby helping Canada reach its GHG emissions reduction targets.

Opportunities for the agriculture sector

Environment and Climate Change Canada recognizes the important role Canadian farms have to play in reducing greenhouse gas emissions through implementation of conservation activities or adopting new management practices or technologies.   

To support this, the Livestock Feed Management Protocol will credit methane reductions from livestock and the Enhanced Soil Organic Protocol will provide opportunities for farmers to generate offset credits through the adoption of sustainable agricultural land management activities.

The specific agriculture practices that can generate offset credits will be determined during the protocol development process. Technical expert teams have been established to provide advice on the latest science and members of the public will have an opportunity to comment on draft protocols as a part of the process.

1Notes:

  • GHG reductions are measured against the baseline scenario where no landfill gas capture occurs and methane is released into the atmosphere.
  • This project is only eligible provided there are no regulatory requirements in place.
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