Proposal for the Output-Based Pricing System Regulations: chapter 16

The regulations will recognize offset units or credits from other jurisdictions for use as compensation. The regulations will set out criteria for the recognition of eligible offset programs and protocols whose units or credits could be recognized as compliance units under the regulations, as well as the start date and third-party verification requirements of the offset programs and protocols.

Recognized units

28. (1) A recognized unit is a compliance unit pursuant to section 169 of the Act when that unit or credit is issued by a jurisdiction or program authority under a protocol or program that is specified on lists established by the Minister.

Criteria for recognized units

(2) If the recognized unit is an offset credit, it must:

1. be valid at the time of remittance;
2. be issued by an offset program that appears on the list referred to in subsection (1);
3. be issued with respect to a project that used a protocol that meets the criteria in subsection (4) and has been included on the list published by the Minister referred to in subsection (1);
4. be issued with respect to a project that was started in 2017 or in a subsequent year; and
5. be verified by a verification body that is accredited at the project level to the ISO Standard 14065:2013—with a scope of accreditation that corresponds to the project type by either the American National Standards Institute or the Standards Council of Canada or any other accreditation organization that is a member body of the International Accreditation Forum.

Criteria for eligible offset programs

(3) An offset program that appears on the list referred to in subsection (1) must have and implement rules and operational procedures in the following areas:

1. governance and oversight, including
   1. overseeing the program’s ongoing operation,
   2. avoiding conflicts of interest,
   3. ensuring clear ownership,
   4. overseeing offset protocol development, review and approval,
   5. registration of projects,
   6. verification of emissions reductions or removals prior to offset credit issuance to regulated entities responsible for the reductions or removals
   7. compliance and enforcement processes
   8. dispute resolution mechanisms, and
   9. mechanisms to address credit revocation;
2. transparency, including
   1. public disclosure of approved protocols, invalidated protocols and protocols under development,
   2. public disclosure of approved offset projects, to include generation year, project start date, crediting period and identities of project developer, validator and verifier, and
   3. public disclosure of projects under review for renewal, projects under investigation for emissions reversals or credit invalidation; and de-registered projects;
3. uniqueness of credits, including
   1. avoidance of double-counting by ensuring that one tonne of CO₂e emission reduction or removal is issued one offset credit only,
   2. issuance, transfer, retirement and credit cancellation rules that ensure a credit can only be used once, whether that use is for either compliance or cancellation purposes,
   3. checks to ensure that both the offset project and offset credits have not been registered in other systems, and
   4. commitment from the jurisdictional authority to avoid claiming for their own jurisdiction, the GHG emission reductions or removals resulting from offsets used for OBPS compliance;
4. program infrastructure, including:
   1. the establishment and maintenance of an offset credit tracking system that enables transparent reporting of information and auditable record keeping for offset credit issuance, serialization, transfers between regulated entities, surrenders, cancellations and retirements,
   2. unique project identifiers that allow cross reference with publically available project documentation and confirmation of offset protocol used, offset project start date and year in which the emissions reductions or removals took place,
   3. account registration, including those in all backstop jurisdictions, for the purpose of holding, trading and retiring offset credits, and
   4. information transfer capability to provide the Minister with relevant information on offset credit use for the purposes of OBPS compensation;
5. permanence and reversal risk, including
   1. monitoring systems and risk mitigation approaches to prevent reversals,
   2. contingency plans which address how reversals resulting from proponent intention or negligence will be handled either prior to, or after, credit retirement,
   3. contingency plans that address how unintentional reversals would be handled, either prior to, or after, credit retirement;
6. third-party verification, to ensure that
   1. GHG reductions or removals are verified to a reasonable level of assurance,
   2. verifiers and validators are independent, and
   3. verifiers and validators are competent; and
7. robust compliance and enforcement, including
   1. penalties for intentional non-compliance to ensure the benefits of non-compliance are less than the costs of non-compliance, and
   2. liability rules if offset credits are deemed ineligible either before or after they are used for compliance.

Criteria for eligible offset protocols

(4) Offset protocols from an offset program that appears on the list referred to in subsection (1) must define requirements for the following:

1. eligible offset project activities, to ensure
   1. the emission reductions or removals are generated from an activity that is not covered by carbon pollution pricing in the jurisdiction of origin, and
   2. net reductions or removals of one or more greenhouse gases that are reported in Canada’s most recent National Inventory Report (NIR), and
   3. specify the use of GHG global warming potentials (GWPs) that are less than or equal to those in the latest NIR;
2. additionality, to ensure
   1. the protocol is based on reasonable, conservative and justifiable baseline condition assumptions,
   2. the activity is not required by law and any legal requirements in the jurisdictions where the protocol is applicable have been considered when defining the baseline,
   3. the technology or project activity is not in common use or is considered business-as-usual in the relevant industry sector or geographic region, and
   4. proponents demonstrate how the project activity would either not be economically feasible without carbon offset revenue or that it faces significant non-financial barriers to implementation;
3. crediting period, to ensure
   1. crediting periods are determined based on a timespan over which the baseline is expected to remain valid,
   2. a maximum crediting period of not more than 10 years from the project's start date for non-storage-based projects, and not more than 30 years from the projects start date for storage-based projects,
   3. a minimum crediting period of no less than five years, and
   4. any process for renewal of a crediting period must be based on a rigorous and full evaluation of all requirements and must be established in the quantification protocol;
4. accurate quantification method, to ensure
   1. net emission reductions or removals are measured in a reliable and repeatable manner that includes all relevant GHG sources and sinks,
   2. uncertainty is quantified and estimated reductions or removals are accurate within scientifically-established standards or acceptable statistical precision for the project or equipment type, and
   3. conservative assumptions and approaches are considered to avoid over-estimation of GHG reductions or removals;
5. permanence, to ensure
   1. project proponents are required to monitor permanence for project types that sequester carbon in sinks or reservoirs,
   2. project plans outline provisions to mitigate the risk of reversal, and
   3. environmental integrity is maintained in the event a reversal occurs;
6. verifiability, to ensure
   1. a project’s GHG reductions or removals can be verified to a reasonable level of assurance, and
   2. the protocol incorporates best practices for data measurement, ongoing monitoring of project activities and, establishment of data management procedures and record keeping, as well as quality assurance/quality control activities; and
7. guards against leakage, to ensure for relevant project types, that
   1. the protocol requires assessment and mitigation of leakage risks, to be undertaken by the Project proponent, and
   2. leakage is conservatively reflected in the quantification of offsets to be issued.