Carbon pollution pricing: options for a Federal Greenhouse Gas Offset System, chapter 20

International use of credits

In the Pan-Canadian Framework on Clean Growth and Climate Change (PCF), First Ministers agreed that the priority is to first focus on emission reductions within Canada. However, to complement domestic emission reductions, Canada could acquire greenhouse gas (GHG) reduction units from other parts of the world. Article 6 of the Paris Agreement provides a framework for Parties to engage in “internationally transferred mitigation outcomes” (ITMOs) that allow emission reductions or increased removals that occur in one country to be voluntarily transferred and recognized towards meeting another country’s national GHG target. Canada has not yet decided whether it will acquire ITMOs, including emissions reduction credits through international market-based mechanisms, to help meet our 2030 GHG target under the Paris Agreement. Furthermore, negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) are still ongoing for elaborating guidance on the use of ITMOs under Article 6. Canada’s use of ITMOs will take into account further details of this guidance, along with other input, as well as further consideration within Canada’s overall approach for meeting its national GHG reduction targets. Environment and Climate Change Canada will also consider how offset credits might be used by other international programs such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

Offset Credits and credit stacking considerations

Various government and industry stakeholders are interested in developing projects that reduce GHGs as well as generate additional environmental benefits. Credit stacking refers to therecognition and generation of more than one type of ecosystem service credit from the same activity. Potential for credit stacking opportunities exists for federal offset credits created through ecosystem-based sequestration or habitat protection project types. Credit stacking increases project complexity and poses multiple challenges, particularly with respect to additionality and quantification. The key to a successful credit-stacking project is to avoid double counting or issuing more than one credit for the same environmental attribute. Credit stacking should also only be considered for new projects, as stacking of credits during project conception is more likely to be additional than stacking of credits for existing projects. Current opportunities for credit stacking are limited because of the emergent status of programs that incentivize other environmental benefits. Environment and Climate Change Canada will consider including rules on credit stacking in Federal GHG Offset System regulations in consideration and alignment with other credit programs.

Positive environmental and social outcomes

Environment and Climate Change Canada will encourage local stakeholder engagement (if applicable) before offset projects are implemented under the Federal GHG Offset System. Project Proponents that implement projects to create Offset Credits should aim to minimize adverse social or environmental impacts and also maximize non-GHG related benefits for local communities. Projects must also meet all other permitting, engagement, environmental assessment, and legal requirements as applicable.

User fees

To ensure the financial sustainability of the Federal GHG Offset System, Environment and Climate Change Canada may develop a user fee structure to help cover various administrative costs of operating the system. User fees may apply to activities such as account registration, offset project registration, offset issuance, translation of project documentation, and transaction costs.