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Canada’s Climate Change Plan

Large Final Emitters Regimeand Domestic Offsets Regime

Stéphane Roberge, Legal CounselJustice Canada (Environment Canada Legal Services)

DOJ-CBA national section meeting October 24, 2003

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Background on Plan

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Climate Change Plan for Canada

• Released November 2002

• 3 step approach for achieving Canada’s Kyoto

target of 240 Mt CO2e reductions

o Actions underway 80 Mt

o New actions 100 Mt

o Remainder 60 Mt

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Five Key Instruments in the Plan

• Large Final Emitters System

• Funding of partnerships with the Government of

Canada and Provinces/Territories

• Strategic infrastructure investments

• Coordinated Innovation Strategy

• Targeted measures

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Large Final Emitters (LFE) Regime

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Basics• Overall environmental objective

• 55 Mt of emission reductions• Emission intensity targets (i.e., not absolute

targets) with access to emissions trading• allocation of permits based on output and

emission intensity factors• Coverage: oil and gas, electricity generation,

mining and manufacturing• About half of Canada’s 2010 GHG emissions

• Implemented through • default legal regime, and/or• when appropriate, negotiated covenants

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Rationale for Trading Regimes(example of a 1000 tonnes reduction)

Company 1 can reduce 1000 tonnes at $8/tonne = $8000

Company 2 can reduce 500 tonnes at $12/tonne = $6,000

Seller as lower costs

Buyer ashigher costs

500 tonnes at $8/tonne

Overall costs:

$8,000 with trading and

$10,000 without7

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Allocation of permits

o Tradeable permits to be allocated to covered firms at no cost

o Allocation based on an specified emissions-intensity factor and possibly percentage of estimated emissions (e.g., 85% of BAU emissions)

o Quantity of permits to a given firm to be calculated by multiplying its emissions-intensity factor by its quantity of specific output

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Compliance

• Covered firms to demonstrate compliance by submitting a quantity of specified permits equal to monitored emissions

• Specified permits to include– permits issued under the LFE system – domestic offsets credits issued on the basis of

a project and– tradeable permits issued under the Kyoto

regime

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Domestic Offsets Regime

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Basics

• Offsets projects are domestic reductions or removals in emissions not covered under the LFE Regime o Reduction: decrease in emissions released into the

atmosphere by a source

o Removal: trapping of atmospheric emissions in a sink

• Offsets permits awarded for reductions/removals resulting from offsets projects

• Offsets permits acceptable to demonstrate compliance under the LFE Regime

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CROSS-CUTTING DESIGN ELEMENTS

• PRINCIPLES

• ELIGIBILITY CRITERIA

• ADMINISTRATION ISSUES

• GOVERNANCE and REVIEW PROCESS

• REGISTRIES

• TRADING & LINKS WITH INTERNATIONAL SYSTEMS

• DESIGN ISSUES

• BASELINES

• BOUNDARIES & LEAKAGE

• NON-PERMANENCE OF REMOVAL PROJECTS

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Principles

• Principleso Enhance market liquidityo Open as practical

• Agriculture and Forestry

• Landfill Gas ?

• Others ???

o Contribute to Kyoto commitmento Create an incentive for investment in Canadao Provide the right incentives for action

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Eligibility Criteria

o Criteria to determine eligible offsets projects in order to ensure integrity of offsets permits:

o Inclusion in National inventory

o Project start date

o Crediting period

o Real, Measurable, Verifiable

o Surplus

o Unique

o Ownership

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Governance and Review Process

• Governanceo options: federal body, federal/provincial body, or private

sector/provincial body with federal government oversight

• Review Processo Ex ante validation of projects

o Ex post verification of GHG reductions/removals o Guidance and quantification protocols

o Issuance of offset credits (possible early issuance)

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REGISTRIES

compliance unit registry • track ownership of compliance units

• separate domestic registry for tracking domestic units or an expanded National Registry to track domestic units as well as Kyoto units

offset project registry• store standard quantification-verification protocols

• track offset projects from application to issuance of credits

• store all documentation related to offset projects

• provide non-confidential information for public review

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TRADING & LINKS WITH INTERNATIONAL SYSTEM

trading• trading via bilateral contracts or exchanges• large role for private sector; rules set by government

links with international system• offset system design informed by Kyoto Flexibility

Mechanisms but driven by domestic policy objectives • for projects hosted in Canada, similar rules under Offsets

regime and Kyoto Flexibility Mechanism• Offsets permits not accepted outside Canada or for Kyoto

compliance but could be exchanged for Kyoto units

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BASELINES

project baseline

• represents reductions/removals that would occur in the absence of the project (includes BAU reductions/removals)

• used to determine quantity of reductions/removals to be credited

o reductions: difference between project baseline and actual emissions with project in place

o removals: difference between the baseline carbon stock change and the actual carbon stock change

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BOUNDARIES & LEAKAGE

project boundary• defined to include all GHG sources/sinks under the control

of the proponent that are significant and reasonably attributable to the project activity

• identifies the reductions/removals to be included in the determination of offset credits

leakage• increase in emissions/decrease in removals outside a

project’s boundary that are significant, reasonably attributable to the project activity but are not under the control of the proponent

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NON-PERMANENCE OF REMOVAL PROJECTS

non-permanence or reversal events

• partial or total loss of a carbon stock due to a natural

disturbance (e.g., pest outbreak) or a change in land

management practice (e.g., harvesting, soil cultivation)

key issues

• liability for a carbon reversal after the issuance of offset

credits - buyer? seller? government (economy as whole)?

• time carbon must remain sequestered to be considered

equivalent to an emission reduction