Under most emissions trading systems, regulated industries, which fail to meet their greenhouse gas emission target must make up the shortfall either with a punitive payment or by purchasing emissions trading credits. Regulated parties whose emissions are less than their target will receive credits for that emissions saving.

To make a market in emissions credits that has sufficient liquidity, an emissions trading scheme will usually allow non regulated parties to create emissions saving projects known as offsets that will earn emissions trading credits that can be sold into the emissions trading market. Those credits can also be used by regulated parties to make up a shortfall in meeting its emissions target.

On June 7, 2022, the Government of Canada launched Canada’s Greenhouse Gas Offset Credit System, under the federal Output-Based [Carbon] Pricing System (OBPS)

Under the new system, registered participants can carry out projects following a federal offset protocol, which sets out a consistent approach for measuring GHG emissions reductions or removals for specific types of projects. These projects can generate one tradeable offset credit for every tonne of emissions they reduce or remove from the atmosphere. Once a credit is earned, it can be sold to others to help them meet their compliance obligations or emissions reduction goals under the carbon pollution pricing system.

To generate credits, offset projects must go beyond common practices and legal requirements, and must not already be incentivized by carbon pollution pricing. GHG reductions must also be verified by an accredited third party.

The Minister of Environment and Climate Change launched the first in a developing series of federal offset protocols. Under the new Landfill Methane Recovery and Destruction protocol, municipalities and other landfill operators will be able to generate offset credits for recovering landfill gas from their operations and destroying it or repurposing it into energy with technologies such as flares, boilers, turbines, and engines. Reducing greenhouse gases from waste (responsible for 7 percent of Canada’s greenhouse gases) is a key component to achieving Canada’s emissions reduction targets.

Four additional offset protocols are currently in development for activities such as advanced refrigeration, agriculture, and forest management. Environment and Climate Change Canada has also identified the next round of protocols for development, which will include a protocol for Direct Air Carbon Capture and Sequestration, technologies that directly remove carbon dioxide from the atmosphere and permanently store it underground.

The Government of Canada is taking steps to enable Indigenous Peoples to participate in Canada’s Greenhouse Gas Offset Credit System. A discussion paper on how best to facilitate Indigenous participation in the Offset System is open for comment until June 30, 2022.

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Manning Environmental Law is a Canadian law firm based in Toronto, Ontario. Our practice is focussed on environmental law, energy law and aboriginal law. 

Paul Manning is a certified specialist in environmental law. He has been named as one of the World’s Leading Environmental Lawyers and one of the World’s Leading Climate Change Lawyers by Who’s Who Legal. Paul is also ranked by Lexpert as one of Canada’s Leading Practitioners in Environmental Law.

As always, these posts  are provided only as a general guide and are not legal advice. If you do have any issue that requires legal advice please get in touch. Ou