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Credit Where Credit is Due – Canada’s Greenhouse Gas Offset Credit System

By Stephen Pederson and Michaela Pomponio - June 22, 2022

It’s an exciting time – the Canadian government is making proactive strides toward reducing greenhouse gases and we are here to get you up to speed! Canada’s Greenhouse Gas Offset Credit System is now operational and stands to benefit foresters, farmers, Indigenous communities, and all other people who engage in projects to reduce greenhouse gases. Now, not only can proponents spearhead environmental action, but they can generate revenue for doing so.

Environment and Climate Change Canada is also currently looking for feedback on their proposals for facilitating Indigenous participation in the new system, and we encourage you to weigh in before the June 30th, 2022, deadline (more info below).

Greenhouse Gas Offset Credit System

In alignment with Canada’s 2030 Emissions Reduction Plan, the government has been working to develop a carbon pollution pricing system. In addition to the regulatory charges on fossil fuels, the government is creating a Greenhouse Gas Offset Credit System. This Offset Credit System awards people who implement projects that reduce or remove carbon from the atmosphere with a sellable commodity – a carbon credit. Project proponents can sell their credits to other companies who, under the federal Output-Based Pricing System (OBPS), are required to reduce their emissions.

Involvement is voluntary. To get involved, project proponents need to undertake a project which prevents greenhouse gas emissions or removes greenhouse gases from the atmosphere. The carbon credits must be real, quantified, verified, unique, and permanent. In addition, project proponents need to adhere to the rules of the Offset Credit System. This means complying with the Canadian Greenhouse Gas Offset Credit System Regulations and registering and carrying out the project according to set protocols. The protocols explain how project proponents must implement their projects and quantify the greenhouse gasses they remove from the atmosphere.

Introduction of the First Protocol

The first protocol to be released was the Landfill Methane Recovery and Destruction protocol. Published on June 8th, 2022, the Landfill Methane Recovery and Destruction protocol enables eligible municipalities and landfill operators to generate offset credits if they recover landfill gas from their operations and destroy or repurpose it into energy. Additional protocols are being developed and will be released in the coming months, including:

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

Participation of Indigenous Peoples

The government has prepared a supplementary discussion paper to encourage the participation of Indigenous communities and organizations in the development of the Offset Credit System’s protocols and support Indigenous climate leadership.

Currently, the government is proposing that project proponents be required to address how projects may affect Indigenous Peoples before they are developed or registered. Project proponents will first have to identify all Indigenous communities that their project may impact socially or economically. Based on the government’s framework, that means notifying all Indigenous communities within twenty kilometers of the project area and those who regularly visit, derive income, livelihood, or cultural value from the project area.

Proponents will also have to identify the potential negative and positive impacts of their project. An impact is deemed positive if the project’s greenhouse gas reductions align with the UN Sustainable Development Goals. An impact is deemed negative if the project impacts natural or cultural resources identified by Indigenous communities. To address negative impacts, the framework suggests that project proponents determine mitigation measures in consultation with impacted communities or use benefit-sharing agreements with impacted communities. If a project adversely impacts an established or asserted Aboriginal or treaty right, the framework requires consultation with the affected Indigenous communities. Environment and Climate Change Canada plans to provide a best practice guide containing further guidance for engaging with impacted communities.

Addressing Environmental Risks?

The government has also proposed safeguards to address the environmental risks posed by projects. Safeguards are crucial because some projects pose the risk of releasing carbon back into the atmosphere; this is known as reversal risk. Nature-based offset projects are susceptible to reversal risk because they rely on vegetation and soil to capture and store carbon. These materials are vulnerable to wildfires, insect infestation, and logging which can end up releasing carbon back into the atmosphere, thereby undoing any carbon-capturing that may have first been achieved.

To counter reversal risks, the government has proposed two safeguards: implementing a risk management plan and an insurance fund. Project proponents would deposit a percentage of their carbon credits into an Environmental Integrity Account, and this pool of credits would act to remedy any emissions created by reversals. Project proponents with higher risk factors would pay a higher percentage of credits into the account. While these measures stand to reduce reversal risk, the government is eager to involve Indigenous communities in developing further environmental safeguards.

Joining the Conversation

The government is currently accepting feedback and recommendations on their proposals for facilitating participation by Indigenous groups in the Offset Credit System. So, now is your chance to join the conversation. Some questions that MT+ Co. is asking are…

  • Why does a twenty-kilometer arbitrary boundary define who may be impacted?
  • How can the Offset Credit System require that project proponents develop risk management plans that draw on Indigenous Peoples’ extensive Traditional Knowledge?
  • What would meaningful engagement with the affected parties look like, and how can the government require this through the Offset Credit System?
  • How will the Offset Credit System align with the United Nations Declaration on the Rights of Indigenous Peoples by recognizing and upholding consent-based decision-making for Indigenous communities?
  • How will the Offset Credit System foster Indigenous climate leadership and support opportunities for Indigenous-led projects?

You have until June 30, 2022, to send your written comments to Environment and Climate Change Canada at creditscompensatoires-offsets@ec.gc.ca. To stay in the loop with updates on the development of the Offset Credit System, email creditscompensatoires-offsets@ec.gc.ca and include “distribution list” in the subject line.

Want More?

Our Business Law and Transactions Group works collaboratively with Indigenous organizations and businesses to help them make a positive difference. As such, we are excited about the opportunity to help clients reduce greenhouse gases and grow their businesses with carbon credits. If you have any questions or comments relating to what we discussed above, feel free to reach out to Stephen Pederson and Michaela Pomponio.



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