1. Canada’s Offset System for Greenhouse Gases Dean Stinson O’Gorman New Brunswick Climate Change Hub meeting October 7, 2009

2. Overview of the Offset System • Helps Canada meet its goal of 20% reduction in total GHG emissions from 2006 by 2020 • Encourages cost-effective domestic GHG reductions in activities or sectors that are not covered by the planned federal greenhouse gas regulations • Provides an incentive for voluntary GHG reduction projects by issuing offset credits • 1 offset credit equals 1 tonne of carbon dioxide equivalent reduced or removed from the atmosphere • Regulated entities can use offset credits towards compliance obligation

3. Eligibility Criteria for Offset Projects • Offset credits will be issued for GHG reductions that satisfy the following six eligibility criteria: • Scope • Real • Quantifiable • Verifiable • Unique • Incremental

4. Eligibility: Scope, Real Scope • Reductions must occur in Canada • Project must achieve reductions in one of the following six greenhouse gases: CO2, CH4, N2O, HFCs, PFCs, SF6 Real • Project must be a specific and identifiableaction that results in a net reduction of GHGs • Project and baseline must be “functionally equivalent” – i.e. cannot achieve reductions simply by reducing production

5. Eligibility: Quantifiable, Verifiable, Unique Quantifiable • Eligible reductions must be quantified as specified in an Offset System Quantification Protocol (OSQP) Verifiable • Eligible Verification Body must be able to provide a reasonable level of assurance that reductions have been monitored, quantified, and reported as set out in the OSQP Unique • The GHG reduction can only be used once to create an offset credit

6. Eligibility: Incremental • Five components: • Projects must have started on or after January 1, 2006 • except for projects that are susceptible to easy reversal, for which we may specify a normalized baseline • Reductions must have occurred on or after January 1, 2011 • Reductions must go beyond the baseline defined for the project type • baseline specified in quantification protocol for that project type

7. Eligibility: Incremental (cont.) • Reductions must be surplus to all legal requirements (federal, provincial/territorial and regional). • Ineligible if there are legal requirements to take action that reduces GHGs from any of the relevant sources, sinks or reservoirs, except where: • legal requirement specifies performance standard or benchmark; • a normalized baseline is prescribed; or • can demonstrate an alternate cost-effective way to stay in compliance without the project. • Eligible to receive credits only until the legal requirement comes into force, regardless of the date for compliance

8. Eligibility: Incremental (cont.) • Reductions are beyond what is expected from receipt of other climate change incentives (federal, provincial/ territorial) • Defined as: • government funding program or tax incentive that includes GHG reductions as a goal or publicly reports on GHG reductions; • government program that purchases GHG reductions; or • “technology fund” program • Will not affect eligibility if accepted prior to January 1, 2011, or if a tax incentive is claimed under terms as of June 15, 2009 • Projects that accept an incentive may be eligible only if the program has established a reduction benchmark

9. Offset System Quantification Protocols • Developed for each project type • Developed by third parties, reviewed and approved by Environment Canada • Available free for use by any project proponent • Provides the quantification approach and monitoring and data management requirements to be followed • Key verification criteria document used by a Verification Body when verifying reductions • Based on the framework and principles of the international standard ISO 14064-2

10. Projects • Registration • Eight year period; typically from the date of project registration • Exceptions: could be delayed up to 1 year, could start on a historical start date • Implementation– as per OSQP specified monitoring and data management requirements • Reporting– 1st report within 1 year or 100,000 tonnes, then at discretion of Project Proponent (some exceptions) • Verification– Eligible Verification Body provides a reasonable level of assurance that reductions claimed are accurate, and that the project satisfies eligibility criteria

11. Issuance, Use and Trading of Offset Credits • Offset System will certify reductions, issue credits into Project Proponent’s account in the tracking system • Tradable and bankable • The planned federal GHG regulations will set out the conditions under which regulated entities will be able to use offset credits for compliance purposes • Trading will take place in the private sector • Financial value of offset credits will be determined by supply and demand in the marketplace

12. Biological Sequestration Projects • Several agriculture and forestry project types identified among first protocols to be developed (tillage, biodigesters, afforestation, forest management) • Schedule to be updated with new project types every quarter • Permanence: • Key to ensuring the environmental integrity of the credits • Proposed 25-year liability period after last credit issued, during which reversals must be replaced • Also a small discount factor proposed to reflect risk that credits cannot be replaced (e.g. due to bankruptcy) • No temporary credits option (not likely to be fungible)

13. Notional Protocol Submission Schedule • Deadlines are notional • Will be updated quarterly with additional project types • Website identifies external protocols eligible to be adapted for each project type

14. Draft program rules for Canada’s Offset System • Program rules will be set out in three guides • Draft Guide for Protocol Developers was published for public comment in August 2008 • Comment period ended October 2008 • Two remaining draft guides published for public comment in June 2009 • Program Rules and Guidance for Project Proponents, and Program Rules for Verification and Guidance for Verification Bodies • Public comment period ended August 12 • 109 submissions received, currently being reviewed

15. Next Steps • Currently reviewing all comments, considering options for final program rules • Plan to release final program rules once this review is complete • Once final rules published, will launch the quantification protocol development process • first Protocols may be available in early 2010 (?) • Project applications will be accepted for review once approved quantification protocols have been made available publicly • Could issue first offset credits by mid-2011 (?)