Alberta carbon offsets can be used in federal system

The federal government has announced that greenhouse gas emission offsets created under Alberta’s Technology Innovation and Emissions Reduction Regulation may be used for compliance purposes under the federal Output-Based Pricing System created by the Greenhouse Gas Pollution Pricing Act.

Federal system acceptance of offsets created under the Alberta system may provide offset project developers in Alberta with a new market and greater liquidity for the green attributes from their projects, promote the development of new emission reduction projects in Alberta and possibly create arbitrage opportunities for owners of some types of Alberta offset credits. It is a welcome development, and an important step on the road to an efficient, national greenhouse gas (GHG) reduction system.

The OBPS

The federal government’s key GHG emission reduction requirements are in the Greenhouse Gas Pollution Pricing Act (GGPPA). The GGPPA has two parts: the federal carbon tax on heating and transportation fuels and the Output-Based Pricing System (OBPS) applicable to large emitters in certain industries that emit 50,000 tonnes of GHGs or more per year. The OBPS requires the person responsible for an OBPS-regulated facility to meet emission intensity performance standards generally set according to the industry average of all facilities producing similar products in Canada. Compliance can be achieved by the person responsible for the facility compensating for the GHG emissions that exceed the facility’s annual emission limit by one of the following, or a combination of the following:

• payment for excess emissions at the current rate of $30 per GHG tonne, or
• remitting for retirement surplus credits, offset credits or “recognized units.”

Details on paying excess emission charges will be available later in 2020. Surplus credits may be issued by Environment and Climate Change Canada (ECCC) to a person responsible for a facility whose emissions are lower than its applicable emissions limit through a Credit and Tracking System (CATS). CATS is currently expected to be up and running by January 2021.

A “recognized unit” is a GHG credit or unit that meets the eligibility requirements of the federal Output-Based Pricing System Regulations (OBPS Regulations) and was created or issued under a GHG offset program and protocol on the federal List of Recognized Offset Programs and Protocols for the Federal OBPS.

In August 2020 ECCC announced that GHG offsets created under Alberta’s Technology Innovation and Emissions Reduction Regulation (TIER) for five types of offset projects had been added to the List, meaning that TIER offsets created from any of five types of projects may be used as compliance units in the federal system. The five types of projects are offsets created under Alberta’s protocols for methane reductions from pneumatic devices in the oil and gas industry, aerobic composting, aerobic landfill bioreactors, fed cattle and low residual feed intake markets in beef cattle.

TIER offsets

TIER allows for creating and recognizing GHG offsets, provided the GHG emission reductions are from an Alberta-based project that results in real and verifiable GHG reductions that are quantifiable and verifiable under an approved quantification protocol. They must not have occurred as a result of regulatory compliance, and must be permanent reductions and registered in the Alberta Emissions Offset Registry (AEOR).

Using TIER offsets under the OBPS

Persons responsible for a facility covered under the OBPS will be able to use the five types of TIER offsets for OBPS compliance purposes. To do so, they must create an account in the AEOR, acquire active TIER offsets through a private contract with a seller, transfer the offsets from the seller’s to their AEOR account, retire the offsets in the AEOR and then submit the retired TIER offsets to CATS as recognized units for OBPS compliance purposes.

It is up to the person responsible to determine, among other things, if the TIER offsets meet the eligibility criteria under the OBPS Regulations, that the seller has title to them and their status is “active” in the AEOR and not “removed,” “cancelled,” “pending transfers,” “pending retirement,” “retired” or “retired for compliance.” The eligibility requirements in the OBPS Regulations require that the TIER offsets were created under a project began in 2017 or later, and so the TIER offsets must have an “activity start date” of January 1, 2017, or later to be eligible.

ECCC has published Guidance on Using Eligible Alberta Emission Offsets as Recognized Units for Compensation under the Federal OBPS.

ECCC also recently announced that certain emission performance credits created under Ontario’s GHG reduction regulations will in the future be usable to meet OBPS compliance obligations.

What this means

Federal recognition of offsets created under TIER provides a potential new market for offset project developers in Alberta of offset buyers and should increase the liquidity of some Alberta offsets. This may promote the development of new offset generating projects in Alberta. It may also create opportunities for developers and others to take advantage of arbitrage opportunities where they create or acquire eligible Alberta TIER offsets at a cost or price below the OBPS market price for GGPPA compliance credits, and then sell them to a person responsible for a covered facility under the GGPPA.

Persons responsible for a facility covered under the GGPPA will now have a new potential source of offsets to meet their OBPS compliance obligations and therefore greater flexibility and opportunity in meeting their compliance obligations.

For Canadians, federal recognition of TIER offsets may increase the development of offset projects that might not otherwise proceed, meaning Canada is more likely to reduce its net GHG emissions and meet its national and international climate change commitments.