Ian Campbell Agri-Environmental Services Branch Agriculture and Agri-Food Canada April 7, 2009

1. How Canada is dealing with key issues in Agriculture and Forestry in a Federal Offsets System: Guidelines for Protocols Ian Campbell Agri-Environmental Services Branch Agriculture and Agri-Food Canada April 7, 2009

2. Federal framework for air emissions announced in 2007 includes offset credits for GHG emission reductions Under such a system, agricultural and forest managers would have an opportunity to supply credits to the offset system through a number of "protocols" that measure and certify GHG emission reductions from identified practices. Canadian Air Regulatory Agenda (CARA)

3. Key policy decision issues: • Timing • Incrementality/Baseline definition • Permanence • Cost of developing protocols • Liquidity: supply of credits

4. Issues on eligibility dates • Project eligibility cut-off date • Project registration date • Re-registration period • Temporary credits

5. Source: Turning the Corner: Canada’s Offset System for Greenhouse Gases, 2008

7. Incrementality • Offsets not eligible if required by regulation or funded by other public sources: • E.g. Legislated riparian buffer strips • Difficult to define ‘business as usual’ in industry with widely variable practices

8. Permanence: Risk of reversal of soil or forestry sinks • Who is liable for reversal? • How big is risk of reversal? • Potential reasons for reversal: • Agronomic reasons • Market signals • Natural causes (fire) • Management structure (e.g. bankruptcy)

9. OPTIONS: FINANCIAL GUARANTEE INSTRUMENTS/INSURANCE TOOLS • Holdbacks and Reserves • Reserve Fund • Holdback/Repayment • Sequential Issuance • Conservation Easements • Performance Bonds • Aggregator Risk Management

10. Proxy for risk of reversal: Bankruptcy rates

11. Estimating sink reversal rates • Environment Canada's Pilot Emission Removals, Reductions and Leanings Initiative (PERRL): 2005-2007 • Paid farmers to meet definition of narrow zero-till • <33% seedbed usage • No tillage, fallow, residue grazing, burning, baling • 5-10% non-compliance • Main cause of non-compliance: level ruts from field operations in wet conditions • Non-compliance rate depends on definition

12. Source: Prairie Steward, Newsletter of the SSCA, Issue 53, 2008

13. Approximate Cost of Developing Agriculture Protocols for Offset System • Offset protocols have been drafted for about C$200,000 each for: • Anaerobic Digesters, • Soil Management (7), • Zero Tillage: • Permanent Cover: • Reduced Fallow: • Nitrogen Reduction • Grazing Management • Nutrient Management • Organic Matter Enhancement • A protocol for overall farm management on dairy operations cost about C$900,000

14. Canadian government has dealt with these issues by: • Clarifying issues through consultative mechanisms • government agencies, industry • Analysing issues to create consensus • e.g. estimating reversal rates • Identifying policy options for consideration • e.g. temporary credits, hold-backs and insurance schemes • Research on potential supply of credits • Support development of protocols.

15. Current data sources • Census of Agriculture • every 5 years, 2006 latest • Canadian Regional Agricultural Model (CRAM) • Farm Environmental Management Survey (FEMS) • PEERL • Financial data • E.g. Bankruptcy rates

16. Data, analysis and modeling gaps to be filled • Supply curve for potential offset activities • Liquidity • Modeling needed for new protocols • Transaction costs