Canada’s Climate Change Plan Large Final Emitters Regime and Domestic Offsets Regime

1. Canada’s Climate Change PlanLarge Final Emitters Regimeand Domestic Offsets Regime Stéphane Roberge, Legal Counsel Justice Canada (Environment Canada Legal Services) DOJ-CBA national section meeting October 24, 2003 This may not represent the view of the Government

2. Background on Plan This may not represent the view of the Government

3. Climate Change Plan for Canada • Released November 2002 • 3 step approach for achieving Canada’s Kyoto target of 240 Mt CO2e reductions • Actions underway 80 Mt • New actions 100 Mt • Remainder 60 Mt This may not represent the view of the Government

4. Five Key Instruments in the Plan • Large Final Emitters System • Funding of partnerships with the Government of Canada and Provinces/Territories • Strategic infrastructure investments • Coordinated Innovation Strategy • Targeted measures This may not represent the view of the Government

5. Large Final Emitters (LFE) Regime This may not represent the view of the Government

6. Basics • Overall environmental objective • 55 Mt of emission reductions • Emission intensity targets (i.e., not absolute targets) with access to emissions trading • allocation of permits based on output and emission intensity factors • Coverage: oil and gas, electricity generation, mining and manufacturing • About half of Canada’s 2010 GHG emissions • Implemented through • default legal regime, and/or • when appropriate, negotiated covenants This may not represent the view of the Government

7. Rationale for Trading Regimes (example of a 1000 tonnes reduction) Company 1 can reduce 1000 tonnes at $8/tonne = $8000 Company 2 can reduce 500 tonnes at $12/tonne = $6,000 Seller as lower costs Buyer as higher costs 500 tonnes at $8/tonne Overall costs: $8,000 with trading and $10,000 without 7 This may not represent the view of the Government

8. Allocation of permits • Tradeable permits to be allocated to covered firms at no cost • Allocation based on an specified emissions-intensity factor and possibly percentage of estimated emissions (e.g., 85% of BAU emissions) • Quantity of permits to a given firm to be calculated by multiplying its emissions-intensity factor by its quantity of specific output This may not represent the view of the Government

9. Compliance • Covered firms to demonstrate compliance by submitting a quantity of specified permits equal to monitored emissions • Specified permits to include • permits issued under the LFE system • domestic offsets credits issued on the basis of a project and • tradeable permits issued under the Kyoto regime This may not represent the view of the Government

10. Domestic Offsets Regime This may not represent the view of the Government

11. Basics • Offsets projects are domestic reductions or removals in emissions not covered under the LFE Regime • Reduction: decrease in emissions released into the atmosphere by a source • Removal: trapping of atmospheric emissions in a sink • Offsets permits awarded for reductions/removals resulting from offsets projects • Offsets permits acceptable to demonstrate compliance under the LFE Regime This may not represent the view of the Government

12. CROSS-CUTTING DESIGN ELEMENTS PRINCIPLES ELIGIBILITY CRITERIA ADMINISTRATION ISSUES GOVERNANCE and REVIEW PROCESS REGISTRIES TRADING & LINKS WITH INTERNATIONAL SYSTEMS DESIGN ISSUES BASELINES BOUNDARIES & LEAKAGE NON-PERMANENCE OF REMOVAL PROJECTS This may not represent the view of the Government

13. Principles • Principles • Enhance market liquidity • Open as practical • Agriculture and Forestry • Landfill Gas ? • Others ??? • Contribute to Kyoto commitment • Create an incentive for investment in Canada • Provide the right incentives for action This may not represent the view of the Government

14. Eligibility Criteria • Criteria to determine eligible offsets projects in order to ensure integrity of offsets permits: • Inclusion in National inventory • Project start date • Crediting period • Real, Measurable, Verifiable • Surplus • Unique • Ownership This may not represent the view of the Government

15. Governance and Review Process • Governance • options: federal body, federal/provincial body, or private sector/provincial body with federal government oversight • Review Process • Ex ante validation of projects • Ex post verification of GHG reductions/removals • Guidance and quantification protocols • Issuance of offset credits (possible early issuance) This may not represent the view of the Government

16. REGISTRIES compliance unit registry • track ownership of compliance units • separate domestic registry for tracking domestic units or an expanded National Registry to track domestic units as well as Kyoto units offset project registry • store standard quantification-verification protocols • track offset projects from application to issuance of credits • store all documentation related to offset projects • provide non-confidential information for public review This may not represent the view of the Government

17. TRADING & LINKS WITH INTERNATIONAL SYSTEM trading • trading via bilateral contracts or exchanges • large role for private sector; rules set by government links with international system • offset system design informed by Kyoto Flexibility Mechanisms but driven by domestic policy objectives • for projects hosted in Canada, similar rules under Offsets regime and Kyoto Flexibility Mechanism • Offsets permits not accepted outside Canada or for Kyoto compliance but could be exchanged for Kyoto units This may not represent the view of the Government

18. BASELINES project baseline • represents reductions/removals that would occur in the absence of the project (includes BAU reductions/removals) • used to determine quantity of reductions/removals to be credited • reductions: difference between project baseline and actual emissions with project in place • removals: difference between the baseline carbon stock change and the actual carbon stock change This may not represent the view of the Government

19. BOUNDARIES & LEAKAGE project boundary • defined to include all GHG sources/sinks under the control of the proponent that are significant and reasonably attributable to the project activity • identifies the reductions/removals to be included in the determination of offset credits leakage • increase in emissions/decrease in removals outside a project’s boundary that are significant, reasonably attributable to the project activity but are not under the control of the proponent This may not represent the view of the Government

20. NON-PERMANENCE OF REMOVAL PROJECTS non-permanence or reversal events • partial or total loss of a carbon stock due to a natural disturbance (e.g., pest outbreak) or a change in land management practice (e.g., harvesting, soil cultivation) key issues • liability for a carbon reversal after the issuance of offset credits - buyer? seller? government (economy as whole)? • time carbon must remain sequestered to be considered equivalent to an emission reduction This may not represent the view of the Government