The federal government’s proposed system for greenhouse gas “offsets” would lead to a massive overstatement of emission cuts if the proposal is not strengthened, according to a new analysis released today by the Pembina Institute.
The analysis highlights a series of accounting loopholes in the proposed offset system. If these loopholes are not closed, Canada’s actual emissions are likely to miss the targets in the government’s upcoming regulations for Canadian industry by millions of tonnes. The government expects to finalize the offset system design this fall.
“Just as lax financial accounting rules create fictional profits, lax emissions accounting rules create fictional emission reductions. Under the government’s current proposal, firms will be able meet their obligations on paper without new emission cuts taking place,” said Clare Demerse, Associate Director of the Pembina Institute’s Climate Change Program.
“In other words, the environmental benefit of a future Canadian cap and trade system would be massively overstated. These loopholes need to be closed now for the government’s plan to be effective and honest — and for Canada to have any chance of meeting its greenhouse gas targets,” added Demerse.
Offset systems grant credits to projects that reduce or store emissions in sectors not subject to emission regulations. In June, Environment Canada released a proposal for a Canadian offset system that would grant credits to projects like wind farms, low-till agriculture and landfill gas capture. The system would allow firms to comply with their obligations under future cap and trade regulations by replacing reductions in their own operations with offset credits.
To avoid compromising the emissions cap, offset credits need to have an equal environmental benefit to emission reductions in firms’ own operations. This means that the government should only grant credits for new emission reductions — not for activities that would have happened even without the offset system.
Pembina’s analysis uncovered six key loopholes in the government’s proposal, which are listed under “Details of Loopholes” below. Each would result in offset credits being granted for “business-as-usual” reductions that would have happened anyway, or for emission reductions that have already been accounted for elsewhere in the government’s climate plan. Both types of loophole would result in a future cap and trade system delivering fewer emission reductions in reality than on paper.
The international experience to date with greenhouse gas offsets has led an increasing number of experts to conclude that firms should not be allowed to use offsets at all to comply with regulated emission limits.
“Offsets are a fundamentally flawed mechanism that will reward business-as-usual activities and reduce the incentive for real emission reductions. This is clearly illustrated by Pembina’s analysis,” said Professor Mark Jaccard of Simon Fraser University, one of Canada’s most prominent climate policy experts. “If the federal government truly wants to meet its emission targets, it needs to focus on urgent implementation of a policy that puts a serious, economy-wide price on emissions.”
To date, the federal government has given no indication that it would place any limit on firms’ use of Canadian offsets to meet their regulatory obligations. The lack of any limit would maximize the negative effects of the loopholes in the government’s current offsets proposal, because firms would be free to comply with their regulatory obligations entirely through offset credits.
Pembina’s analysis also includes a review of projects that are already receiving offset credits under Alberta’s offset system. It shows that the majority of offsets currently being generated in Alberta are coming from projects that would likely have occurred even in the absence of the system.
“The serious problems with Alberta’s offset system provide further confirmation that the federal government needs to dramatically strengthen its own approach,” added Clare Demerse. “It’s not too late to improve the federal offset system proposal by closing the loopholes and limiting firms’ access to domestic offsets.”
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Note: The public comment period on the proposed federal offset system closed yesterday. The Pembina Institute’s analysis is contained in its submission to Environment Canada and is available here.
Contact:
Clare Demerse, Pembina Institute, 819-483-6288, ext. 24 or 613-762-7449
Professor Mark Jaccard, Simon Fraser University, 778-782-4219
Details of loopholes:
Each of the following loopholes would result in offset credits being granted for “business-as-usual” reductions that would have happened anyway, or for emission reductions that have already been accounted for elsewhere in the government’s climate plan. Both types of loophole would result in a future Canadian cap and trade system delivering fewer emission reductions in reality than on paper.
1. Projects that started as early as 2006 would be eligible for offset credits. Most or all of these projects will be either part of business-as-usual, or the result of a program that has already been accounted for in the government’s climate plan.
2. Low-till agriculture projects, which store extra carbon in soils, would receive credits even if they started before 2006. Low-till agriculture is now a dominant practice in Canada, which means that a large proportion of these projects are part of business-as-usual. The total volume of low-till credits could be in the millions of tonnes per year.
3. Projects that have already been implemented as a result of government incentives would also receive offset credits. This means that nearly seven million tonnes of emission reductions from renewable power projects, plus 1.7 million tonnes of reductions from home and small business retrofits, would be eligible for offset credits each year — despite already being counted under federal incentive programs.
4. Renewable power projects would be eligible to receive offset credits. Offsets from renewable power represent reductions in emissions from fossil fuel power plants. However, future federal regulations are expected to cap these emissions, which means that the reductions will already be accounted for under the regulations. If the same reductions are also counted as offset credits, they will be counted twice. The government’s proposal is silent on the need to prevent what would likely amount to several millions more tonnes of emission reductions being double-counted annually.
5. Landfill gas capture projects that are required by regulations in provinces such as Ontario and Québec would be eligible to receive federal offset credits. However, the federal government has said that it will account for emission reductions resulting from provincial actions elsewhere in its climate plan. If these reductions are also counted as offset credits, they will be counted twice.
6. The government’s proposal makes no attempt to determine if individual projects would have happened in the absence of the offset system. This means that the only way to ensure business-as-usual projects do not receive credits is to set stringent “baselines,” which are the reference point from which the government plans to measure emission reductions. However, there is currently no assurance that the government will set stringent baselines. Insufficiently stringent baselines could result in a future cap and trade system delivering millions of tonnes fewer emission reductions in reality than on paper.