Canada: Canada’s Proposed Method For Addressing Non-Permanency In Biological Sink Sequestration: A Comparison To Other Systems

Last Updated: September 16 2009
Article by Mike Richmond

The federal government recently proposed a national greenhouse gas offset system that, among its other functions, addresses non-permanency in biological sink sequestration. The Offset System is described in federal guidelines, updated June 2009, which are available on the Environment Canada website.1

Other greenhouse gas offset programs such as the Clean Development Mechanism (the "CDM"), Voluntary Carbon Standard (the "VCS"), Climate Action Reserve (the "CAR"), and Western Climate Initiative (the "WCI") also address permanency in sink sequestration. However, their non-permanency provisions differ substantially from the Canadian proposal. The following article is an overview of these differences.

what is non-permanence?

When biological sinks sequester carbon, some carbon is eventually released back into the atmosphere. This is called reversal or non-permanence. Biological sinks include forests and agricultural soil, and may involve activities such as afforestation and crop rotations. Reversal can occur naturally, such as by wildfire, or be human initiated, such as through intense tillage.

Canada's offset system proposal

The federal government recently proposed an offset system for greenhouse gases, with final guidelines to be released in the fall of 2009.2

The Offset System addresses non-permanence by ensuring that the carbon credit holder is responsible for carbon reversals. This is achieved through a 25‑year liability period, during which credit holders must maintain greenhouse gas removal. While there is no formal verification for this, credit holders have to certify that there is no reversal.

If reversal occurs, credit holders replace the affected credits by purchasing another type of credit, as approved by federal regulations. This responsibility ceases after the 25-year period. A discount factor is applied to reductions from projects to address the risk of credit holders not being financially able to replace credits.

the clean development mechanism

The CDM, established under the Kyoto protocol, is a global network that encourages industrialized nations to purchase emission credits from emission-reducing projects in developing countries.3

The CDM uses Temporary Certified Emission Reductions (tCERs) for afforestation and reforestation projects. TCERs expire when a sink project begins to release carbon. Expired tCER holders must either reduce carbon emissions in the project or obtain other CERs.

TCERs are valid for five years. Longer-term CERs (lCERs) are also available, and are valid for 20 years. Both can be renewed for up to 60 years in total. The price of tCERs tends to be lower than that of lCERs and CERs because of their short duration. Nevertheless, tCERs provide project participants with a greater deal of flexibility.4

the voluntary carbon standard

The VCS is a global program that provides Voluntary Carbon Units (VCUs) to participants who voluntarily offset emissions.5

The VCS addresses non-permanence by requiring projects to maintain buffer credit reserves, which are used for reversals. VCU holders deposit buffer credits into the Agriculture, Forestry, and Other Land Uses (AFOLU) Pooled Buffer Account. The amount of credits deposited depends on the estimated carbon loss during a risk assessment process that is part of the verification of the project. This estimate varies between 10 and 60 per cent.

VCU holders can regain their buffer credits when their projects demonstrate "longevity, sustainability, and ability to mitigate risks." Re-verifying VCU projects benefits VCU holders. For example, 10 per cent of a project's buffer can be released every five years at re‑verification.

The buffer system is a simple approach that permits all credits to be classified as permanent.6

the climate action reserve

The CAR is an American program that provides nation-wide offset credits for greenhouse gas emissions.7

While insurance relating to non-permanence is yet to be determined by CAR's Forest Protocol Workgroup, CAR promotes projects that result in permanent reduction of greenhouse gas emissions, or in the least, that provide for high sequestration. CAR's permanence standard is the 100-year storage of carbon.

The proposed permanence standard involves a Reserve Buffer Pool similar to that of the VCS. The buffer would protect against reversal of carbon reduction. A risk assessment results in an estimate of the number of Climate Reserve Tonnes (CRTs) the project has to put into the Buffer Pool. For example, upon receiving 10 CRTs for a project, with a risk of 10 per cent loss, the project owner is issued nine CRTs and one CRT is deposited in the Buffer Pool. The risk assessment takes place during each verification site visit. Upon reducing risk of carbon loss, a proportional amount of CRTs from the Pool may be returned to the project owner.

In the event of an unavoidable reversal, the Buffer Pool itself contributes CRTs. If the reversal is avoidable, such as through negligence, the project owner contributes CRTs from its own buffer account.

the western climate initiative

The WCI is a collaboration of certain American states and Canadian provinces with the mutual goal of reversing climate change. Its largest program is a cap-and-trade system.8 The WIC is currently developing its offsets system.

In developing offset protocols, the Offset Committee intends to model its methods on those already used in North America and worldwide.

conclusion

Canada does not plan to implement a buffer system or temporary offset credits, which differs from those of the CDM, VCS and CAR. Instead, it will provide a 25-year guarantee period during which credit holders will be responsible for reversals. There appears to be less oversight with this system when compared to the others, as well as a shorter time period during which credit holders are held responsible for carbon reversals.

Footnotes

1 http://www.ec.gc.ca/creditscompensatoires-offsets/default.asp?lang=En&n=92CA76F4-1

2 For more information on Canada's Offset System Proposal, visit: < http://www.ec.gc.ca/creditscompensatoires-offsets/default.asp?lang=En&n=92CA76F4-1 >.

3 For more information on the Clean Development Mechanism, visit the United Nations Framework Convention on Climate Change, < http://cdm.unfccc.int/about/index.html >.

4 The Clean Development Mechanism: Status, prospects, with focus on forestry projects (25 January 2007), online: Yale School of Forestry and Environment < http://research.yale.edu/gisf/assets/pdf/lecocq_carbon_market_1_25_07.pdf >.

5 For more information about the Voluntary Carbon Standard, visit < http://www.v-c-s.org/about.html >.

6 Edwin Aalders, "The Voluntary Carbon Standard and the Climate, Community, and Biodiversity Standards" (10 September 2008), Global Standards for Forest Carbon Projects, CASCADe Senegal, online: < http://web01.erm.com/extranet//UK/resource.nsf/Files/B.15.Finance_VCS_Aalders/$FILE/B.15.Finance_VCS_Aalders.pdf >.

7 For more information on the Climate Action Reserve, visit: < http://www.climateactionreserve.org/ >.

8 For more information on the Western Climate Initiative, visit: < http://www.westernclimateinitiative.org/ >.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2009 McMillan LLP

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