1. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government CBA/Justice Annual Meeting National Environmental Energy and Resources Law Section Law Section Ottawa, ON October 21, 2004 Stéphane Roberge Legal Counsel responsible for the Climate Change and Emissions Trading Legal Services, Environment Canada Offset Credits System

2. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Basics for Offset Credits System Offset credits are domestic emission reductions or removals not covered under the LFE Regime Reduction: decrease in emissions released into the atmosphere by a source Removal: trapping of atmospheric emissions in a carbon sink Offset credits are awarded for net emission reductions/removals achieved by a registered offset project during 2008-2012 Offset credits acceptable to demonstrate compliance under the LFE Regime 1

3. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Overview of Offset Credits System Offset Credits System provides a market incentive for GHG reductions/removals not covered by an LFE allocation of permits Agriculture and Forest reductions and removals Landfill Gas ?? Others ??? Federal interdepartmental group (led by Environment Canada) working on system design since early 2003 Discussion Paper and cross Canada consultations (June 2003); general support from stakeholders Current policy work focused on setting rules for eligibility 2

4. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Overview of Offset Credits System (2) Creation of offset credits Tradable unit created in domestic Offset Credits System Represents 1 tonne of CO2 e reduced or removed Uses of offset credits Used to achieve the 55 Mt reduction target when submitted by LFEs as a compliance unit Used to reduce the outstanding Kyoto gap if purchased by citizens [or government] and “cancelled” Banked for future use 3

5. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Governance 4 Program Authority Offset System Registry* Board or Advisory Group National/ LFE Registry Project Proponent Verifier* * Private Sector

6. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Credit Creation Process 5 1.Initial Review of Project “desk review” (e.g. for completeness) Public posting on Offset System Registry (transparency; identify competing ownership claims) 2.Validation of Project Program Authority (PA) & Expert Review Team assess project eligibility Projects are “registered” if all requirements met Project Document Registered Project Document

7. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Credit Creation Process (2) 6 3.Certification of reductions/removals (R/R) from registered projects Project Proponent (PP) quantifies R/R R/R verified by certified third party PA certifies all requirements are met and number of credits to be issued R/R Report Verfication Report Certification Report

8. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Credit Creation Process (3) 4. Credits are issued and tracked Credits are issued [deposited] into trading accounts in the National/LFE Registry; electronic credits will be tracked between registry accounts All project documentation (from project application through credit creation, retirement/cancellation) will be stored in the Offset System Registry ______________________________________ 7

9. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Credit Creation Process (4) Participation voluntary Eligibility criteria used Streamlined approach where possible – e.g., pooling in agriculture, use of standard coefficients, use of “pre- approved” quantification protocols (work beginning with Offset Protocol Partnerships) Fees to recover costs of review steps 1 – 3; lower fees for small projects 8

10. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Eligibility Criteria Project eligible if initial R/R after January 1, 2002 Crediting period begins in 2008 (no end date specified) R/R must be real (net GHGs, net of leakage within project boundary), quantifiable and verifiable R/R must be surplus to those resulting from other federal climate change measures (no double-counting) Ownership of R/R must be clear R/R must be unique (credited once in Offset System) Re-registration every 5 years (baselines every 10 years) 9

11. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Baselines Credit difference between the business-as-usual project baseline (e.g., “without project” emissions, industry standard) and “with project” measured emissions, or use a streamlined coefficient approach Current thinking: agriculture: standard coefficients or project-specific estimates forests: project-by-project approach renewables: national emission intensity standard landfill gas: project-by-project approach (streamlined application of the surplus criterion) 10

12. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Sink Credits Both temporary & permanent credits being considered Temporary credits o represents storage of 1 tonne of CO2 e for 1 year o used to defer a LFE obligation but must be replaced one year after use o use by LFEs may be restricted to manage government liability [associated with bankruptcy] Permanent credits o represents permanent storage of 1 tonne of CO2 e o liability for replacement if the sink is reversed will be shared between Project Proponent and government 11

13. S E R V I N G C A N A D I A N S A U S E R V I C E D E S C A N A D I E N S This may not necessarily represent the view of the Government Status Of Design & Next Steps No final decisions on design Design Paper available by end of 2004/early 2005 for stakeholder comment System begins operation in 2006 if infrastructure in place Possibly provide market liquidity and experience o early start (using existing legislation) o early issuance of 2008+ credits Further information: http://www.climatechange.gc.ca/english/offsets/ 12