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

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

3. 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 CO 2 e reductions oActions underway 80 Mt oNew actions 100 Mt oRemainder 60 Mt

4. 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

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

6. 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

7. 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

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

9. 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

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

11. 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 oReduction: decrease in emissions released into the atmosphere by a source oRemoval: 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

12. 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

13. This may not represent the view of the Government 13 Principles oEnhance market liquidity oOpen as practical Agriculture and Forestry Landfill Gas ? Others ??? oContribute to Kyoto commitment oCreate an incentive for investment in Canada oProvide the right incentives for action

14. This may not represent the view of the Government 14 Eligibility Criteria oCriteria to determine eligible offsets projects in order to ensure integrity of offsets permits: oInclusion in National inventory oProject start date oCrediting period oReal, Measurable, Verifiable oSurplus oUnique oOwnership

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

16. 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

17. 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

18. 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 o reductions: difference between project baseline and actual emissions with project in place o removals: difference between the baseline carbon stock change and the actual carbon stock change

19. 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

20. 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