1. How Canada is dealing with key issues in Agriculture and Forestry in a Federal Offsets System: Guidelines for Protocols Ian Campbell Agri-Environmental Services Branch Agriculture and Agri-Food Canada April 7, 2009

2. Canadian Air Regulatory Agenda (CARA) Federal framework for air emissions –announced in 2007 –includes offset credits for GHG emission reductions Under such a system, agricultural and forest managers would have an opportunity to supply credits to the offset system through a number of "protocols" that measure and certify GHG emission reductions from identified practices.

3. Key policy decision issues: Timing Incrementality/Baseline definition Permanence Cost of developing protocols Liquidity: supply of credits

4. Issues on eligibility dates Project eligibility cut-off date Project registration date Re-registration period Temporary credits

5. Source: Turning the Corner: Canada’s Offset System for Greenhouse Gases, 2008

7. Incrementality Offsets not eligible if required by regulation or funded by other public sources: –E.g. Legislated riparian buffer strips Difficult to define ‘business as usual’ in industry with widely variable practices

8. Permanence: Risk of reversal of soil or forestry sinks Who is liable for reversal? How big is risk of reversal? Potential reasons for reversal: –Agronomic reasons –Market signals –Natural causes (fire) –Management structure (e.g. bankruptcy)

9. OPTIONS: FINANCIAL GUARANTEE INSTRUMENTS/INSURANCE TOOLS Holdbacks and Reserves –Reserve Fund –Holdback/Repayment –Sequential Issuance Conservation Easements Performance Bonds Aggregator Risk Management

10. Proxy for risk of reversal: Bankruptcy rates Year20032004200520062007 All Farms Bankrupt Farms222226232216139 Number of Farms239800236200232600229000225400 Bankruptcy rate (%)0.0930.0960.1000.0940.062 G&O Farms Bankrupt Farms10510810210463 Number of Farms6420065800674006900070600 Bankruptcy rate (%)0.164 0.151 0.089

11. Estimating sink reversal rates Environment Canada's Pilot Emission Removals, Reductions and Leanings Initiative (PERRL): 2005-2007 Paid farmers to meet definition of narrow zero-till –<33% seedbed usage –No tillage, fallow, residue grazing, burning, baling 5-10% non-compliance Main cause of non-compliance: level ruts from field operations in wet conditions Non-compliance rate depends on definition

12. Source: Prairie Steward, Newsletter of the SSCA, Issue 53, 2008

13. Approximate Cost of Developing Agriculture Protocols for Offset System Offset protocols have been drafted for about C$200,000 each for: –Anaerobic Digesters, –Soil Management (7), –Zero Tillage: –Permanent Cover: –Reduced Fallow: –Nitrogen Reduction –Grazing Management –Nutrient Management –Organic Matter Enhancement A protocol for overall farm management on dairy operations cost about C$900,000

14. Canadian government has dealt with these issues by: Clarifying issues through consultative mechanisms –government agencies, industry Analysing issues to create consensus –e.g. estimating reversal rates Identifying policy options for consideration –e.g. temporary credits, hold-backs and insurance schemes Research on potential supply of credits Support development of protocols.

15. Current data sources Census of Agriculture –every 5 years, 2006 latest Canadian Regional Agricultural Model (CRAM) Farm Environmental Management Survey (FEMS) PEERL Financial data –E.g. Bankruptcy rates

16. Data, analysis and modeling gaps to be filled Supply curve for potential offset activities –Liquidity Modeling needed for new protocols Transaction costs