Dear Ms. Vidya Anderson,…

Dear Ms. Vidya Anderson,

Re: EBR Registry Number 013-1634, Voluntary Carbon Offsets Program for Ontario

We are pleased to submit comments to the Voluntary Carbon Offsets Program Policy Proposal. Bluesource is one of the longest-standing GHG offset developers in North America and has a strong track-record of successful offset project development in both voluntary and compliance offset markets. We have developed numerous voluntary offset projects in Ontario and have strong commercial relationships with the large offset buyers in the province. We have also successfully adapted numerous protocols for use in compliance and voluntary markets and have been one of the largest offset project developers for the B.C. offsets program.

We depend on highly credible voluntary offset markets to value emissions reductions in jurisdictions that lack compliance markets. As such, we take a long-term view on GHG mitigation and believe in voluntary market standards that balance the integrity of the GHG reduction with the ability to incentivize project sponsors to undertake offset projects. We wish to provide our perspectives on what works and does not work for an efficient and Ontario Voluntary Offset Credit Program (‘Program’).

The comments are in response to the questions posed by MOECC in the policy proposal:

1.Additional priorities not considered in the document
Despite some additional policy objectives, the proposed voluntary offset program has significant overlap with the compliance offset system under development. For example, sequestration projects such as Improved Forest Management likely represent the largest potential for co-benefits but are also the single largest potential source of low-cost mitigation for the compliance system. IFM projects currently represent over 65% of the credited offset volumes in the WCI compliance market. Developing and adapting compliance and voluntary protocols simultaneously enables significant scope for conflict of interest. In addition, the protocol adaptation process for the compliance market is considerably behind schedule and making very slow progress. MOECC resources dedicated to offset protocols need to focus on approving compliance protocols.

2.Other program objectives
The proposed program objectives are reasonable and complete. However, Bluesource urges Ontario to consider two as priorities for deciding on offset categories to pursue:

i.Co-benefits – Ontario, and Canada in general, lack the policy mechanisms to adequately value non-carbon ecosystem services. Mechanisms such as mitigation banking for species diversity and wetlands banking in the U.S. offer well-established frameworks for markets to provide efficient mitigation outcomes. We encourage the MOECC to adopt voluntary frameworks within the Program for the crediting of co-benefits using these established mechanisms as models. Doing so would generate significant value in testing the application of new market mechanisms to encourage conservation. It would also provide greater integrity and transparency to the valuation of co-benefits than the approach taken in the absence of such frameworks; namely premiums on the forest carbon offsets that reflect qualitative considerations.

The crediting of ecosystem benefits will not be appropriate in all circumstances and, as such, could be an option for a project sponsor if they wish to obtain more value by meeting a higher standard.

ii.Innovation – The Program has the potential to serve as an incubator of innovative GHG mitigation technologies or processes. Doing so requires an open and efficient process by which Ontario can recognize new protocols developed by project proponents and registries and prove-out the viability of offsets to incentivize such technologies. Once proven, a compliance protocol could be adapted to expand the opportunity. If the Program focuses project categories on new GHG mitigation measures, it will be truly complimentary to the compliance offset system.

3.Barriers to participation in the carbon market
- The volumes of voluntary offsets the government plans to procure, or even high-level estimates, are very relevant to the consideration and we urge Ontario to provide this context. Informal indications of volumes suggest that, even if complimented by a significant increase in voluntary offset procurement from the private sector, volumes will be insufficient to sustain a healthy voluntary market that uses its own protocols and is not fungible with other voluntary markets. A single large land-use project has the potential to generate many times this amount. In the B.C. offset system, the Great Bear Rainforest project alone is mostly responsible for saturating the market with supply and the Government is now harmonizing their protocols to the VCS methodologies in order to provide a market for B.C. projects. Ontario has the opportunity to avoid this pitfall.

- In sequestration projects involving reforestation or aforestation, the length of time to grow biomass and reduce emissions makes such projects financially unrewarding for project owners. The lack of a single a/reforestation project using the California forest carbon compliance protocol is proof of the lack of financial incentive. A voluntary program with less robust pricing and more concentrated demand will not achieve a different outcome. For this reason, the crediting of other ecosystem benefits and their adequate valuation will be critical to unlocking such opportunities.

- The ability to aggregate small-scale sequestration projects that require joint and several long-term commitments is a significant barrier for smaller landowners. Engaging smaller landowners in sequestration projects will require protocol rules that accommodate individual commitments within a project aggregation and allow for reversals of individual initiatives without impacting other initiative proponents within the aggregation.

- The political uncertainty related to the continuity of the Program and lack of a competitive market in a program dominated by one government buyer is such that project developers will likely pursue a recognized voluntary standard with a broader market over an Ontario-specific standard.

4.Facilitating community participation
We believe the most effective way to facilitate community participation will be to unlock the offset opportunity for small-scale farms, woodlot owners, municipalities and community organizations. Doing so provides a diverse and broad range of stakeholders with a financial interest in GHG reductions and offsets development. This should be done to the extent possible in the compliance program with built-in flexibility to accommodate statistical sampling in verification and other cost containment measures. However, remaining barriers to project aggregation after the compliance protocols are complete should be addressed through the Program.

5.Prioritization of environmental co-benefits.
To the extent that Ontario pursues crediting of co-benefits, we recommend prioritizing those that have existing frameworks in other jurisdictions. This might include biodiversity protection under mitigation banking and watershed benefits related to wetlands banking.

6.Prioritization of project types
We are very concerned that the Voluntary Program is resulting in a diminished priority on behalf of the Government to create workable compliance protocols. The Government could alleviate these concerns by first completing the compliance protocols and then prioritizing voluntary protocol recognition based on the following criteria:

i.Innovative project types not mature enough or suited for the compliance market. An example of such a project type could include nutrient-enhanced sequestration in forests; and

iiAggregation of small-scale land-use projects;

7.Actions to support viable end-markets
Bluesource urges Ontario to adopt existing and new protocols recognized by reputable registries such as VCS, CAR, ACR and CSA. Doing so will support robust end-markets for Ontario projects. The recognition of frameworks to credit co-benefits will also support viable end-markets for non-carbon environmental attributes from conservation initiatives.

8.Existing standards to consider
The decision on which standards to adopt in the Program should be made after finalizing the scope of the compliance offset protocols. In general, the Program will provide value that is complimentary to the compliance system if it allows project proponents of innovative GHG technologies and processes to submit new protocols for recognition.

Should you need any clarifications on any of the points raised herein, please do not hesitated to contact us.

Sincerely,

Jamie MacKinnon
Vice President, Environmental Solutions
215 Spadina Ave, Suite 401
Toronto, ON M5T 2C7
(416) 427-4888
jamiem@bluesourcecan.com

[Original Comment ID: 212023]