Feedback on the Draft…

Feedback on the Draft Ontario Regulation: Climate Change Mitigation and Low-Carbon Economy Act Ontario Offset Credits

To whom it may concern,

Further to the Ontario Ministry of the Environment and Climate Change request for comments on the draft Ontario Offset Credits regulation, we are offering our comments as the leading project developer of carbon offsets from agricultural projects in Alberta. Since our incorporation in 2008, Carbon Credit Solutions Inc. has created and sold more than 3.4 million offsets in the Alberta Offset System:

•   An expanded glossary with clarification of terms such as ‘reporting period’, ‘application (for generation of offset credits)’, ‘initial registration’, ‘re-registration’, ‘group’, ‘start date’, ‘reporting period’, ‘site visit (regarding verification)’, and ‘Director’ would allow much clearer interpretation of the regulation.

•   We are unclear as to the benefits of registering ‘group initiatives’. Certain requirements apparently remove any economic, regulatory, or efficiency advantages to developing group initiatives, including:

o   verification of/ a site visit to each individual initiative within a group
o    site visit for each individual initiative within a group
o  cancellation of the entire group initiative if one initiative in the group is cancelled,

Our analysis shows these requirements will preclude smaller projects (i.e., achieving credits equivalent to less than 10,000 tCO2e per year) from market participation due to high verification costs. If the regulation does not want to exclude smaller projects, particularly those that are land-based or agricultural in nature, we recommend the use of statistical-based and control-based verification, similar to the procedures described in the Alberta Verification Guidance Document: http://aep.alberta.ca/climate-change/guidelines-legislation/specified-gas-emitters-regulation/docum ents/GuideGreenhouseGasVerification-Jan2013.pdf.

• It is our opinion that elements of the regulation are ‘over-engineered’, such as:
o offset credit eligibility criteria – clarity is needed regarding key terms respecting the ‘Start date’ of an initiative, a crediting period, and reporting period; and the date of registration. We recommend adding these terms to the glossary.
o cancellation of initiatives within group initiatives – we are unsure why a sponsor would cancel a single initiative within a group if this requires the cancellation of the group initiative. Clarification may be required regarding re-registration of group initiatives, if the regulation is proposing group initiative cancellation, and then re-registration without the cancelled individual initiative. If this is the case, we believe the regulations regarding cancellation are over-engineered and unnecessary.
o reporting period – clarification regarding the reporting requirements for sequestration initiatives with respect to applications for up to six reporting periods. The regulation is not clear whether annual verification is required, or verification can be undertaken once per 6-year period.
o Further to the point above, regarding verification of sequestration projects every 6 years (assuming this is the correct interpretation of ‘reporting period’), does this mean that every individual initiative within a group as to have a site visit during a 6-year period? Although this would not significantly enhance economic efficiencies of aggregated or grouped projects since the sponsor’s cash flow would be greatly hindered, the term would benefit from clarification.

•  We are pleased to see that the regulation pertains only to credit generation for greenhouse gas reduction, avoidance, or removal, potentially allowing the stacking of other types of credits, such as conservation offset credits.

•  We are pleased to note the regulatory stability provided to sponsors through the persistence of the version of a protocol at initiative registration throughout the crediting period, and the 10- and 30-year timeframes for crediting periods. More detail on the above key points and other positive and concerning elements of the regulation, are recorded below. We thank you for the opportunity to provide this feedback, and trust that it will be useful to the development of the regulation. If you have any questions or require further clarification on these comments, please don't hesitate to get in touch.

Kind regards,

Richard Kennedy
Director of Project Development, Carbon Credit Solutions Inc.

Clause(s) Interpretation  Concern
2(1) and 5(1)3.   The start date from which credits can be generated appears to be post-dated to January 1st, 2007, or the date at which the initiative first achieved a reduction, avoidance or removal. Post-dating of credit generation raises a number of concerns regarding additionality and market functioning. We would recommend the initiative start date is the date of registration, or the date on which the initiative first achieved a reduction, avoidance or removal, whichever is latest. We would also seek clarification on the term ‘start date’.

3(1) and 3(2)
11(4)   The version of the protocol that is in place at the time of initiative registration will continue for the duration of the first crediting period for that initiative. The crediting period for non-sequestration initiatives continue for 10-years (up to a maximum of 3 crediting periods), and sequestration initiatives continue for 30-years    We welcome these clauses that provide some regulatory stability for initiative developers, even though new research and updated protocols may mean that some sponsors cannot subsequently generate additional credits until the end of the crediting period.

This may become a concern for sequestration initiatives that continue for a 30-year crediting period; consideration could be given to allowing sequestration initiatives to use updated protocol versions every 10 years.

5(1)   The regulation does not seem to exclude initiatives from gaining offset credits for other offsets, for example conservation offsets.    We appreciate the ability to stack offsets for environmental and social benefits beyond greenhouse gas reductions, avoidances or removals; this could allow some initiatives to achieve full value for the benefits they provide.

5(1)   It is unclear whether projects that are already registered in another ‘program’ are able to register in the Ontario program upon cancellation of registration with the initial program. We recommend that programs that are already registered in another program are allowed to register in Ontario’s program once their initial registration is cancelled. We also recommend that the regulatory language be updated to clarify this.

5(1)   Projects participate in other programs that recognise greenhouse gas reductions, such as those that reward renewable fuel use, would not be eligible to participate in the Ontario program. This would mean that certain projects such as biogas and biofuels projects would not be able to benefit from the full extent of greenhouse gas emissions (for example RNG use, plus avoided methane emissions from manure) through the Ontario program. We recommend that this be clarified and that projects are able to benefit from the full extent of greenhouse gas emission reductions, provided double-counting does not occur.

6(1)5.   Each individual initiative within a group must use the same baseline and calculations.  This clause could use some clarity. We assume the clause aims to ensure initiatives within a group use a consistent methodology in the determination of the baseline and calculation of offsets. If so, we would recommend a change in language used, from ‘same’ to ‘consistent’ or similar. If the clause does in fact require group initiatives to use the same baseline and calculations for each individual initiative, this would be a cause of concern for sponsors, since some flexibility will likely be required between individual initiatives.

9(2) and 9(6)   The cancellation of an individual initiative within a group requires that cancellation of the entire group initiative.  We are concerned about the implications of this clause and the reasons for its inclusion are unclear. We believe requiring the cancellation of the entire group initiative will lead to many issues and a large administrative burden for group initiative developers. We would appreciate flexibility to include or exclude individual initiatives within a project, especially where crediting periods of 10- and 30-years are being considered. The regulatory advantages of group initiatives are unclear. Clarification regarding the term, ‘cancellation’, and process of re-registering a group initiative are required.

11(3)   There is no allowance given for a start-up phase, the crediting period begins on the start date of an initiative.   This does not allow any flexibility for a start-up phase including a trial period or engineering tests. We recommend that flexibility be included to allow a start-up phase of up to 6 months.

12(1) and 12(2)   The reporting period, which we assume to indicate the requirement for the verification and generation of offset credits, is 12 months.  The precise definition of reporting period is not clear. However, we believe that annual verification and credit generation will cause a significant administrative burden on sponsors; costs associated with verification are a key economic barrier to successful initiatives. The lack of flexibility in reporting period timelines (6 months after the end of the reporting period) may also lead to bottlenecks for verification leading to increased costs to sponsors. We recommend that flexibility be given to reporting period timelines, and that the term ‘reporting period’ is clarified.

14   There is no time limit for offset approval. This could lead to delays and market instability, particularly since the market will be hosted by MOECC rather than a thid party. We recommend a maximum timeline for offset approval be included in this clause.

15(8)   Non-sequestration initiatives cannot continue after 30 years (3 x 10-year reporting periods).   This seems unnecessarily restrictive. Continuation of initiatives should be based on additionality, baselines and leakage aspects.

20   Reversals that are not listed in the protocol amount to fraud, and are paid directly by the sponsor. Reversals due to errors, omissions or misstatements (as described in the Landfill Gas Protocol), will be paid from the environmental integrity account; this sponsor liability is different to that in the Quebec program. The term, ‘listed in the applicable protocol’ would benefit from better clarification, or specification of those reversal types in the regulation. The higher sponsor liability in the Quebec protocol (where sponsors are required to repay reversal credits and the environmental integrity account is used as a last resort) will mean that sponsors and developers in California will be more likely to participate in the Ontario program – this is only an observation.

22(1)1. and 2.   Verification of every individual initiative including a site visit, is required for single and group initiatives.   Annual verification requirements, including a site visit, will incur excessive verification costs, a key barrier to participation in carbon markets. This will likely exclude smaller (i.e. less than 10,000 tCO2e per year) initiatives from market participation. Additionally, we are unclear as to the advantages of developing a group initiative where each individual initiative is verified annually, include a site visit. We can see no economic or efficiency benefits to developing group initiatives with this requirement, which will further exclude market participation from smaller initiatives. Land-based and agricultural initiatives are unlikely to be economically feasible with this clause in place.

We propose verification using control-based and statistical-based sampling to reduce verification costs.

[Original Comment ID: 211343]