Ontario Offset Credits regulation under the Climate Change Mitigation and Low-carbon Economy Act, 2016

Updates

This notice is regarding the development of a program that enables the creation of offset credits for use in Ontario’s cap and trade program (compliance offsets). It does not relate to the voluntary offset credit program which is also currently in development.

Description of regulation

To help mitigate climate change – one of the most urgent issues of our time – Ontario has implemented a greenhouse gas cap and trade program. A cap and trade program effectively reduces the amount of greenhouse gas pollution going into our atmosphere by setting a limit on emissions, rewarding innovative companies, providing certainty for businesses, and creating more opportunities for investment.

Offset credits will increase the compliance options available to facilities covered by the cap and trade program while extending the environmental benefits of greenhouse gas mitigation beyond the capped sectors. The proposed Ontario Offset Credits regulation is being developed to supply offset credits that can be used to meet a compliance obligation in Ontario’s cap and trade program.

On November 15, 2016, the Ministry of the Environment and Climate Change posted a regulatory proposal (EBR 012-9078) that provided an overview of the criteria, process and administrative requirements for the registration of offset initiatives and the creation and issuance of offset credits that can be used to meet a compliance obligation for a 45 day public review and comment period.

On May 19, 2017, the Ministry posted a proposal (EBR 013-0480) for an offset protocol covering the capture and destruction of methane gas from landfill facilities for a 30 day public review and comment period.

After a review of the comments received, the Ministry is proposing a regulation that would enable the creation of offset credits for use in Ontario’s cap and trade program. The proposed Ontario Offset Credits regulation incorporates the protocols by reference through a document titled Offset Initiative Protocols for Ontario’s Cap and Trade Program. The proposed regulation outlines the overall process, criteria and administrative requirements involved in the creation of an offset credit that can be used to meet a compliance obligation in Ontario’s cap and trade program, while the incorporated protocols outline the rules specific to each initiative type or class.

The ministry is now seeking input on the proposed Ontario Offset Credits regulation and incorporated protocol. The protocol to be incorporated is a revised draft of the Landfill Gas protocol. As future protocols are adapted, they will be posted for public comment, and upon approval by the Minister of the Environment and Climate Change, incorporated into the regulation by rolling reference by adding them to the document entitled Offset Initiative Protocols for Ontario’s Cap and Trade Program.

Key elements of the proposed Ontario Offset Credits regulation include:

• Start date 
• Protocols, including the incorporation of the protocols by reference to the proposed document titled Offset Initiative Protocols for Ontario’s Cap and Trade Program
• Eligibility criteria for sponsors 
• Eligibility criteria for initiatives, both single and in groups 
• Registration requirements 
• Crediting periods 
• Reporting periods 
• Eligibility criteria for offset creation 
• Offset credit creation requirements 
• Reversals 
• Reporting and verification requirements 
• Record keeping requirements

Initiative-specific key elements of the proposed incorporated protocols include:

• Start date 
• Eligibility criteria 
• GHG assessment boundary 
• Calculation of emission reductions 
• Data management and monitoring requirements 
• Reversals 
• Reporting requirements 
• Record keeping requirements

Offset sponsors, as well as other interested parties, will need to consult both the final regulation and incorporated protocols to understand all the requirements associated with undertaking offset initiatives.

Purpose of regulation

The purpose of the proposed Ontario Offset Credits regulation and incorporated protocol is to create the regulatory provisions applicable to the offsets component of the cap and trade program. Offset Credits are a compliance instrument contemplated under the current Cap and Trade Program regulation. Sources not subject to the Cap and Trade Program regulation that are able to reduce greenhouse gases in accordance with the proposed requirements and associated protocols will be eligible to seek to have offset credits created and issued. Capped facilities may use Offset Credits to meet up to eight percent of their compliance obligations.

Other information

Effects of Engagement on the previously posted Regulatory Proposal (EBR 012-9078)

All feedback was welcomed and carefully considered in the proposed Ontario Offset Credits regulation. The following provides a summary of the key comments received and responses.

Offsets Initiative Registry

Comment: Requests made to remove the Ontario residency requirements for Sponsors.

Response: The ministry is proposing to expand the sponsor residency requirement to Canada which is consistent with the Market Participant requirements in the Cap and Trade Program regulation (O.Reg. 144/16).

Comment: Concerns were raised about the terminology used and that it may not be consistent with Western Climate Initiative documents, Quebec, and California (e.g., sponsor instead of proponent, initiative instead of project, etc.).

Response: No change is being proposed to the terminology as it is consistent with the Climate Change Mitigation and Low-carbon Economy Act, 2016.

Comment: Suggestions made to use a third-party offset registry instead of developing one in-house.

Response: No change is being proposed to the development of an in-house registry at this time.

Reporting and Verification Requirements

Comment: Timelines for submitting reports / verifications are too short. Suggest allowing more flexibility in reporting/verification.

Response: The ministry is proposing to add an option for a four-month increase to the reporting and verification timelines at the discretion of the Director.

Comment: Concerns raised about the proposed frequency of reporting and verification as this can create a financial barrier for some projects.

Response: The ministry is proposing to change the frequency of applications for offset credits related to sequestration initiates in the proposed Ontario Offset Credits regulation. The effect of this change will also affect the frequency of reporting and verification activities.

Offset Credit Creation Criteria

Comment: Requests expressed for considerations in the development of protocols (e.g., risk of reversal, baselines, leakage assessments, etc.). The ministry has heard from Indigenous organizations that they want to be involved in the protocol development process.

Response: The ministry, in partnership with Québec, has contracted an external third party to adapt up to 13 greenhouse gas offset protocols for use in Canada where feasible. Interested stakeholders and Indigenous organizations and/or community representatives continue to be encouraged to participate in that process to follow progress and provide input.

Comment: Indigenous organizations have expressed their desire for territory-wide approaches to address climate change issues, including how offsets might apply more broadly across their territories. Indigenous organizations have made it clear that they want ongoing discussions with Ontario on the needs and priorities in their communities.

Response: The ministry is committed to continuing to engage with Indigenous organizations and communities to determine regional or territory-wide approaches to climate change action, including working together to identify opportunities for being involved in and benefiting from both the compliance and voluntary offset programs.

Comment: First Nations have indicated the need for more clarity on how offset projects may be undertaken within their Traditional Territories.

Response: The draft regulation sets out a framework for the registration of offset initiatives and the issuance of credits for those initiatives. Specific projects will have to meet the requirements of both the regulation and protocol in question, which will set out detailed rules for particular classes of initiatives, in order to register as an offset initiative. Ontario will be considering further engagement with respect to compliance offset protocols and projects.

Comment: Suggestions to provide a mechanism for shared ownership.

Response: No change is being proposed at this time. The draft regulation refers to a sponsor being authorized to apply for credits.

EBR Posting

Comment: Requests received for draft regulatory language to review.

Response: The ministry has posted a draft of the Ontario Offset Credits regulation and the first incorporated protocol, for a 45 day public review and comment period.

Comment: Support expressed to increase the use of offset credits by capped facilities above the current 8% limit of a compliance obligation.

Response: No change is being proposed to the 8% limit on the use of offset credits at this time.

Addressing Climate Change

The Climate Change Mitigation and Low-carbon Economy Act, 2016 received Royal Assent on May 18th, 2016. The Act builds on Ontario’s leadership and ensures a platform for effective long-term action by:

• Establishing targets and requiring an Action Plan detailing how the targets will be achieved; 
• Establishing the cap and trade program in law; 
• Dedicating all cap and trade proceeds to a new Greenhouse Gas Reduction Account, where they may be used on initiatives that are reasonably likely to reduce or support the reduction of greenhouse gas – helping achieve Ontario’s goals and ensuring a close link is maintained to the purpose of the program; and 
• Ensuring transparent and accountable action through regular reports and reviews of progress and through the use of allowance auction proceeds.

Other information

• Cap and Trade Program to Limit Greenhouse Gas Pollution in Ontario 
• How Cap and Trade Works

Public consultation

This proposal was posted for a 45 day public review and comment period starting October 04, 2017. Comments were to be received by November 18, 2017.

All comments received during the comment period are being considered as part of the decision-making process by the Ministry.

Please Note: All comments and submissions received have become part of the public record.

Other public consultation opportunities

Climate change is a fact in our daily lives and it is our collective responsibility to fight it together to ensure our children benefit from a cleaner planet. Many firms, institutions, communities and even individuals wish to reduce greenhouse gases and we want to support their efforts through initiatives highlighted in the Climate Change Action Plan.

While cap and trade will encourage reductions, there may also be opportunities to reduce greenhouse gases beyond the cap and trade program and the offset credits that form part of that program. We are eager to work with stakeholders, Indigenous people and partner ministries to harness these opportunities.

The government is leading by example and has committed to make government operations carbon neutral beginning in 2018. As part of this commitment, the government will develop of a separate class of quality, branded, voluntary carbon offsets for use by government and the private sector. These voluntary offsets will come from Ontario-based projects ensuring that the social and economic benefits accrue to the citizens of Ontario. Ontario voluntary offsets will be distinct and separate from the compliance offset credits and other compliance instruments created for cap and trade. Voluntary carbon offsets will be unique and can occur anywhere within the province including rural areas and in Northern Ontario.

Indigenous Engagement

As well as comments received through the Environmental Registry posting, Ontario is committed to additional engagement with Indigenous organizations and communities. The ministry has been working to establish relationships with Indigenous organizations. Through these discussions, Indigenous organizations and communities have expressed interest in various aspects of the program and Ontario is committed to working together to explore potential opportunities for participation.

The ministry is also continuing to work together with Indigenous organizations and communities to build upon already established partnerships and identify opportunities that support the goals of the Climate Change Action Plan while also meeting the needs and priorities of communities.

Regulatory impact statement

The cap and trade program is a key initiative for the government to tackle climate change by reducing greenhouse gases. The program will reduce the amount of greenhouse gas pollution going into the atmosphere by setting a limit (i.e., cap) on emissions from covered facilities. Covered facilities will be required to participate in the cap and trade program, either reducing their greenhouse gas emissions or meeting their compliance obligation through use of other tools, according to their regulatory requirements.

The use of offset credits in cap and trade offers emitters flexibility and potentially lower cost options in meeting their compliance obligations by allowing markets to determine the most cost-effective emissions reduction opportunities, while encouraging emission reductions, innovation, and technology development for sources and sinks not covered by the Cap and Trade Program regulation.