Carbon Market

Regulatory Framework for Offset Credits

• Regulations and protocols concerning offset credits
• Process for developing regulations concerning offset credit projects
• Regulatory work in progress
• Information on California’s offset credits

Existing regulations and protocols

The regulatory requirements governing offset credits are set out in the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances (RCATS), as well as in the ministerial regulations concerning offset credit projects.

For each type of project selected, a ministerial regulation is adopted. The ministerial regulation sets out all requirements concerning the types of eligible projects, in particular requirements concerning project eligibility and monitoring, as well as the quantification, reporting and verification of GHG reductions or removals.

The following regulations are in effect in Québec:

• The Regulation respecting landfill methane reclamation and destruction projects eligible for the issuance of offset credits (replacing Protocol 2 on the destruction and treatment of methane from landfill sites);
• The Regulation respecting halocarbon destruction projects eligible for the issuance of offset credits (replacing Protocol 3 on the destruction of ozone-depleting substances), with corrections made to the Regulation;
• The Regulation respecting afforestation and reforestation projects on privately owned land eligible for the issuance of offset credits;
• The Regulation respecting manure anaerobic digestion projects eligible for the issuance of offset credits.

This regulatory framework, which came into effect on July 15, 2021, gradually replaces the previous regime, which was based on offset credit protocols.

For a transitional period, the following protocols, included in Appendix D of the RCATS, remain in effect, together with their enforcement provisions:

• Protocol 1 – Covered manure storage facilities – CH₄ destruction
• Protocol 4 – Active coal mines – Destruction of CH₄ from a drainage system
• Protocol 5 – Active underground coal mines – Destruction of CH₄ from ventilation air

Process for developing regulations concerning offset credit projects

The Ministère is responsible for developing regulations concerning offset credit projects. Inspiration may be drawn from existing protocols on the regulated or voluntary market with a view to determining best practices and methodologies. However, for each regulation, it is necessary to define the conditions applicable to the type of project, in accordance with Québec’s specific situation and with the requirements of the regional carbon market known as the Western Climate Initiative (WCI), which encompasses Québec’s C&T system. This approach ensures that issued credits are high-quality and fungible (interchangeable) in the carbon market.

When a draft regulation is being developed, legally enforceable requirements are defined to ensure that all GHG emissions reductions and removals comply with the general offset credit criteria. Accordingly, GHG reductions or removals must be:

• Additional – they do not occur under a business-as-usual scenario, and go beyond the legal requirements that are in effect under current practices. Moreover, in the WCI regional market, all GHG emission reductions and removal of GHG are required to go above and beyond the most stringent applicable regulations among the ones in use by WCI partner entities (regional regulatory additionality).
• Real/quantifiable –  they are quantifiable based on reliable and scientifically recognized methods that are reproducible, up-to-date, adapted to the particular sources of emissions and removal of the project; take into account local and specific conditions; are conservatively quantified, taking into account uncertainty and applying reduction coefficients needed to avoid overestimation; do not lead to leakage, i.e. increasing GHG emissions elsewhere that would negate, in whole or in part, the climate benefits of the project.
• Permanent – they cannot be reversed (i.e. a GHG destruction project) or, if potentially reversible (i.e., a CO₂ removal project), conditions and methodologies are prescribed to ensure a 100-year climate benefit associated with the issued CO₂ removal credit. A “ton-year” type quantification methodology was selected as the approach for ensuring the 100-year climate benefit in the cap-and-trade offset credit feature for potentially reversible projects. To learn more about the selected approach, see the presentation document in the work in progress section below.
• Verifiable – they are fully and sufficiently documented to enable an accredited verification organization to objectively determine whether the project associated GHG emission reductions or removals of GHG meet the applicable requirements and standards.
• Unique – they relate to a single credit issued under a single program, are used only once for compliance or emission offsetting purposes, and are not declared by more than one government entity in order to reach its GHG target.

Once the technical work is complete, a draft regulation in the prescribed format is prepared and released for public consultation. The comments received on the draft regulation are reviewed, opening the possibility of amending certain provisions. The regulation is subsequently enacted.

Work in progress

To allow for more offset credits projects and to increase the number of offset credits available in Québec, the Ministry is working on a new regulations for offset credit projects.

Considering the types of projects that are applicable in Québec and the potential for GHG emission reductions or removals of atmospheric GHG, the following types of projects have been selected for feasibility and potential analysis or technical development work:

• Fuel substitution in the maritime transport sector
• Improvement of agricultural fertilizer application practices
• Carbon sequestration through afforestation and reforestation on public lands

Regarding refrigeration systems conversion projects, the feasibility and potential analysis has been finalized. To read the final recommendation, please consult the technical note (French, PDF, 480 KB) that was produced for this purpose.

It is important to note that not all of these types of projects will necessarily be regulated. Certain projects may be removed or added, depending on the results of the preliminary work. As the work progresses, more information will be released.

Suggestions for developing new regulations

In order to be considered, your suggestions must not relate to a sector of activity or a source already covered by compliance obligations under the cap-and-trade system for GHG emission allowances. Moreover, the activity must minimally meet the general offset credit criteria set out above.

The following information must be provided when suggesting an activity that could be covered by a new regulation:

• A detailed description of the activity as a project that is eligible for the issuance of offset credits
• Program name and offset credit protocol that could serve as a reference, if applicable
• Description of the baseline and project scenarios
• Information on the additionality of the GHG emission reductions or removals
• Quantification methodology
• Potential GHG emission reduction or removal
• Project monitoring requirements

Once this information is received, the Ministère will assess whether the suggested activity has the potential to be regulated for offset credit projects.

Information on California’s offset credits

Offset credits issued by the State of California are fungible (interchangeable) in the WCI carbon market. Since January 1, 2021, the California cap-and-trade system regulations set out new conditions for the use of offset credits by California emitters.

Firstly, the maximum ceiling for the use of offset credits was lowered to 4% of total emissions that need to be covered for the 2021–2025 period, and to 6% for 2026–2030 (compared to 8% at the end of 2020).

Secondly, some California offset credits are deemed “Direct Environmental Benefits” (DEBs). Credits with this attribute stem either from projects within California or in other U.S. states but that provide direct environmental benefits for the State of California, as determined by the California Air Resources Board. A California emitter using offset credits for compliance purposes must remit at least 50% of credits tagged as DEB.

In addition, the regulations of the California system ensure that the risk of potential invalidation of a California offset credit is borne by the buyer (rather than the promoter, as is the case in Québec). Inasmuch as Québec cap-and-trade covered emitters may purchase California offset credits to meet their compliance obligations, they need to be conscious of the risk prior to purchase. When the California Air Resources Board initiates an inquiry on offset credits issued for a given project, a notice is posted on the Documentation web page, as is the final decision on any credit cancellation.

Assistance

If you have any questions concerning this process, please contact the Carbon Market Division’s offset credit team by email at dmc.creditscompensatoires@environnement.gouv.qc.ca.

Please do not send personal or confidential information to this email address, as it is not secure.

Last update: December 13, 2023