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Carbon Market

Offset Credits


Executive summary

Offset credits, which are one feature of the Québec greenhouse gas cap-and-trade system (SPEDE in French), contribute to the efficacy and efficiency of carbon pricing.

This program feature allows promoters to carry out greenhouse gas (GHG) emission reduction projects originating from sectors and/or sources other than those already covered by the cap-and-trade system compliance obligations, as well as GHG removal projects, on a voluntary basis. These projects result in offset credits being issued, which can be sold to reporting emitters for use by them in meeting their compliance obligations.

The goals of Québec offset credits are as follows:

  • Reduce emitter compliance costs while maintaining the environmental integrity of the system
  • Encourage GHG emission reduction in non-target sectors, as well as removal of GHG from the atmosphere
  • Spur investments in low-carbon projects in Québec

The use of offset credits by covered emitters for regulatory compliance purposes is limited to 8% so as to ensure that the majority of emission reductions are carried out at covered facilities and from targeted sources. Offset credits are one type of eligible emission allowances (French) that can be used to meet compliance obligations.

Québec’s offset credit feature has a unique characteristic—the environmental integrity account. If an offset credit is deemed unacceptable and the project promoter is unable to replace it with another, the Gouvernement du Québec replaces it from the environmental integrity account, which is automatically funded by a 3% tranche of credits issued for each project. Consequently, Québec offset credits are 100% guaranteed—no user risk is involved.

Regulatory framework

The framework requirements relating to offset credits are listed in the following:

  • In the Regulation respecting a cap-and-trade system for greenhouse gas emission allowances, CQLR c Q-2, r 46.1 (RSPEDE):
  • In the ministerial regulations related to offset credit projects; a ministerial regulation is adopted for each type of eligible project selected that sets out all of the relevant requirements, including project eligibility and monitoring, and the quantification, reporting and verification of GHG emission reductions or removal of GHG.

The following ministerial regulations are in effect:

The new regulatory framework, which came into effect on July 15, 2021, will gradually replace the preceding one. As such, offset credit protocols will give way to ministerial regulations.

During the transitional period, the following protocols set out in Appendix D of the RSPEDE, as well as the implementation provisions, remain in effect:

  • 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

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Results to date

The following table summarizes the offset credits issued since the operations began on January 1, 2014.

Offset credits issued as of June 9, 2021

Regulation

Credits issued
Regulation respecting landfill methane reclamation and destruction projects eligible for the issuance of offset credits
(replaces protocol 2 on the destruction and treatment of methane from landfills sites)
473,615
Regulation respecting halocarbon destruction projects eligible for the issuance of offset credits
(replaces protocol 3 on the destruction of ozone-depleting substances)
578,785
Total 1,052,400

For further details on offset credit project submitted, see the Register of Offset Credit Projects.

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The project completion and offset credit issuance process

The process for completing an offset credit project right up to when credits are issued is comprised of the following main steps:

For questions about the process, please contact the Direction du marché du carbone offset credits team at 418-521-3868, ext. 7237 or dmc.creditscompensatoires@environnement.gouv.qc.ca. This email address is not a secure means of communication and as such, personal and/or confidential information should not be sent using this method.

Developing a project and filing a project notice–Promoter

Once a promoter develops an offset credit project, the next step is to file a project notice with the Minister. The notice should include all information and documentation required by the regulation that is applicable to the type of project in question, using the appropriate form and submitting everything per the instructions provided on the form:

Listing a project to the Register of Offset Credit Projects–Minister

Once the Minister receives a complete project notice, a project code is assigned and the project is listed to the Register of Offset Credit Projects, along with certain pieces of information about the project.

Project implementation, operation and monitoring–Promoter

This stage involves the promoter implementing, operating and monitoring the project in accordance with the terms of the applicable regulation. Project monitoring will include the collection and recording of data required to quantify GHG emission reductions or removal of GHG. It will also include information on the installation, operation, maintenance, verification and calibration of measuring instruments and other devices and equipment required by the regulation.

It should be noted that, depending on the conditions set out in the applicable regulation, a promoter may begin its project before filing a project notice.

Quantifying emission reductions or removal of GHG and drafting a project report–Promoter

In accordance with the terms set out in the applicable regulation, the promoter will need to quantify the project’s GHG emission reductions and/or removal of GHG in the reporting period.

Subsequently, the promoter is required to file a project report that includes the information and documentation required by the applicable regulation for the first reporting period of an eligibility period or for a subsequent one, using the appropriate template:

It should be noted that the promoter must submit a project report to the Minister only when filing an application for issuance, or when requested by the Minister.

Verification of a project report – verification organization–Promoter

If a promoter wishes to apply for offset credits issuance for its project for one or more reporting periods, as required by the Regulation and the applicable implementation regulation, the project report(s) must be verified by a verification organization accredited at the promoter’s expense. The verification must enable the verifier to conclude, with a reasonable level of confidence, that the project report complies with the applicable regulation and whether the project’s GHG emission reductions or removal of GHG are free of significant errors, omissions or inaccuracies. The verification organization shall conduct the verification and produce its report in accordance with the terms of the applicable regulation.

Application for offset credit issuance–Promoter

A promoter wishing to obtain offset credits for its project must file an application with the Minister that includes the information and documentation required by the cap-and-trade regulation, such as the project report(s) and the verification report, using the form provided for this purpose:

Offset credit issuance–Minister

When a complete application for the issuance of offset credits is filed, an analysis of the application is carried out. If all requirements have been met, the Minister then issues the offset credits and deposits 97% of the credits into the promoter’s general account in the Compliance Instruments Tracking System Service (CITSS), rounded down to the nearest whole number, while the remainder is paid into the environmental integrity account of the Minister.

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Developing regulations related to offset credit projects

Process

The responsibility for developing offset credit regulations rests with the Ministère. While it is possible to draw on existing regulated or voluntary market protocols for best practices and methodologies, the work of developing a regulation remains important since each one must define project-specific terms based on real Quebec conditions and the requirements of the Western Climate Initiative (WCI) regional carbon market, of which the Québec cap-and-trade system is part and parcel. This approach ensures the quality of all issued credits and that they are fungible in the carbon market.

In the process of developing a technical version of a draft regulation, legally applicable requirements are defined in order to ensure that all GHG emission reductions and removal of GHG meet the general criteria of offset credits, i.e. that they are:

  • 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 currently 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. In the cap-and-trade offset credit feature, the selected approach for ensuring capture permanency is a quantification method based on radiative forcing.
  • Verifiable–they are fully and sufficiently documented to enable a verification organization accredited to objectively determine whether or not the GHG emission reduction and/or removal of GHG project meets applicable requirements and standards.
  • Unique–they relate to a single credit issued under a single program, are used only once for compliance or emission compensation 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 drafted and released for public consultation. Received briefs are reviewed, opening the possibility of amendments prior to enactment of the regulation.

Work in progress

In order to allow more offset credit projects to be carried out and to increase the supply of Quebec credits, the Ministère is currently developing new regulations for offset credit projects and improving existing ones.

First, a technical version of a draft regulation on carbon sequestration through afforestation or reforestation on private lands in Quebec was developed in collaboration with the Ministère des Forêts, de la Faune et des Parcs (MFFP). The draft regulation includes an innovative approach to quantifying the effects of GHG removal. Based on radiative forcing, the “ton-year” approach rewards climate benefits obtained at the time of issuance of the offset credits, thus eliminating the traditional 100-year permanency requirement. In addition, it avoids restricting land use and forest management and greatly simplifies regulatory enforcement for the government. Finally, the approach is more advantageous fiscally than the traditional approach for projects with typical Quebec characteristics, as demonstrated by a comparative analysis prepared by the MFFP (French). The main characteristics of the protocol project are available in the presentation document. A draft regulation in the prescribed format is currently being drafted and will be released for public consultation at a later date.

Second, the technical version of a draft regulation on the biomethanation of manure is being prepared. A draft regulation in the prescribed format will then be drafted and released for public consultation. The main characteristics of the advance draft are available in the presentation document (French) (updated on March 31, 2021).

In addition, and considering the types of projects that are applicable in Quebec and the potential for GHG emission reduction and/or removal of GHG, the following have been selected for feasibility and relevance analysis and/or technical development:

  • Fuel substitution in the marine transportation sector
  • Refrigeration system conversion
  • Improved agricultural fertilizer application practices
  • Afforestation and reforestation on public lands

It is important to note that not all of these types of projects will necessarily be subject to regulation. More information will be released as the review moves forward. Project types may be added or removed, depending on the results of the review, with timing based on workload.

Suggested activities

Anyone may suggest offset credit activities that could at some point be regulated. In order to be considered, the suggested activity should not address a sector of activity or source already targeted by cap-and-trade compliance obligations. 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 scenario and project scenario
  • Information on the additional character of GHG emission reductions and/or removal of GHG
  • Quantification methodology
  • Potential GHG emission reduction and/or removal of GHG
  • Project monitoring conditions

Once this information is received, the Ministère will assess whether a given suggested activity potentially merits offset credit project regulation. While suggestions are welcome, the regulations under current development remain the priority.

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Partner entity offset credits

Offset credits issued by the State of California are fungible in the WCI carbon market. As of 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,” or DEBs. Credits with this attribute stem either from projects within California or in other 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 (and not the promoter, as in Quebec). 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.

Dernière mise à jour : July 22, 2021

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