| The Onset of Offsets |
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By Shane Pepin In last month's newsletter I discussed the Conservative Party of Canada's proposed plan to address the growing concern over climate change. Among the tools that Canadian industry can use to meet greenhouse gas emissions targets is an offset market. Though details have not been released on how the system will function, it will most certainly involve participation from organizations in almost all sectors of the Canadian economy, should they wish to take advantage. With this in mind, the following article takes a closer look at carbon offsets: what they are, how they work, and how Canadian organizations may benefit from an offset system. In the context of an emissions trading scheme, an emissions offset is defined as the investment in greenhouse gas reductions made by another organization to compensate for your own emissions. The driver for this type of activity is based primarily on the concept of environmental and economic efficiency. Essentially, the theory goes that it makes more sense to cut emissions where it is cheapest and easiest to do so. The majority of carbon offsets created today are under the auspices of the Clean Development Mechanism (CDM) of the Kyoto Protocol. The Kyoto protocol is an international agreement that calls for developed nations to significantly reduce emissions by 2012 versus a 1990 baseline. A number of tools are provided for participants to achieve their targets, the most popular of which is the CDM. Under the CDM, a developed nation may invest in approved greenhouse gas reducing projects taking place in developing nations. Going from concept to completion can be a long process when it comes to generating offset credits, as it involves numerous steps and participants. Essentially, if an organization wishes to generate offset credits to sell in the marketplace they must:
Though the process for producing carbon offsets under CDM can be complex, there are a few basic tenets that must be upheld for a successful project: Verifiable – the project produces measurable greenhouse gas reductions Sustainable Development – the project upholds the concepts of sustainability (ie. does not trade one environmental harm for another) Additionality – this is somewhat abstract, but the offset project must be one that would not have occurred in the absence of the carbon-offset program The above concepts are what one would expect in most carbon-offset markets, including those that are proposed for Canada. The types of offsets that are acceptable for a given carbon market can vary, although the following are some of the more common types: Energy Efficiency Energy efficiency projects often relate to improvements in technology made by an organization designed to reduce energy use, therefore reducing emissions. The types of improvements can vary widely by organization and industry. Emissions reductions can be achieved through measures such as lighting retrofits, heating system improvements, refrigeration technology improvements and other energy consumption improvements. Fuel Switching Transportation has always been a large source of greenhouse gas emissions. Therefore, it often seen as a clear choice for structured emissions reductions. Fuel switching, defined as moving from one fuel to another that reduces GHG emissions, is another source of emissions offset. Typically, this involves the use of a bio-fuel such as ethanol based biodiesel. Renewable Energy Related to fuel switching, renewable energy projects avoid the use of fossil fuel combustion in favour of carbon neutral activities to produce electricity. Types of renewable energy projects can include solar photovoltaic cells, wind power turbines and geothermal heating projects. Nuclear power, which is essentially carbon-free, is not usually considered for offset credit generation as it has its own set of negative environmental impacts associated with radioactive waste. Methane Gas Capture and Burning Though not commonly discussed, methane gas is also a powerful greenhouse gas that is regulated under most carbon regulatory schemes. In fact, methane is 21 more potent a greenhouse gas compared to carbon dioxide. It is this relationship that provides the basis for methane gas capture and burning offset projects. Under a methane gas capture and burning project, methane is captured as it is emitted. The captured methane is then burned in the production of energy, with carbon dioxide emissions as a result. By avoiding the emissions of methane in the atmosphere and replacing them with carbon dioxide, the overall global warming affect is reduced. Forestation Perhaps the most controversial of the major offset activities, forestation involves the planting of trees in order to increase the amount of carbon dioxide removed from the atmosphere. There are two types of forestation activities that can be considered reforestation and afforestation. Reforestation involves the replacement of harvested trees, while afforestation involves the introduction of trees to previously unforested areas, normally agricultural land. The acceptance of forestation activities as an offset can vary by program, as issues of quantification and verification exist. Forestation also differs from the other offset projects in that it involves increasing the rate at which carbon dioxide is removed from the atmosphere, as opposed to reducing the initial amount of greenhouse gases emitted. Canada's carbon offset market will include most of the above project types, mainly energy efficiency, renewable energy and methane gas capture and burning, as each was mentioned specifically in the federal government's carbon market overview. Though the goal of a carbon market is to allow regulated industries to meet their emissions reduction requirements, offsets have the additional affect of encouraging investment in emissions reductions in non-regulated sectors of the economy. Offset markets may also provide benefit to organizations that have already initiated emission reduction strategies, as offset credit generation can provide a potential revenue stream. Since the federal government has already stated that an offset market would precede the emissions credit market, organizations that have planned or initiated emissions reduction projects may be able to take advantage of a high demand for offset credits prior to the carbon markets launch. For now, however, there is still uncertainty of how the market will function. The exact details of the Canadian carbon market and offset system will ultimately determine how individual Canadian organizations can best benefit. - 30 - Editorial Contacts:
Dan Morel |