Carbon Trading in Canada

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Carbon Trading in Canada

• Conservation Agriculture Carbon Offset
  Consultation
• October 29, 2008
• Don McCabe
• Soil Conservation Council of Canada

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Presentation Outline

• Environmental Concern to Market Solution
• Real, Measurable, Additional (Government and
  Farmer Definitions)
• Baselines and Start Dates
• Market Participation (ownership, aggregation,
  liability, permanence)

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Environmental Concern
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Market Solution

• Kyoto and Canada
• - recognition of soil carbon sequestration
• Chicago Climate Exchange
• - commercialization
• Albertas compliance market
• -soil offsets part of the solution
• World Market Evolution

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Key Elements of a Performing Global Carbon Market

• Competitive energy markets
• Common, fungible units of C
• Standardized reporting of GHG data
• Transferability of assets across boundaries
• Number One Risk Lack of a Common Standard
• - World Bank, State and Trends
• of the Carbon Market 2007

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Carbon Accounting Standards
Alberta/ Canada
Accounting Rigor
Standardizing means making policy decisions!
Others?
CDM
GHG Protocol
CCX
Ease of Use
Policy Neutral, Flexible
ISO 14064-2
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Real, Measurable, Additional Process Definitions

• In Canada
• And some under construction..

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Emission Reduction Criteria Considerations

• Real Reductions beyond business as usual
  (Establish valid and defensible baseline
  activity and emission factors are the best
  available (post 2000)
• Measurable, Quantifiable agreement on best
  available science and activity data develop a
  Protocol. Must stand up to a Review Process.
• Verifiable Tracking and reporting process to
  support the Program - clear, defensible, and have
  good QA/QC procedures.

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Quantification Protocols

• Canadian Government will have Approved Protocols
  to ensure Real, Measurable and Verifiable
  criteria are met.
• Science-based
• International compatibility
• Streamlined use
• Transparency and consistency
• Reduced costs and administration
• Provides certainty for investors GHG tonnes
  reduced

Defines the Supply Size of the Reduction
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Process Definitions

• Additionality (Incrementality)
• GHG reductions/removals should only be recognized
  for project activities that would not have
  happened under business-as-usual
• Reversibility
• In removal projects, sequestered carbon can be
  released to atmosphere if activities terminated
• Discontinuity
• Ag projects often involve many small sites

Additionality GHG reductions/removals should only
be recognized for project activities that would
not have happened under business-as-usual
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Real, Measurable, Additional Farmer Definitions
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Real Environmental Value

• Water filtration and storage
• Biodiversity (numbers, above and below)

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Measurable Additional

• Soil organic matter testing
• Carbon sold as a commodity

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C sequestration as a Commodity
Repurchase Credits
Sell Credits
Maintenance Liability
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Measurable Additional

• Soil organic matter testing (M A)
• Carbon sold as a commodity (MA)
• - Contracts and aggregators
• - reversibility and discontinuity
  solutions
• Not too much of anything in farming to a farmer
  is Business as Usual

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Presentation Outline

• Environmental Concern to Market Solution
• Real, Measurable, Additional (Government and
  Farmer Definitions)
• Baselines and Start Dates
• Market Participation (ownership, aggregation,
  liability)

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Baselines and Start Dates

• Baseline types
• - Project specific
• - Sector specific (eg. composting)
• BUT for tillage protocols, Canada requires
  regional flexibility due to different methods of
  no till, climates and crop production.

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Basic Credit Creation in Tillage

• GHG reduction Coefficient X Activity
• Development of the Coefficients
• Canada emissions inventory approach for IPCC Tier
  2 coefficients - changes in Soil Organic Carbon
  using all realistic cropping-tillage-climate-soils
  management combinations at the SLC (soil
  landscapes of Canada) analytical unit
• Soil C Change Coefficients were weighted-averaged
  up to the soil reporting zones for CO2e
• Fuel consumption changes and N20 changes with
  tillage were derived as well and scaled to
  similar units

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Tillage Protocol

• Variables required based on farm location /
  dominant soil zone
• Reduction Factor / Sequestration Factor For
  Relevant Till Practice in Relevant Area and
  Geographic Zone

Map of Soil Zones
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Ensuring IncrementalityBy Baseline and Start
Date Definition

• Adjusting the Baseline Coefficients ensures
  only incremental carbon is rewarded
• The quantification science uses a discounted or
  adjusted baseline to subtract out carbon
  accrued to date (2000 start year)
• Focus is on the new C removals, not the new
  activities only exception to the rule
  (maintaining the sink is important)
• The coefficients in some regions are nearly zero
  due to high rates of adoption, or discounted by
  40 to 60 in others.
• Allows early adopters to gain credit and maintain
  the sink, alleviating a perverse incentive to
  till soil to enter the Offset system.

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Tillage System Management Protocol
Baseline Condition
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Tillage System Management Protocol

• Relevant SSs
• Energy use from
• B9 Pesticide Production
• B3 Seed Distribution (On-Site)
• B7 Fertilizer and Lime Distribution (On-Site)
• B11 Pesticide Distribution (On-Site)
• Carbon sequestration under B13 Soil and Crop
  Dynamics
• Nitrogen emissions under B13 Soil and Crop
  Dynamics

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Presentation Outline

• Environmental Concern to Market Solution
• Real, Measurable, Additional (Government and
  Farmer Definitions)
• Baselines and Start Dates
• Market Participation (ownership, aggregation,
  liability, permanence)

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Market Participation

• Ownership
• Carbon credits created by farmers on their own
  land or through contracts with landlords belong
  to landowners (SCCC, 2003)

• Aggregation
• Needed to bulk the carbon commodity, ensure
  low transaction costs and liquidity to market

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Market Participation

• Liability/Permanence
• Canadian Govt. wants temporary (buyer liable, 1
  yr.) and permanent credits (25 yr? period,
  producer liable for reversal)
• Market buyers are clear. Temporary credits are
  for TEMPORARY TARGETS. No market here!
• Producers require protection

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Alberta Approach to Permanence

• Government backs the liability
• Assurance Factor
• Based on expert opinion
• Risk Assessments - frequency of reversal of
  tillage practices
• Reversal risk shaves off C for every tonne
  created into Reserve-Holdback enabled by
  government policy
• Backs the liability of a reversal of Soil C
• Farmers must disclose reversal of practice - no
  credits earned for that year (no liability on
  farmer/project developer)

Takes a Time-discount problem and solves it with
a volume-discount reflecting historical reversal
frequency
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Summary

• Jennys Equation for soil formation
• Soilf(cl,pm,r,o,t)
• Soil is a function of climate, parent material,
  topography, biota and time

• Farmers are managers of the carbon and nitrogen
  cycles.
• Biota and time are the factors that can be
  managed here.

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Summary

• Farmers have real, measurable, additional carbon
  credits to offer world markets
• Clear policy is needed and will make or break the
  opportunities
• Commercialization can maintain and enhance
  sustainability with policy harmonization
• Stay tuned..

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Thank You!

• Questions?
• Don McCabe
• don.mccabe_at_ofa.on.ca