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Home My WebLink AboutCRPS-08-001 - Carbon Offset Credit Creation Report To: Date of Meeting: Submitted By: Prepared By: Ward(s) Involved: Date of Report: Report No.: Subject: ,.. Mayor and Members of Council January 7, 2008 T. Speck T. Speck January 2, 2008 CRPS-08-001 RECOMMENDATION: Carbon Offset Credit Creation For information only. EXECUTIVE SUMMARY: None. BACKGROUND: At Finance and Corporate Services Committee on December 3, 2007, staff were requested to report back to Committee regarding a meeting with a representative of the Green Municipal Corporation about carbon offset credit creation and sale. REPORT: On December 13, 2007, staff from Corporate Services (GM, FM and Finance (Fleet) and the Mayor & Council offices, attended a presentation by General Manager of the Green Municipal Corporation (GMC). Management) ; Doug Salloum, What is GMC, and what are carbon offset credits? The GMC is a not-for-profit corporation owned by the Federation of Canadian Municipalities (FCM) and created in 2003 to learn about the creation and sale of emission reductions. They work to assist Canadian municipalities in accessing the regulated Offset Credit market. In the regulated Offset Credit market, purchasers buy offsets as a strategy to meet federally regulated emission reduction targets. Purchasers are usually large regulated emitters, such as: electricity produced by combustion oil and gas forest products smelting and refining iron and steel cement lime and chemicals some mining Under the federal regulatory framework, these large emitters are required to reduce the intensity of their production of carbon dioxide and several other pollutants. Starting at a base of 2006 levels, these emitters must show reductions in the intensity of their carbon dioxide (and other pollutant) production by an amount of 18% by 2010, and another 2% per year thereafter, until 2020. Besides actually taking steps to reduce their emissions, large emitters also have a number of other options available to them in order to meet those targets. One of those options is to purchase offset credits from non-regulated emitters. Essentially, this means that the regulated emitters are purchasing credit for emission reductions that have been created by another organization. Municipalities are included among the non-regulated emitters from whom regulated emitters may purchase offset credits. Is creating and selling carbon offset credits feasible for Kitchener? Conceptually, municipalities can create offset credits by implementing carbon dioxide-reducing projects. (ex. Landfill gas project; fleet fuel switching; district energy; energy efficiency, etc.) However, in order to create validated offset credits that can be sold to a regulated emitter, each project must: a) be implemented in compliance with federal protocols; and b) comply with federally regulated processes for validation, monitoring, verification, certification and registration. Staff were advised by Mr. Salloum that these requirements can impact the feasibility of moving forward with a project for the purposes of creating offset credits as, in many instances, the cost of compliance with protocols and the verification requirements will exceed the value of the offset credit that is created. As such, while a municipality may wish to move forward with a project for its own purposes of reducing carbon dioxide output, doing so for the purpose of selling off credits may not be feasible. In addition, not many federal protocols for offset credit creation have been developed that apply to municipal operations and the types of carbon reduction projects a municipality could realistically implement. For example, there is currently no protocol for fleet fuel-switching, and therefore any fuel switching project a municipality might undertake is, at this time, not eligible to be validated for the sale of offset credits. The first protocols that are expected to be developed will be for landfill gas, and district energy projects. More protocols are anticipated to be developed by the end of 2008. As such, at this time, Mr. Salloum advised that pursuing carbon offset credit creation/sale would be premature unless the municipality has a landfill gas, or district energy project. At the time of this report, Kitchener has neither a landfill gas nor district energy project in the planning stages. As part of their ongoing work, GMC and Mr. Salloum are working to convince the federal government to create programmatic protocols that would apply to other types of projects municipalities might undertake, and to make changes to the required verification process, so that pursuing carbon offset credit creation and sale would be more economically feasible for municipalities. What can GMC do for a municipality that does have a viable carbon offset project? For municipalities that have viable projects, the other way GMC enters the picture is in helping to offset some of the barriers and risks to accessing the offset credit market. Barriers may include having the technical expertise available for feasibility studies and design, monitoring of emission reductions, etc., all of which GMC can help resource for the municipality. Risks include the fact that buyers want certainty in their supply of offset credits, and may require the seller to sign a guaranteed supply contract. If an individual municipality signed such a contract and their project subsequently fell short in terms of the amount of offset credit created, the municipality would then be forced to go to the market to purchase the shortfall in order to meet its obligations under the supply contract. GMC proposes to help offset this risk by being the "middle-man", as it were, by being the organization that enters into the supply contract and pooling available offset credits from a number of municipalities to ensure certainty of supply. GMC offers the following options for municipalities as regards carbon offset projects: 1) Purchase Agreement - whereby the municipality carries out all of the regulatory tasks required to create the offset credits; and GMC pays a guaranteed price to the municipality, and shares the benefits if the actual selling price ultimately exceeds base minus costs; 2) Offset Credit Management Agreement - whereby GMC would carry out the validation, verification, certification and registration process, and the municipality would be responsible for selling to the market; or 3) Both Purchase Agreement and OC Management Agreement At this time, GMC is entering into only conditional agreements with municipalities, conditional upon the following things occurring: that federal protocols for the type of project actually get developed; ability to reach agreement with the municipality on what the project cost will be, and who will pay what; agreement with the municipality on the formula for sharing revenues; that there be enough agreements in place between GMC and municipalities to create a business for GMC. Again, at this time, Mr. Salloum indicated that it would be premature for any municipality to consider entering into a conditional agreement with GMC, unless the municipality has either an upcoming landfill project or district energy project, as those are the first types of project for which federal protocols are expected to be developed. Where do we go from here? Staff have requested that GMC add the City of Kitchener to their list of municipalities to be provided with updates about GMC's progress on convincing the federal government to develop programmatic protocols to improve the cost-effectiveness and availability of municipally-relevant carbon reduction projects. It is suggested that the City continue to monitor GMC's progress in this regard, to identify any potential projects for further investigation in future. FINANCIAL IMPLICATIONS: N/A COMMUNICATIONS: N/A CONCLUSION: At this point in time, while the City of Kitchener may wish to pursue projects aimed at reducing the municipality's carbon output, it seems premature for the City to pursue projects for the purpose of regulated carbon offset credit creation and sale on the market. With regard to any potential for sale of carbon offset credits, it is recommended that the City continue to monitor the progress of the Green Municipal Corporation in working to have the federal government develop protocols that are both applicable to municipal operations, and likely to increase the cost effectiveness of validating the carbon offsets created. Manager, Corporate Services