Recommendations for Manitoba Cap & Trade legislation

    Sound Cap and Trade legislation will:

  • Create a hard cap on fossil fuel–based GHG emissions that matches science-based GHG emission reduction targets.
  • Establish a price on carbon, whether through a regulated cap or otherwise, of a sufficient value to cause short-term allocations of capital away from GHG-intensive means of production towards pro-climate industrial, municipal and household investments.
  • Invest revenue from a price on carbon in further GHG reductions where other instruments (regulatory caps on large emitters or offsets) are of limited effectiveness. Ecosystem protection to conserve carbon-rich forests and wetlands is an area in which direct government investment could play a valuable role;
  • Protect highly valuable forest carbon stores through conservation-focused policy instruments and legislation.
  • Broaden the coverage of the compliance requirement to all sectors and all industries before accepting an offset system as the safety valve for the large final emitters and fuel wholesalers.
Cap and Trade legislation should be designed to facilitate establishing large protected wilderness areas that are high in carbon values. This objective could be complimentary to the upcoming Manitoba Boreal Peatlands Stewardship Strategy and Terrestrial Carbon Management Plan which should both have protecting large Boreal carbon stores as a primary objective. A successful Cap and Trade legislation and all Manitoba climate moderation focused strategies and plans would be greatly bolstered by a provincial government commitment, together with an inclusive process, designed to protect at least 50% of Manitoba’s Boreal Region from industrial activities, with best management practices on the remaining landscape.

Forests protection and management:

The basis for climate change mitigation in the forest sector is that long-term storage of carbon on land provides the potential for humans to modify the dynamics of the carbon cycle and in doing so, influence the current increasing trend in global atmospheric CO2concentrations. Generally when considering the role of forests in climate policy, four types of pathways to reducing current profiles in GHG emissions are considered:1

  1. Avoid emissions through the maintenance of current carbon stocks by preserving and protecting forests or conservation-based forest management (e.g., longer rotation ages).
  2. Increase the reservoirs of biotic carbon through a combination of sustainable forest management practices, regenerating forests, reforesting degraded lands with plantations, and implementing agroforestry practices.
  3. Displace fossil fuels with sustainably produced forest biomass.
  4. Substitute more energy-intensive products (e.g., steel, concrete) with wood.

A number of forest-based activities could result in GHG reductions. Many of these activities focus on enhancing the current capacity of forests to store carbon. Forest management activities known to increase stored carbon within forests in both the short and long-term include the following:2

  • afforestation of agriculture and/or previously developed land
  • protection of natural forests from logging and other industrial impacts
  • avoiding the conversion of forests to other land uses
  • adopting low-impact logging approaches
  • lengthening forest harvest rotation ages
  • managing wildfire frequency and occurrence
  • reforesting or afforesting degraded lands, pasture and/or poor quality agricultural land
  • adopting agroforestry practices
  • modifying forest management planning and practices to account for carbon storage and carbon dioxide emissions
  • establishing green spaces and green belts in urban areas

Policy options related to Cap &Trade for forest conservation/protection of natural forests:

“Wherever practicable, mandatory GHG reductions should be achieved through regulations, direct regulations, such as standards, and market-based programs, such as cap and trade or fees. Reductions via regulation are inherently more certain than offset reductions. Moreover, the risks that offsets impose extend beyond environmental integrity and include weakened incentives for innovation in capped sectors, lost co-benefits, and large transaction costs to measure and monitor the global warming pollution benefits claimed by offset projects.”

While we acknowledge the role of offsets in reducing overall compliance costs, we believe the primary role of the offset program should be to provide incentives for emission reductions in sectors not regulated under the cap.

We recommend that offsets should either be excluded or of limited use and tightly regulated. Offsets are administratively complicated to provide assurance that real reductions in emissions are resulting. Instead, alternative incentives can be applied to sectors that are not under the cap to encourage emissions reductions. Furthermore, the use of ‘technology funds’ whereby emitters pay into a fund rather than purchase allowances provide a loophole and undermine real emissions reductions.

There are a myriad of market and non-market approaches governments can employ to enhance carbon storage in Canada’s forests. The literature on forest carbon policies is rich with options that governments could consider to complement, or use in place of, forest carbon offsets.

  • C&T auction revenue (see below)
  • Government purchase of forest offsets (see below)
  • Other policy options (see table below)

Policy approaches, types and instruments available to mitigate land-use related GHG emissions or to enhance ecological carbon stores Provincially and Federally.)

Provincial/FederalApproachInstrument
FederalGovernment SpendingCap-and-trade auction revenue spending
Government purchase of offsets
Market based instrumentPayment for Ecosystem Services
Tax credits
Information / Labelling
RegulatoryProtected Areas/Reserves
ProvincialGovernment SpendingCap-and-trade auction revenue spending
Government purchase of offsets
Incentive basedTradable permits
Information / Labelling
Payment for Ecosystem Services
Information/ Labelling
Conservation Banking
Tax credits
RegulatoryZoning and land-use planning
Protected Areas
Sustainable Forest Management

Complementary Policies including C&T revenue:

1.1.1 Set-Asides from Cap-and-Trade Auction Revenue to Finance the Protection of Ecosystems

Governments that auction tradable permits or implement carbon taxes stand to raise considerable revenue. A decision must then be made as to what to do with the new revenue that is generated. There are a number of options available to decision makers. The National Round Table on the Economy and the Environment proposed four main objectives for the use of revenues: minimize the economic impacts of carbon pricing, ensure fairness, further abatement objectives, and minimize leakage and competitiveness effects.3 Other appropriate objectives include protecting people on low income, ensuring regional fairness, funding climate change adaptation and providing climate finance for developing countries.

Investing revenue in reduced emissions through forest protection would be an example of further abatement that could also have a significant adaptation benefit. These investments could also be used to support regulatory and policy approaches.

Cap and Trade legislation should be designed to facilitate establishing large protected wilderness areas that are high in carbon values. This objective could be complimentary to the upcoming Manitoba Boreal Peatlands Stewardship Strategy and Terrestrial Carbon Management Plan which should both have protecting large boreal carbon stores as a primary objective. A successful Cap and Trade legislation and all Manitoba climate moderation focused strategies and plans would be greatly bolstered by a provincial government commitment, together with an inclusive process, designed to protect at least 50% of Manitoba’s Boreal Region from industrial activities, with best management practices on the remaining landscape.

The Western Climate Initiative recommends that revenue be used to reduce emissions in sectors not covered by the cap, including forestry.4

Other options for reducing emissions in uncapped sectors include subsidies for renewable energy and/or efficiency improvements, funding public transit, and funding agriculture mitigation programs.  Auction revenues to promote mitigation in the forest sector would be a more effective policy instrument than compliance offsets because reversals would not undermine the regulated cap.

1.1.2 Government Purchase of Forest Offsets

Governments could support mitigation in the forest sector by purchasing forest carbon offsets from the voluntary market. The British Columbia government has created the Pacific Carbon Trust, a provincial Crown corporation with a mandate to purchase and deliver British Columbia-based offsets primarily to meet its own public sector commitment to carbon neutrality.5 Other businesses and individuals are also able to purchase offsets from the Trust.

Emissions reductions achieved through government-purchased offsets would be complementary to the regulated emission reductions achieved through cap-and-trade or a carbon tax.

The offsets purchased by government will potentially have the same underlying issues, as outlines in chapter 3 however the use of offsets in this setting avoids undermining the integrity of the cap and trade system.

Offsets principles

If proceeding with forest carbon offsets, governments must carefully consider development of criteria that will ensure the credibility of regulatory offsets. A review of international forest carbon offset protocols and supporting literature suggests that a number of criteria should inform consideration of forest carbon offsets as a compliance option within a regulated emission reduction policy.

Apart from applying the most robust rules possible to govern a forest offset system, other more structural policy decisions could be made. For example, forest offsets could be excluded from the compliance market and used instead in other ways in which the risk of reversal does not threaten achievement of the cap. Some of these policy options are discussed in the following section.

We believe that a few considerations should be forefront in the design of an offset system:

  • Emission reductions must be real and clearly additional to reductions that would have occurred without the purchase of offsets.
  • Permanent credits must only be given for permanent emission reductions; for impermanent emission reductions, such as those associated with forestry and land use, credits should be temporary or deeply discounted.
  • Limits must be placed on regulatory compliance through the use of offsets.  The use of credits from forestry and land use activities could be further limited if there is less confidence about their performance or concern about the effect of forestry offsets on carbon price.
  • All offsets should adhere to a principle of no environmental harm
  • Forest projects should focus on conservation activities because these deliver the greatest short-term emission reductions and also the greatest environmental co-benefits.  Eligibility rules should be designed to prevent negative impacts of certain project types on undisturbed, carbon-rich ecosystems.

Environmental safeguards

Forest carbon storage is one of a suite of ecosystem services provided by forests.6 However, many of the types of forest carbon offsets being considered are solely focused on one objective, maximizing carbon sequestration and storage. While mitigating climate change is the paramount objective of an emissions reduction program, ecosystem resilience should ultimately be the long-term goal of any program that involves forests given the diversity of critical ecosystem services provided by forests.

Where a project overlaps habitat of a federally or provincially listed species at risk, projects must be consistent with the best available scientific advice for recovery of the species. All projects must meet world-leading standards for ecosystem-based forest management.

1. No net environmental harm

The general principle of “no net environmental harm” should be incorporated into the requirements of any forest-related elements of a cap-and-trade (e.g. forest offsets)

Both the draft North American Forest Carbon Offset Standard and the federal “Guide for Protocol Developers” that are referenced as “Good Practice Guidance” by the FCOP refer explicitly to the need to safeguard against non-GHG environmental impacts.7

In terms of practical requirements, the Forest Stewardship Council (FSC) standard provides an internationally-accepted, multi-stakeholder approved set of environmental requirements for forest management activities. As well, where a project overlaps habitat of a federally or provincially listed species at risk, it should specifically be required that projects are consistent with the best available scientific advice for the recovery of the species.

2. Eligibility

The only eligible projects for primary/intact forests should be avoided deforestation, or avoided degradation (avoided timber harvest). This would ensure protection for their vast carbon stores and biodiversity, and would avoid providing further financial incentive for logging in these areas. An alternative policy formulation is to require that all forest management projects shall maintain or increase forest carbon stocks over the contract period.”8 This would prevent projects focused on increased sequestration following harvest being applied in areas where protecting intact carbon stocks is the most effective action.

Additional recommendations related to criteria to ensure high quality forest carbon offsets:

CriteriaRecommendation
Additionality To be additional, an offset project must result in emission reductions that would not have occurred in the absence of the offset system. The CDM has developed a rigorous test for additionality that should be adopted by governments. The test for additionality includes a number of options including:

Financial viability- If the project requires offset revenues to be financially viable, it is most likely additional.

Legal barriers- activities/actions that receive credits must move beyond current demands on forest managers and forest owners as described by provincial forest policies or land use policies.

Technical barriers- The technical barrier test addresses whether there are specific non-financial barriers, like a lack of relevant technical expertise in a region that the project would have to overcome, or whether the project is “common practice” in the region where it is being developed.

Accurate quantification For a forest carbon offset to be legitimate, it is essential that emission reductions be accurately quantified. Components of the quantification system would include a credible baseline and a quantification of how the project moves beyond a business as usual approach.
AuditingIn order for governments to promote objectivity, credible and qualified third-party auditors not related to the project developers should perform both validation and verification. Indeed, the same third-party auditor should ideally not perform validation and verification for the same project.
Unique OwnershipTo ensure that forest carbon offsets are exclusive and not double counted a public registry for offsets needs to be implemented to enable transparency and tracking of offsets.
Permanence Given the underlying risk of reversal associated with forest carbon offsets governments should adopt temporary crediting of forest carbon offsets. Recognizing concerns from project developers of what temporary crediting might mean for establishing a forest carbon offset market we recommend that Governments create a buffer credit pool for the broader offset market. The Buffer Credit Pool is created based on a project’s overall risk classification, the percentage of carbon credits generated by the approved project activity must be deposited into the Pooled Buffer Account (to be withheld from sale) to cover permanence related project risks.9
Leakage The market regulator should conduct annual assessments of leakage using the CDM approved methodology and require an additional pool of credits be set aside in the Pooled Buffer Account(see Permanence above) to ensure that the atmosphere sees a net decrease in GHG emissions.

It is important to note that estimating leakage and mitigating its impacts is likely to increase the transaction costs associated with forest carbon offsets.

Environmental Impacts and Co-Benefit ConsiderationsWhile the primary role of forest carbon offsets is GHG emission reductions and removals governments should ensure that they do not create other environmental harms and also seek to develop project protocols that enhance a broad suite of ecosystem services from forest ecosystems.

All forest carbon offset projects should be screened for impacts on biodiversity with a policy objective of “no net loss” of biodiversity in forested landscapes. Forest protection should be the only eligible project activity in intact (previously not harvested or roaded) forests

Stakeholder ConsultationA stakeholder consultation processes should be initiated for any forest carbon offset projects whether they involve public, private or First Nation lands. Stakeholder consultation should consider the following criteria:

  • All stakeholders understand
  • All stakeholders have the opportunity to be involved
  • The meeting is well documented;
  • The meeting is in line with regional consultation approaches.
Timing Given that the company buying the forest carbon offset is going to use it within the regulated compliance period, credits must meet the following timing criteria:

  • Have a vintage (year of accreditation) that falls within the compliance period. Specifically, only accept ex-poste credits.
  • Crediting lifetime should be set to account for temporal changes in baseline conditions that may occur. The federal system recommends 8 years.
Linking to broader landscape level planningThe offset, while derived out of the need to comply with GHG emission reduction policy, will also need to be considered as a land-use type within broader regional and provincial land use planning and management. Governments should use the forest carbon offset system to support broader landscape management objectives.

1 M. Obersteiner et al., 2005. The role of forests in carbon cycles, sequestration and storage, Issue 3: The economics of carbon sequestration in forests, IUFRO Newsletter No. 3, http://www.iufro.org/science/task-forces/ (accessed June 30, 2009).

2 Michael Totten, Getting It Right: Emerging Markets for Storing Carbon in Forests, (Washington, DC: World Resources Institute and Forest Trends, 1999), http://www.forest-trends.org/documents/publications/FTCarbon.pdf (accessed February 28, 2009).

3 NRTEE. 2009. Achieving 2050: A Carbon Pricing Policy for Canada. Ottawa, ON. http://www.nrtee-trnee.com/eng/publications/carbon-pricing/carbon-pricing-eng.php (accessed July 22, 2009).

4 Western Climate Initiative. 2008b. Design Recommendations for the WCI Regional Cap-and-Trade Program. 48 p. (16 July 2009 http://www.westernclimateinitiative.org/the-wci-cap-and-trade-program/design-recommendations). Recommendation 8.2.

5 Pacific Carbon Trust. About Pacific Carbon Trust. http://www.pacificcarbontrust.ca/ (accessed July 20, 2009).

6 For more information on ecosystem services see: Millennium Ecosystem Assessment. 2005. Ecosystems and Well-being, Nairobi, Kenya: United Nations Environment Program.

7 See draft North American Forest Carbon Standard (Forest Carbon Standards Committee, Draft WD-3 (FCMA-10), June 2010), section 4.10.4, “Project proposals should not proceed if a project poses significant risk of environmental harm and proposed mitigation measures are deemed to be inadequate. Projects rejected under this clause may reapply to the appropriate Authority after making modifications that minimize negative impacts”, and Canada’s Offset System for Greenhouse Gases Guide for Protocol Developers, Draft for Consultation, 2008, section 4.2.

8 See for example the Forest Project Protocol of the Climate Action Reserve (CAR), version 3.2, which in section 2 specifies that “…a Forest Project is a planned set of activities designed to increase removals of CO2 from the atmosphere, or reduce or prevent emissions of CO2 to the atmosphere, through increasing and/or conserving forest carbon stocks.” A similar provision is also included in the draft North American Forest Carbon Standard (Forest Carbon Standards Committee, Draft WD-3 (FCMA-10), June 2010), section 5.3.1.3:  “All projects shall maintain or increase average live tree carbon stocks above those present at project initiation for the duration of the contract period. Averages can be calculated on a rolling 10- year basis.”

9 Voluntary Carbon Standard. 2008 Tool for AFOLU Non-Permanence Risk Analysis and Permanence Determination. Washington, DC: The Voluntary Carbon Standard http://www.v-c-s.org/docs/Tool%20for%20AFOLU%20Non-Permanence%20Risk%20Analysis%20and%20Buffer%20Determination.pdf (accessed July 16, 2009).

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