by Carbon credits, also known as carbon offsets, represent one ton of carbon dioxide or other greenhouse gas emissions reduced or removed from the atmosphere. Countries and jurisdictions around the world have implemented carbon pricing mechanisms to reduce emissions and mitigate climate change. Canada has provincial and federal systems in place to price and regulate carbon.
How Carbon Pricing Works In Canada Carbon Credit
Canada has both explicit carbon taxes and cap-and-trade systems to price carbon emissions from large industrial facilities, as well as fuels used in buildings and transportation. Under an emissions trading system, the government sets a cap on the total amount of emissions allowed. It then issues allowances equal to the cap and requires companies to hold enough allowances to cover their emissions. Companies can trade allowances with one another as needed. Those that emit less than their allowance can sell extra credits, while higher emitters must buy more allowances. Over time, the cap is reduced to achieve emissions reductions goals.
British Columbia and Quebec have cap-and-trade programs linked together that cover around 60% of Canada’s population. Both provinces auction allowances and credits that can be traded. The federal backstop applies an outright carbon tax in provinces without their own system. It started at $20/tonne in 2019 and will rise $10 each year until $50/tonne in 2022. Fuel charges are also applied directly at the pump. Revenue generated is returned to citizens through climate action incentive payments.
Generating Carbon Credits From Emissions Reduction Projects
Approved offset protocols allow qualifying projects that reduce or remove emissions to generate tradable carbon credits or offsets. Common types of projects include renewable energy, energy efficiency, forestry practices, waste diversion, and agricultural practices. Project developers apply to provincial regulators for verification and issuance of credits representing quantified emissions reductions.
One offset credit equals one tonne of CO2e removed or reduced. Credits can be banked, traded or retired to offset an equivalent amount of emissions by regulated entities to comply with carbon pricing policies. This establishes a financial incentive to invest in projects that reduce emissions outside capped sectors. Offsets play an important role in reducing overall abatement costs.
The most established offset protocols in Canada include renewable electricity, forestry management, ozone depleting substances, and landfill gas capture. About 85% of offsets issued to date are from forestry projects, with the majority in British Columbia which has long recognized the carbon benefits of sustainable forest management. Alberta has also developed numerous compliance offset protocols.
International Opportunities For Canadian Carbon Credits
While the domestic carbon remains the largest opportunity, Canadian offset credits can also be used to comply with emissions trading obligations in other jurisdictions under international carbon trading links and offset credit recognition agreements.
One such emerging opportunity is under Article 6 of the Paris Agreement, which establishes a framework for international cooperation on carbon pricing and trading mechanisms. Canada, Chile, China and the European Union have launched a pilot carbon trading program called the Carbon Offset and Reduction Scheme for International Aviation (CORSIA).
Canadian offset credits validated under recognized standards could potentially be issued as CORSIA Emissions Unit credits for use by airlines to offset required emissions increases until 2035. This could help grow demand for high-quality reductions in Canada. Other potential future s include California, the Northeast US RGGI program, and eventual expansion of domestic links between systems like those in Canada, China and South Korea.
Standardization And Governance Of Canada’s Carbon
As carbon pricing expands across Canada and interest in offsets grows, harmonized standards are important for environmental integrity and efficiency. All provincial offset protocols undergo scientific review and public consultation before final approval.
The federal Technology Innovation and Emissions Reduction (TIER) regulation also sets a minimum federal baseline for offset usage while respecting provincial jurisdiction. The Canadian Standards Association (CSA) has developed a comprehensive GHG assertions standard (ISO 14064-2/3) and offset project standard (ISO 14064-2/3) to ensure consistency across programs.
The non profit Standards Council of Canada also accredits verification bodies, checks conflict of interest, and oversees auditor competence using CSA standards. This oversight structure aims to standardize high-quality quantification and verification across Canada’s decentralized carbon.
The carbon credits play an important role in decarbonizing Canada’s economy through financial incentives for emissions reduction projects. As the country advances climate action and carbon pricing expands domestically and internationally, the opportunities for trading Canadian offsets are growing significantly. Continued development of robust compliance protocols and governance will help maximize emissions reductions and drive investment in the low-carbon transition.
*Note:
1. Source: Coherent Market Insights, Public sources, Desk research
2. We have leveraged AI tools to mine information and compile it
About Author - Money Singh
Money Singh is a seasoned content writer with over four years of experience in the market research sector. Her expertise spans various industries, including food and beverages, biotechnology, chemicals and materials, defense and aerospace, consumer goods, etc. LinkedIn Profile
