Work is finally underway to establish a carbon offsets program in Ontario, which will have significant ramifications for local farms and forestry projects, industry in the province, the planet as a whole - and lawyers. The Ministry of the Environment is currently establishing protocols for the program, setting standards for the supply side (what counts and how many tonnes of carbon can be reduced), and it plans to have pilot projects for farms and forests up and running in 2008.
Its greater goal is to have a full-fledged provincial offset plan in place with a series of offsets developed and registered when the proposed federal emissions trading system goes live in 2010, as set out in the Regulatory Framework for Air Emissions issued this past April, wherein the federal government declared its intention to impose mandatory reductions in greenhouse gas emissions for heavy industrial emissions producers.
“We’re trying to develop a series of offsets which reflect Ontario’s circumstances in agriculture and forest management, and provide those as possible carbon offsets to be viewed as part of a national cap and trade system,” says Jim Whitestone, acting director of the ministry’s policy and climate change branch.
The idea behind a carbon offsets system is that financial incentives are given to projects that wouldn’t ordinarily happen, says Whitestone, and that reduce emissions beyond “business as usual”; which in the context of farms and forests may include sponsoring such activities as manure management, soil sequestration, planting trees, sustainable forestry practices, etc.
On the other end of the equation, the regulated industrial emitters will be able to buy and sell credits amongst themselves, and/or to invest in projects that create verified emission reductions - which might include new technologies, wind power facilities, etc.
“I think we aren’t going to limit it to farms and forests,” says Whitestone. “Those are sort of early pilots we want to get going . . . we’re definitely not precluding other areas - and we’re working with other jurisdictions on developing protocols that could apply to the electricity sector as well as other sectors, for example.”
“The whole idea behind cap and trade . . . it’s really a compliance tool,” he says. “It allows you to set, in some cases, real reductions in greenhouse gases - but you’re giving industry some flexibility, and potentially lower cost options to meet those requirements.”
Whitestone adds that the project will provide positive benefits for developers by creating new income streams, potentially offsetting the costs of replacing old equipment, etc.
And although it’s early yet, he says that both the provincial and federal governments are cognizant of not wanting to have the large emitters delay implementing changes prior to 2010.
“They will try and give credit for early action, just so that there’s no chill sent into industry. You don’t want them to be waiting to see the final regulation before taking action - you want them to feel [the incentive] to take action while the final system’s being put into place.”
As for the question of what the project might mean for the planet as a whole, Whitestone acknowledges there has been “a broad debate” around cap and trade offsets. Since emitters in Ontario are regulated under an intensity-based approach (targets are measured as a fraction of greenhouse gas emissions per unit of economic output), reductions in the targets don’t necessarily result in a reduction of the total greenhouse gas output, as emitters can increase their production, maintaining - or even increasing - their aggregate emissions.
Under the proposed federal program, the emissions intensity reduction targets for each sector are based on an improvement of six per cent a year from 2007 to 2010, plus two per cent per year thereafter until 2015, producing an industrial emission intensity reduction of 26 per cent, resulting in a projection that there will be a 20 per cent reduction of GHG emissions by 2020 - assuming the proposed intensity reductions outstrip production.
Although ultimately the larger issue is aggregate emissions, says Douglas Tingey, associate counsel with Davis LLP, carbon offsets programs still have their uses.
‘‘On a project-by-project basis, they’re very effective,” says Tingey. “I mean, a windmill’s a good thing, from a greenhouse gas perspective, isn’t it? . . . We should be encouraging any of these projects.”
“We have people taking pot shots at the offsets program because of its policy context - it’s not that it’s bad, or that it’s not an effective incentive, or that there aren’t projects out there that are deserving,” he says.
“I’m happy with the intensity approach personally - not professionally - if it’s in the context of greenhouse gas emissions regulation,” he said. “It’s a very important tool, it’s a good approach. But from a big picture, though, it doesn’t make a lot of sense to be using offsets to allow people to meet intensity targets if all we’re doing is increasing our aggregate emissions in a more efficient way,” says Tingey.
As the debate continues over the greater merits of a carbon offsets program will likely continue, another question remains: what, if anything, will the new carbon offsets program mean for Ontario’s lawyers?
Tingey says that it’s important to recognize that this is not just an important development for environmental lawyers, but for the whole profession.
“There’s work here for securities lawyers, for tax lawyers, for banking lawyers, for just basic commercial lawyers who put deals together; there’s work for almost every business law discipline out there - international stuff.
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“This is not an ‘environmental lawyer’s problem.’ There are environmental law issues, there are a whole host of compliance issues, getting companies compliant with the system; but the offset projects, they’re not about environment law - they’re about business law. It’s project law. It’s putting deals together, it’s financing projects, it’s putting shareholders’ agreements together - it’s linking the projects together to the people who are motivated to participate in the offset creation process,” he says.