Big industry can lower carbon pricing costs as feds launch first offset credit market

Canada's first federal carbon offset market kicked off Wednesday as the final piece of the puzzle in the carbon price for big industry takes shape.

But the arrival of the new offset system was greeted without applause by climate activists who say it simply makes it cheaper for big industries to keep polluting.

Carbon offset markets allow governments, companies and other organizations that emit greenhouse gases to pay for those emissions through the purchase of credits created when emissions are cut somewhere else.

Voluntary markets — private companies raising capital for emissions-reducing projects like wind farms and tree planting by selling credits to people looking to pay for their own carbon footprints — have existed for years.

Compliance markets are newer and allow entities that pay a carbon price to lower the amount of emissions they must cover by buying credits from a regulated market. The credits are almost always less than the carbon price — on average about 10 to 20 per cent less in compliance markets that already exist.

British Columbia, Quebec and Alberta have some compliance credit systems already but there was not one at the national level until now.

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Environment Minister Steven Guilbeault said Wednesday the new federal system is a key piece of Canada's plan to hit its emissions target for 2030 and get to net-zero emissions by 2050.

"Climate change is the crisis that will persist," he said.

"That's why we cannot pause and we must continue to go faster and further."

The new system targets the big industrial emitters that pay the federal carbon price, but any entity in Canada can buy offset credits from the system. The companies in the federal carbon pricing system can only use credits for about 75 per cent of their covered emissions.

Companies that are paying the federal carbon price can buy those credits to reduce the amount of carbon price they have to pay. 

For now, only municipalities that install new methane capture systems at landfills will be part of the new compliance market. Over the next year, the government intends to finish the rules to add projects that cut emissions from refrigeration systems, forests and soil management on farms.

The government said it is also now starting to write the rules to add direct air capture technology that pulls carbon dioxide out of the air and traps it underground.

One credit will be created for every tonne of emissions reduced by approved projects. They will only count after being audited to ensure those cuts are not being made to comply with existing regulations or carbon pricing. The cuts also have to be permanent and they will be tracked on a public register.

Louise Comeau, director of climate change and energy solutions at the Conservation Council of New Brunswick, said big industries in Canada are already being asked to do very little about their emissions.

Big emitters covered by the federal carbon price pay that cost — currently $50 a tonne — on only five to 20 per cent of total greenhouse gases produced.

Comeau said cutting the cost by allowing emitters to buy credits for less than the cost of the carbon price simply lowers their financial incentive to cut their own emissions.

"The whole thing is ridiculous," said Comeau.

She said the emissions being cut at landfills and farms and from forests should be cut in addition to the cuts needed from big industry. It's not an either-or situation, she said.

Shane Moffatt, head of the nature and food campaign at Greenpeace Canada, called it a "massive step back."

"This doesn't get us anywhere," he said. "The carbon market is a shell game."