Saskatchewan’s System for Carbon Credit Trading
Note: The rules and law may have changed since this article was first published. It is provided for archival purposes but you should consult with your lawyer for the current state of the law
The notion of carbon credits for greenhouse gas emissions is relatively well known today, but it is still subject to some skepticism.
Briefly, the idea is that businesses and industries which “absorb” more carbon dioxide (CO2) than they emit are given credit for this surplus. The surplus credits can be sold, usually to companies that emit large amounts of CO2. The skepticism arises from suspicions that this is just a shell game creating value from nothing. It might work economically, the critics say, but it has no practical impact on greenhouse gas emissions.
To deal with this, governments are creating scientifically verified systems for recognition of carbon credits. The Management and Reduction of Greenhouse Gases Act (the “Act”) is expected to receive Royal Assent shortly. The Act will provide the legislative authority to purchase, sell and trade carbon credits in Saskatchewan.
Saskatchewan’s carbon credit trading system will be similar to Alberta’s, where large emitters are regulated and may purchase carbon credits as part of their required reduction in emissions. Companies act as aggregators and buy carbon credits from producers, in turn selling these to the large emitters in the province. The emitters have the option to either purchase carbon credits from aggregators or pay a set fee per tonne of C02 emission into a technology fund. Saskatchewan’s set fee per tonne of C02 has not yet been established but will be stated in the Act’s regulations.
To create a competitive trading market, large emitters must see value in purchasing carbon credits from aggregators or producers rather than paying into the technology fund. The important variable here is the price per tonne of C02 emission that the large emitters are required to pay. If the government-set price is too low, there will be no incentive for large emitters to seek cheaper carbon credits from producers – they will simply pay the required fee into the technology fund.
Agriculture and forestry are the only industries which can remove carbon from the atmosphere and the large emitters are usually electricity generators or involved in the mining or oil and gas sectors. Agriculture is particularly important in Saskatchewan. Alberta’ system details what specific agricultural practices are required by the producer to claim carbon credits. Among other things, the particular parcel of land for which carbon credits are sought must be actually producing annual crops. The producer must provide confirmation of the actual reduced tillage practice on that parcel of land as well as provide detailed farm records to show specifically where the reduced tillage occurred. It is expected Saskatchewan will adopt a similar protocol.
The regulations will also clarify the period of time producers can go back to accumulate carbon credits. In Alberta, producers entering the provincially regulated market are able to claim credits retroactively to 2002 if their operations comply with the regulations.
At the moment, Saskatchewan does not have as many large emitters as Alberta, but it is expected that early adopters will later benefit from consolidation of the carbon credit trading markets in Canada and across North America. Both Alberta and Saskatchewan have stated they will adapt their provincial programs to comply with any future national program regulated by the Federal government. The Canadian government has indicated that if they roll out a national carbon credit program in the future, it will be in line with US standards, thereby facilitating a North American market. Looking further into the future one can envision collaboration with the European Union’s Emissions Trading System, the world’s first cap-and-trade program for CO2 emissions. If a functioning international market is established, Saskatchewan producers are set to benefit greatly, given the vast number of zero-till acres suitable for generating credits in the province.
A robust carbon credit trading market presents many opportunities for enterprising individuals and organisations including, among other things: creating and maintaining a registry of credits, independently verifying credits, aggregating credits, providing contractual documentation to ensure reliability of the market, producing and selling credits, purchasing credits to meet emission targets and brokering the purchase and sale of credits.
Saskatchewan is one of the largest emitters of carbon dioxide per capita in the world and The Management and Reduction of Greenhouse Gases Act is a commendable first step in reducing our emissions. The regulations, policies and protocols to be implemented in the future should help create a solid carbon trading market in Saskatchewan.