An Interview with Andy Ridge of Alberta Environment

Karen Haugen-Kozyra, Director of Policy Development and Offsets Solutions, Climate Change Central, sat down with Andy Ridge, Business Unit Leader, Climate Change Policy, Alberta Environment, to talk about offset projects in Alberta. 

Karen - Alberta introduced a regulatory framework for greenhouse gas reductions of industry on July 1, 2007.  Part of that framework allows companies to invest in offset projects as part of their compliance, thus creating a new commodity in Alberta.  On March 10, 2008, the federal government published details of their regulatory framework, which includes mandatory reductions for industry and allows offsets as part of the emissions trading system.  First, what are offsets?

Andy - We've been working on our greenhouse gas regulatory system for the past couple of years in Alberta, and we're now creating more detail around carbon trading and offsets as one component of a broader regulatory system.  In simplistic terms, offsets involve somebody reducing emissions on behalf of another entity or person.

Karen - What kinds of offsets are there?

Andy - In the Alberta system, an allowable offset is essentially an emission reduction that occurs within Alberta that's not otherwise required by law.  We have started the system by creating a list of 16 government-approved quantification protocols for what we feel are acceptable offsets.  These protocols range from the management of landfill gas emissions to renewable energy like bioenergy and wind. From an agricultural perspective, potential offsets include how we manage livestock and reducing tillage so there's enhanced uptake and storage of carbon in the soil rather than releasing it to the atmosphere.

Karen - How would someone go about bringing an offset to market in, say, a reduced-tillage project?

Andy - If a farmer was undertaking a no-till activity, under the conditions outlined in the regulation, an offset would be created by documenting the change in practice, which includes confirming the size of land, the time frame and the soil region. There are also rules around how you actually confirm the reduction number is accurate, which includes a third-party verification, and then there's the actual selling of the offsets credits.

Karen - You really need to trace the creation of these things through collecting data.  These third-party checks almost sound like a tax audit.

Andy - There's an information trail required, so the audit is necessary for documenting that somebody is actually doing what they said and that an emissions reduction is occurring. This is a new, immature market and there are still a lot of questions about who needs to do what and how this ultimately translates to money in the pocket.  We're working to provide that clarity so people know what's expected of them and if it's a viable option they should pursue.

Karen - Having these protocols available provides some certainty to the process.

Andy - The stock market is a mature system with processes to confirm that if I own a stock it has a certain value.  In this new offset system, there are government-backed guidelines and requirements to ensure there's a transferable commodity the creator can get fair value for and that the person who's buying it can use to help meet their regulatory needs.

Karen -The first six-month commitment period where large emitters had to figure out how they were going to comply with these new regulations has ended on March 31, 2008.  Who is using offsets?

Andy - Alberta's regulatory system - one of the first in North America - applies to any facility that emits over 100,000 tonnes of greenhouse gas emissions annually.  This represents about 100 facilities such as oil sands activities and cement, fertilizer and electricity plants. They have this 12-per-cent intensity reduction target, and for those that are not able to come into compliance through investments in their own facilities, they'll have to use the other compliance options.  After March 31, we have a summary of how each facility has met these compliance obligations and the types and volumes of any offsets being used.

Karen - What are the rest of the tools the government has helped develop to assist people in undertaking offsets projects?

Andy - We've established an emissions offset registry, which will help demonstrate what projects are going through the Alberta system and add more transparency to the process. We've also created guidelines outlining the expectations associated with third-party verification of these offset projects, including signoff of the necessary information, so there's added assurance that these are real reductions.

Karen - Because many agricultural offset projects involve small amounts of emission reductions from individual farms, an aggregator of projects known as the Carbon Offset Suppliers Association of Alberta has arisen. Can you talk a little bit about the role of aggregators?

Andy - This is an emerging niche that right now applies largely to agriculture, because there are potentially a lot of individual carbon-reduction activities that don't produce enough tonnes of reductions in a given project or period to attract buyers.  So pooling a range of farm projects becomes more attractive.  An aggregator essentially goes to all the farms and brings everybody into one common contract that is marketed on behalf of all the farms.  We're trying to provide the necessary support to ensure consistency within the role of aggregators.

Karen - Are there any other offset systems and how are they different from Alberta's?  What sets us apart from some of the voluntary ones we've heard of?

Andy - It's being considered in a lot of international jurisdictions, but beyond exploring, through pilot projects, there is generally limited experience of actually applying the offset tool in a regulatory context.  The federal government has identified an opportunity around domestic offsets, but real regulatory experience is somewhat limited, certainly on the scale that Alberta's talking about.  Our system looked at what else was out there, including efforts like the Chicago Climate Exchange, which has some rigour but is still a voluntary system.  Comparing a voluntary system with a regulatory system is a bit like comparing apples and oranges.  In a regulatory system like ours, you want to be sure you have real reductions - as there are compliance obligations - and consistency and that the processes to sign off and provide assurance have sufficient oversight.

Karen - We've now reached the point where the 100-odd Alberta industrial facilities have to come into compliance, and we're now seeing announcements of sales from projects.  What are the beefs and bouquets about the Alberta offset system so far?

Andy - We've received both, because it's a new system we got going in short order (the federal system, by contrast, isn't set to go into effect until 2010).  We've put a system in place that is going to expand and evolve over time.  Right now, only emission reductions in Alberta are eligible and some of our regulated facilities would like to see that perhaps expanded, and that's something we'll consider over time.  We'll also look at creating more quantification protocols in Alberta and improving clarity in the process so that people have a better appreciation for what it means to bring a new project through the system, so they can start making investment and market decisions.

Karen - There was skepticism about one of the compliance options, which is the $15 a tonne technology credit, and why anybody would do an offset project when the market is capped at $15.  Yet we're already seeing three projects registered at about 600,000 tonnes of soils offset credits, so it looks like people are finding ways to make it work.

Andy - As the first regulated jurisdiction in North American, we've added a new compliance cost for facilities that compete with companies in jurisdictions that don't have the same obligation.  So in that light, we're trying to balance the price signal to get our industry to consider how to reduce their greenhouse gas footprint.  Offsets provide a means to achieve those reductions, and we see the $15 as a starting point that is a reasonable price signal.  It does have an influence over the offset market, but it certainly isn't a cap. So the $15 isn't a limitation, but we know that it's a price signal that's making facilities really consider what they want to pursue to comply.

Karen - How will we link Alberta's offset system with the federal government's?

Andy - That's a question in a lot of people's minds, and unfortunately there is no clear answer right now.  By putting our system in place, we have a starting point for comparing with what else is out there.  And while the federal system doesn't start until 2010, we're beginning to see more details that are helping to assess where we are aligned and what areas could be problematic.  We have a very positive working relationship with the federal government, which is building off our work from a regulatory, technical, policy and protocol development perspective. So we're starting with very similar systems from a broad regulatory framework on intensity-based industrial facilities.  Where you begin to see differences are in specific details like the start date for offset projects, which Alberta recognizes as 2002 but which may not be where the federal government is going. At the end of day, we've committed to saying Alberta's industry will face one regulator and it will be Alberta Environment.

Karen - Thank you.