What are compliance carbon credits?
Carbon credits are traded on two kinds of markets: compliance markets and voluntary markets. Compliance markets are mandated and regulated through legislation and give companies the ability to purchase carbon credits with the goal of complying with their emissions reduction obligations. Voluntary markets function outside of a compliance regime and enable companies to voluntarily reduce emissions without an intended compliance purpose.
In Alberta, compliance carbon credit trading and use is governed by the Technology Innovation and Emissions Reduction (TIER) regulation system. This regulation encourages the development of emissions-reducing technology by large industrial emitters, while maintaining the competitiveness of industries. Specifically, the TIER enables large-scale emitters to comply with the federal benchmarks affirmed in the Greenhouse Gas Pollution Pricing Act, SC 2018, c 12. Under the TIER regulations, there are two types of carbon credits that are available as compliance options: Emission Offset Credits and Emission Performance Credits.
Emission Offset Credits (EOC) can be created by facilities and sectors that: (i) are not subject to the TIER emissions reduction regulations and obligations themselves, (ii) reduce or remove greenhouse gas (GHG) emissions in accordance with a government approved protocol and (iii) meet the requirements of the TIER regulations for creating EOCs. Once created, each EOC represents a one-tonne removal or reduction in GHG emissions. For an EOC to be valid, there must be a third-party verified project plan and a statutory declaration. Once verified, EOCs are serialized and registered on the Alberta Emission Offset Registry (AEOR). At that point, an EOC can be sold to, and used by, a TIER regulated facility as a way of complying with their emission obligations.
Emission Performance Credits (EPC), on the other hand, are publicly listed on the Emission Performance Credit Registry (EPCR) and can be created by TIER regulated facilities that have reduced their emissions below their reduction target specified by the TIER. Each one-tonne additional reduction of GHG emissions below the TIER benchmark target constitutes one EPC. Once created, EPCs constitute a revocable license that can be banked, transferred between companies, or retired by facilities in order to meet their compliance obligations.
Registration process
Entities wishing to trade EPCs or EOCs will need to register on the Alberta Carbon Registries portal. Although both the AEOR and the EPCR are both offered through the Alberta Carbon Registries website, they exist as separate registries. Consequently, both the AEOR and EPCR require an Alberta Carbon Registries Account; however, following that the registration process differs depending on whether the facility is wanting to list EOCs or EPCs.
i. How do I register Emission Offset Credits?
Registering EOC’s involves a two-step process in order to be publicly listed. First, the entity wishing to register will need to complete a project initiation request. This requires the entity to estimate its projects lifetime emission reduction and/or removal and confirm billing details. Following this, the entity will receive an email notification whether it has been approved and receive instructions for how to submit the registration fee.
Once a project initiation request has been approved and the applicable fee paid, the next step is to list the facilities EOCs it is wishing to sell. To do this, the entity must: (a) submit a project listing – this requires that the facility upload an “Official Project Report” and a “Verification Report,” (b) enter the serialization details and (c) provide a “Statutory Declaration.” Following this, the entity will receive an email notification whether or not the project registration has been approved and instructions for AEOR registration fee payment.
ii. How do I register Emission Performance Credits?
EPCs are publicly listed on the EPCR. To register EPCs, the entity wishing to do so must “Create a New Facility” on the EPCR portal. From here, the entity must fill out the required information regarding its facilities operations – the registry website will then indicate what information will be publicly accessible prior to completing submission. Once submitted, the entity will receive an email whether or not it has been approved.
Finding someone to buy or sell carbon credits
While EOCs and EPCs are registered/transferred on the AEOR and EPCR, the actual purchase and sale of carbon credits are primarily transacted in the over-the-counter (OTC) market . An OTC contract is one that does not trade on an asset exchange and can be negotiated (even to price) between two counterparties.
Market participants will enter into OTC contracts for the purchase and sale of the EOCs and EPCs. These OTC contracts will contain “confirmation” type details (price, quantity, vintage, delivery date etc.), and such other negotiated terms and conditions as the counterparties may mutually agree. Once the counterparties have negotiated a deal to buy or sell EOCs and/or EPCs, they will change ownership on the AEOR and EPCR.
I have a deal, but how do I transfer carbon credits?
i. Transfer of EOCs
EOCs are transferred using the “Transfer Emission Offsets” menu in the AEOR. The transferring will select the recipient company, enter the amount of EOCs being transferred, and confirm the transaction has been negotiated outside of the AEOR registry. The transferring facility will then be able to choose whether the transfer will occur with Alberta Carbon Registry review– an automated transaction without registry review is the default – and submit. Once the request is submitted, the recipient company will receive the transfer request by email. From here, the recipient company can review and confirm the EOC transfer. This will generate an Emission Offsets Transfer Authorization form that must be electronically signed by both parties. Upon the signing of the authorization by both parties, the recipient company will receive an email prompting them to continue with the transfer request. Once completed, an email will be sent indicating that the EOC transfer was approved and containing an invoice of the Alberta Carbon Registry transaction fees for the recipient company.
ii. Transfer of EPCs
EPCs are transferred using the “Inter Company Transfer” option on the EPCR. Once selected, a drop-down menu will appear which will enable the authorized signer of the transferring facility to select the recipient company, as well as enter the amount of EPCs they wish to transfer. The transferring facility will then be able to choose whether the transfer will occur with Alberta Carbon Registry review– as with EOCs, an automatic transaction without registry review is the default – and submit. Once submitted, an email is sent to the recipient company for review and submission. Following confirmation by the recipient company, an EPC Inter Company Transfer Authorization form will be sent by email to both companies for electronic signature. Once the authorization form has been signed, the recipient company will receive an email with a link to continue the transfer. This will also allow the recipient company to determine how it would like to use the EPCs. A company may choose to either transfer, bank or retire the transferred EPCs as a compliance emissions reduction. Once the transfer has been completed, an email will be sent confirming that the transfer has been approved and provide instructions for how the recipient company can complete payment for Alberta Carbon Registry transaction fees.
If you have any questions about this topic, please reach out to the authors, Courtney Burton and Stewart Maier. Special thanks to summer law student George King, who assisted in preparing this insight.
