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ECCC Publishes Discussion Paper and Launches Consultation on Effective Carbon Markets

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Environment and Climate Change Canada (ECCC) recently published a discussion paper on “Driving effective carbon markets in Canada” (the Discussion Paper). The Discussion Paper sets out proposed changes to the federal benchmark criteria ahead of the federal government’s review next year. ECCC also launched consultations on the Discussion Paper, seeking comments and responses to questions included in the Discussion Paper from stakeholders.  This bulletin briefly summarizes the key topic areas, current requirements, the federal government’s proposal and considerations, and next steps set out in the Discussion Paper. Common scope of coverage Current requirement. The current benchmark requires that carbon pricing systems maintain a common scope, covering, at a minimum, an equivalent percent of combustion emissions as the federal backstop. It also requires market-based systems to cover industrial process emissions, and to limit eligibility for OBPSs, performance rebates, or the free allocation of allowances to sectors that are at risk of carbon leakage and competitiveness impacts of carbon pricing. Proposals and considerations. ECCC notes that the removal of the fuel charge (see our earlier bulletin here) requires rethinking how scope of coverage should work. The federal government is considering the following three options to modify the benchmark to specify the common scope criteria explicitly to ensure consistent minimum coverage across systems: Option 1: A threshold-based approach that would cover all facilities in specific sectors emitting above a certain level annually. Thresholds under consideration are 10kt per year (Option 1A) and 25kt per year (Option 1B). Option 1A would cover a large number of facilities and industrial activities, which would support market function and liquidity, but could create intra-sectoral competitiveness risks in some sectors. Option 1B would reduce these risks by covering fewer industrial activities where there is a significant split between emissions above and below the threshold, but may negatively impact market function…

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German Court Finds Apple Watch Not A ‘CO2-neutral Product’

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A panel of judges of the Commerce Chamber of the Frankfurt am Main Regional Court (the Court) has released its decision barring Apple from promoting three Apple Watch models as “CO2-neutral products”. The Court granted an injunction sought by Deutsche Umwelthilfe (Environmental Action Germany), finding that advertising the watches as a “CO2-neutral product”, based in part on the purchase of carbon credits from “nature-based” projects, was misleading under German competition law. This bulletin briefly summarizes the key findings of the Court. Decision. In finding that Apple must refrain from advertising the three models of Apple Watches as a “CO2-neutral product”, the Court determined that the claims were misleading and violated s. 5(1) of the Act against Unfair Competition, which prohibits misleading business acts that are likely to induce consumers or other market participants to make a business decision that they would otherwise not have made.  Apple’s claims were based, in part, on the purchase of carbon credits from a forest project in Paraguay. However, the Court held that 75% of eucalyptus plantations in the carbon offsetting forest projects in Paraguay were only leased until 2029 and that the CO2 offsetting could therefore only be guaranteed until 2029. The Court also rejected Apple’s argument that Verra’s buffer pool account was sufficient to secure the uncertainty of lease extensions according to the VCS Standard, and noted that in the event of non-renewal of the leases, the VCS Standard only allowed Apple to continue to monitor the forest project: “The possibility of only monitoring the remote part of the project area for the remaining duration and only having the buffer account mechanism intervene in the event of loss is not a CO2 compensation measure that is equally suitable for the continuation of the forest project beyond 2029.” (translated from the original German) In finding Apple’s claims misleading to…

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Jakarta Court Declares Revocation of Rimba Raya Forest License Void

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The State Administrative Court of Jakarta (the Court) has ruled in favor of PT Rimba Raya Conservation, declaring the Government of Indonesia’s revocation of the Forest Utilization Business License for the Rimba Raya project (the Project) void, according to a recent statement from Carbon Streaming Corporation. Although the ruling is subject to a 14-day appeal period, and as such does not yet have permanent legal force, the Court’s interlocutory decision allows activities on the project to resume immediately. Rimba Raya project. The Project is a REDD+ project registered with Verra that seeks to reduce emissions from deforestation and forest degradation. Since 2013, Rimba Raya has issued over 30 million credits, with more than 25 million of these already retired, making it the world’s largest single source of carbon credits. In Indonesia, entities developing nature-based carbon projects like the Project require a government-issued concession license to trade generated carbon credits. The license is revocable if local regulations are violated. PT Rimba Raya Conservation, the original license holder and project owner, partnered with InfiniteEARTH, the project developer registered under Verra and Indonesia’s national carbon registry, Sistem Registri Nasional (SRN). On March 2, 2024, the Indonesian government announced the revocation of the Project’s license, leaving uncertainty about its future. Remaining uncertainties. Carbon Streaming, a Toronto-based investor, had assessed the fair market value of its investment in the Project to be nil due to the revocation of the license. The Project’s future likely remains uncertain at this time, but the company has said that it will re-evaluate the fair market value of the Rimba Raya stream in the event there is a change in the facts and circumstances surrounding the Project, the revocation of the license and, the Indonesian national carbon emission regulations. For further information or to discuss the contents of this bulletin, please…

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Biden-Harris Administration Announces Principles for High-Integrity Voluntary Carbon Markets

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The Biden-Harris Administration (the Administration) today released the Voluntary Carbon Markets (VCM) Joint Policy Statement and Principles (the Principles), along with an accompanying fact sheet (the Fact Sheet). The Principles represent the U.S. government’s affirmation that high-integrity VCMs can and should play a meaningful role in reducing and removing global greenhouse gas (GHG) emissions and support the objective of global net-zero emissions by 2050. The Principles support the Administration’s commitment to ensuring VCMs effectively channel private capital into innovative technological and nature-based solutions, while also protecting natural ecosystems and supporting the U.S. and international partners in achieving their climate objectives.   The Principles follow other key U.S. climate-related legislation and policies, including the Inflation Reduction Act (see our earlier bulletin here), climate adaptation and resilience plans for federal agencies (see our earlier bulletin here), and the U.S. Department of the Treasury’s Principles for Net-Zero Financing and Investment, released last year, supporting the development and execution of strong net-zero commitments and transition plans by financial institutions, with a focus on Scope 3 financed and facilitated GHG emissions.   This bulletin briefly summarizes the Principles, their anticipated role in addressing climate change, and other ongoing U.S. government actions to support VCMs.    Principles for high-integrity VCMs. The Principles provide seven principles for high-integrity VCMs, drawing from existing best practices for credit certification standards, including the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the G7’s Principles for High-Integrity Carbon Markets, the Commodity Futures Trading Commission’s proposed guidance regarding the listing of voluntary carbon credit derivative contracts (December 2023), the Integrity Council for Voluntary Carbon Markets (ICVCM) Core Carbon Principles (see our earlier bulletin here), and relevant decisions under Article 6 of the Paris Agreement. The Principles are as follows: Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization. Credit-generating activities should avoid environmental and social harm and should, where applicable, support…

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ECCC Publishes Protocol for Improved Forest Management on Private Land

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Environment and Climate Change Canada (ECCC) yesterday published the Improved Forest Management on Private Land, Version 1.0 protocol (IFM Protocol) alongside the previously published protocols for Landfill Methane Recovery and Destruction and Reducing Greenhouse Gas Emissions from Refrigeration Systems (see our earlier bulletin here). The IFM Protocol provides requirements for project implementation and the methodology for quantifying greenhouse gas (GHG) reductions from eligible IFM projects. Carbon offset credits generated under the Canadian Greenhouse Gas Offset Credit System Regulations (the Regulations) from eligible projects can be used to comply with obligations under the federal Output-Based Pricing System or to meet voluntary climate targets or commitments.  The launch of the IFM Protocol follows British Columbia’s recently published revised Forest Carbon Offset Protocol 2.0 earlier this month, which, among other updates, now requires First Nation engagement and consultation on all projects (see our bulletin on the draft protocol here).  This bulletin briefly summarizes the IFM Protocol and provides updates regarding other protocols under development by ECCC.  The IFM Protocol Eligible projects under the IFM Protocol may register in Canada’s GHG Offset Credit System if the following conditions, among others, are met: Location. The project must be located in private forestland where carrying out forest management activities is legally permissible and is considered merchantable (“managed forestland”) in a province or territory in Canada. However, the IFM Protocol is also applicable to provincial and federal Crown lands where a First Nation has exclusive use and occupation. Baseline scenarios. Baseline scenarios may be updated during the crediting with a minimum of 5 years between updates. To determine the baseline scenario, proponents must follow a 3-step process set out in the IFM Protocol to determine regional and project-specific scenarios and the most conservative baseline scenarios between them. Eligible project activities. Project proponents may undertake any IFM activity that enhances carbon stocks within the project site relative to the baseline scenario. Eligible project activities include,…

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