April 6, 2009 - The true up period for the Alberta 2008 GHG compliance year ended on March 31, 2009, its second compliance period since the Specified Gas Emitters Regulation (SGER) was created. The first year, 2007, was actually only six (6) months since the SGER came into force on July 1, 2007. Related to this, Alberta Environment is completing an audit of all GHG offset projects registered on the Alberta Emissions Offset Registry and submitted for the 2007 compliance year. The past year (2008) saw a significant increase in both the number of Green House Gas (GHG) offset projects and Large Final Emitters (LFEs) using GHG offsets to help meet their compliance needs1.
Alberta Environment is conducting an audit of the GHG offsets submitted for the 2007 compliance year. During this period seven (7) registered GHG offset projects created 1,555,913 tonnes of Carbon Dioxide Equivalent (CO2e), with 980,338 tonnes from the projects submitted by LFEs as part of their 2007 compliance requirement. Three (3) of the projects where from agriculture and all tillage based. These tillage based offsets produced 557,590 tonnes of CO2e and 201,086 tonnes of them, or 36%, were submitted by LFEs. From preliminary audit results, one project has been identified as a concern by Alberta Environment and they have declared the Emissions Credits Corporation Tillage Program "Project on Hold Pending Further Alberta Environment Audit Results."2 This affects 87,651 tonnes of CO2e submitted in the 2007 compliance year and the balance of the project, or 329,955 tonnes of CO2e. Therefore, these figures are removed from the remainder of the analysis and discussion until Alberta Environment removes the hold.
Activity picked up considerably in the 2008 compliance year with twenty five (25) additional GHG offset projects being created, verified, and placed on the registry with all or portions of the GHG offsets being submitted by LFEs for compliance. Ten (10) of the projects were from agriculture and like the previous year, all were tillage based. Total GHG offsets created equaled 3,406,728 tonnes of CO2e across all projects of which 2,538,616 tonnes was submitted by LFEs for 2008 compliance. Within these totals the agricultural offsets (tillage) accounted for 1,000,976 tonnes of which 802,058 tonnes was submitted by LFEs for 2008 compliance.
Overall, there are still 1,099,423 tonnes of CO2e remaining from projects developed in 2007 and 2008. This represents approximately 22% of all offset tonnage from all registered projects. To place this in perspective, LFE compliance demand for the 2008 compliance year is estimated by Preferred Carbon to be between 10 and 11 million tonnes of CO2e. So as we can see there is significant room to grow supply, and the carry over tonnage may have little impact on prices given the demand created by current regulations. What is surprising is the relatively high level of carryout given the motivation to use them for compliance (to reduce costs, interest expenses, etc). Alternatively, this level of inventory could reflect positions being carried forward in anticipation of higher GHG offset prices.
Some other interesting observations from the past year include the following:
• A significant increase in the number and variety of GHG offset projects. For example, this included biomass, methane capture, aerobic composting, landfill gas capture and destruction, CO2 capture and enhanced oil recovery, energy efficiency, and acid injection.
• A significant increase in the firms using agricultural offsets (all tillage based). For the 2007 compliance year it was TransAlta and Epcor, but they were joined by Nova Chemicals, Lafarge Canada, Apache Canada, City of Medicine Hat, ConocoPhillips Canada, and Suncor in 2008.
• In 2008 there was a distinct shift higher in the number and volume of compliance based CO2e created by non-ag projects. This may reduce the arguments made by some critics that tillage based offsets would flood the market and diminish the opportunities for other more "additional" projects.
The 2008 compliance year under the Alberta scheme to reduce GHGs saw continued growth and greater acceptance of GHG offsets as an integral part of the solution. Looking ahead, it would appear that the market is now starting to fully embrace tillage offsets as a viable compliance option for LFEs. The outcome of the Alberta Environment audit of ECC's tillage based project in 2007 may yield some interesting observations, while also demonstrating the Alberta Government's determination to maintain creditability in the offset system.
Bruce Love, Preferred Carbon
1 All figures are derived from the Alberta Emissions (GHG) Offset Registry as of April 3, 2009 and are subject to change.
2 As seen on the Alberta Emissions (GHG) Offset Registry
Disclaimer: The views expressed in this article are those of the author only and are not intended to represent financial advice.
