Generating (and selling) emission offsets in Alberta’s agricultural industry

The agriculture and agri-food sector is recognized as a key driver of Alberta’s and Canada’s economies. On a national scale, it accounted for 7.4% of the country’s Gross Domestic Product and employed 2.3 million people in 2018 (see the government of Canada’s published data). However, this sector also accounts for a sizable percentage of Canada’s and Alberta’s respective greenhouse gas (GHG) emissions. Governments have therefore explored means to incentivize emission reductions while supporting the continued growth of agriculture to parallel population and resource demands.

A central mechanism Alberta has developed over the last 15 years to encourage the reduction of GHG emissions in agriculture – both in primary agriculture and processing – is by way of emission offsets under the Province’s Technology Innovation and Emissions Reduction Regulation [PDF] (TIER). The opportunity to generate offsets within the sector and sell them to regulated large GHG emitters has recently garnered attention at the federal level, including as follows:

• plans to continue to gradually increase the federal carbon pricing threshold (which acts as a backstop or minimum standard for provincial carbon pricing) from $40 per tonne CO2e in 2021 to $170 per tonne in 2030 (see Osler’s infographic for an overview of carbon and GHG legislation across Canada);
• publication of draft Greenhouse Gas Offset Credit System Regulations, pursuant to which the federal government has proposed a protocol that would allow farmers to generate emission offsets by using sustainable agricultural land management activities that reduce GHG emissions and enhance soil carbon sequestration relative to traditional practices and, in turn, allow farmers to sell offsets to large emitters that are subject to the federal output-based carbon pricing system (OBPS) under Part 2 of the Greenhouse Gas Pollution Pricing Act (GGPPA); and,
• the announcement that carbon offsets generated under several of Alberta’s provincial emission offset quantification protocols under the TIER, including two protocols based on reducing GHG emissions from cattle, qualify as valid offsets that can be sold and used under the federal OBPS (see the list of recognized offset protocols for the federal OBPS).

In anticipation of continued expansion of a provincial and national marketplace for agriculture-based emissions offsets, we provide below answers to some key questions for those interested in Alberta’s opportunities for generating and selling these offsets.

What are emission offsets?

In Alberta, the TIER imposes an emissions benchmark on facilities that emit 100,000 tonnes or more of GHG emissions (and smaller emitters that voluntarily opt-in). Facilities subject to TIER must meet their emissions benchmark by reducing their year-over-year operating efficiencies or, to the extent they cannot meet the benchmark, they must either:

• contribute money to the TIER Fund to obtain a “fund credit” for each tonne of excess emissions the facility produces;
• submit emission performance credits generated by a TIER-regulated facility that reduced their emissions to below their benchmark in the current or previous compliance year; or
• submit emission offsets generated under an approved emission offset protocol. Facilities subject to Alberta’s TIER regime are exempt from carbon pricing under the federal GGPPA.

Emission offsets are generated by facilities that undertake a project or activity in Alberta that results in the reduction or sequestration of GHG emissions. The facility must also meet the standards set out for the quantification of offsets in an approved quantification protocol, verify its offsets through a qualified third party, and submit project information required by Alberta’s Standard for Greenhouse Gas Emission Offset Project Developers for its offsets to be registered in the Alberta Emissions Offset Registry. Each properly registered offset represents one tonne of CO2e that a TIER-regulated facility can purchase and use to effectively offset the number of excess tonnes of CO2e it produces in a given year, relative to the applicable benchmark.

What agricultural activities can be used to generate offsets in Alberta?

Only activities covered by an approved quantification protocol can qualify to generate emission offsets. Alberta currently has 19 approved protocols, of which the following are most directly applicable to agriculture:

• Quantification Protocol for Agricultural Nitrous Oxide Emission Reductions (e.g., on-farm practices to reduce emissions from nitrogen sources and reducing fuel use associated with the management of synthetic fertilizer, manure fertilizer and crop residues);
• Quantification Protocol for Reducing Greenhouse Gas Emissions from Fed Cattle (e.g., manure handling and feeding practices and technologies in the finishing stages of beef cattle at feedlots);
• Quantification Protocol for Selection for Low Residual Feed Intake Markers in Beef Cattle Protocol (e.g., the use of a genetic merit trait procedure in cattle breeding that results in lower GHG emissions from enteric fermentation and manure);
• Quantification Protocol for Biogas Production and Combustion; and,
• Quantification Protocol for Energy Generation from the Combustion of Biomass Waste.

Alberta currently also has a Quantification Protocol for Conservation Cropping, which applies to agricultural practices that result in reduced fossil fuel use and increased soil carbon storage. However, that protocol was withdrawn in December of 2020 and will expire on December 31, 2021.

Agriculture operations may also be able to generate emission offsets pursuant to quantification protocols approved for solar and wind-powered electricity generation, distributed renewable energy, and energy efficiency projects (e.g., emission reductions through facility improvements).

As noted above, the federal government has proposed the establishment of an “Enhanced Soil Organic Carbon Protocol” focused on the adoption of regenerative agriculture land-management practices that enhance soil carbon sequestration and go above and beyond business as usual. While the protocol itself has not yet been released, the federal government has proposed its introduction for quantifying emission offsets (referred to as “offset credits” under the federal regime) in provinces where the same activity is not already covered by a provincial offset program. As Alberta does not currently have a similar offset protocol in place, this new federal protocol would give Alberta farmers a further opportunity to generate offsets that can be sold to large emitters subject to the federal OBPS.

What is an emission offset worth?

The price of an emission offset in Alberta is driven by supply and demand. However, the price of a TIER fund credit – currently $40 per tonne – effectively acts as a price ceiling. Using 2019 as an example, data shows that the price paid for emission offsets in the province varied month-to-month between the TIER fund credit price and $10 below the fund credit price (see the 2019 data [PDF]). Because the federal OBPS also provides facilities subject to the regime with the option to pay an excess emissions charge to comply with emission targets, the federal regime has the same effective price ceiling for offsets that will be generated in accordance with protocols under the proposed Greenhouse Gas Offset Credit System Regulations. As noted above, the federal carbon pricing threshold is expected to increase annually by $15 per tonne, from $40 per tonne CO2e in 2021 to $170 per tonne in 2030. This in turn will increase the ceiling on the value of emission offsets, and drastically increase the potential benefits of generating and selling emission offsets in Alberta.