Ernie Tallio has seen a lot on patrol from his community of Bella Coola, B.C. He’s rescued swamped kayakers, recovered bodies and protected sacred sites throughout his community. 

As a Nuxalk Guardian, Tallio relies on a boat and a truck owned and maintained by the Nuxalk First Nation, a salary to feed his family and gas to get him out on the land. 

Those costs — and those of guardians and staff in 14 communities throughout the Great Bear Rainforest — are partially paid for through an obscure scheme intended to put a price on the protection of land.

But a carbon offset project that was developed specifically to fund protection of the Great Bear Rainforest is struggling to find buyers. In fact, the only reliable buyer is the provincial government, which set up the B.C. carbon market in the first place.

The papers that established the B.C. Forest Carbon Offset Protocol were signed in 2008, and the first credits hit the market in 2012, to great fanfare. 

But sales of B.C. carbon credits have not come close to living up to expectations. 

“When the whole carbon market was started in B.C., everybody thought that these tonnes [of offset carbon] were just gonna fly out the door,” explains David Oxley, an administrator at Coastal First Nations.

Everybody, it turns out, was wrong. 

“I don’t think it could be described as a home run right now,” says Phil Cull, CEO of NatureBank, a reseller of the credits. 

As much as $25 million in unsold carbon credits (around 1.9 million tonnes) are sitting on the metaphorical shelf. Some date back to 2013, the second year of sales — and they don’t keep forever. While they don’t exactly expire, carbon credits can lose their value over time.

Monitoring work after the Nathan E. Stewart oil spill in Heiltsuk territory. Photo: Tavish Campbell

“As they get older — as they’re from older vintages — they’re often not eligible to be used in certain systems and are less valuable over time,” explains Joseph Pallant, director of climate innovation at Ecotrust Canada.

The slow sales mean the money that funds a lot of the protection of the Great Bear Rainforest — the world’s last remaining intact temperate rainforest — is under threat. 

About a third of the revenue that funds activities like those of the Nuxalk Guardians comes from carbon credits, according to Brodie Guy, executive director of Coast Funds. 

“You can see how important carbon credits have become in terms of revenue,” Guy says. “It’s funding they use on all these soft costs that are vital to permitting, monitoring, stewarding their territory.”

Slow sales, Guy says, mean the general revenue pools are much smaller than what is necessary to fund the breadth of work being done on the coast. It’s been a mounting concern for coastal First Nations and the NGOs they work with for the past two years.

“It puts the whole framework of what they’ve done over the last 10 years in jeopardy.”

Carbon offsets, explained

Carbon offsetting is a simple concept that gets complicated as soon as it hits the real world. Think of it this way: you burn a litre of gasoline getting your car to the store and back. That releases a stream of carbon dioxide, which contributes to climate change. If you want to reduce that impact, you have two choices: don’t drive your car, or offset the impact of the emissions you did release by planting a tree. The tree pulls carbon from the air and stores it.

A carbon market is a big system for putting a value on the emissions we produce, and supporting projects to reduce them — things like tree-planting, building wind farms or, in the case of the Great Bear Rainforest, supporting stewardship instead of logging. 

It can work either voluntarily, by people or companies looking to do good, or by regulation, by having the government set a cap on emissions. Companies then pay others, who are emitting less, to keep their overall emissions below that cap. 

In its 2008 climate plan, the B.C. government pledged it would offset all of its own emissions to become the first carbon-neutral jurisdiction in North America. It achieved that, arguably, beginning in 2011. That was seen as laying the groundwork for a bigger cap-and-trade system. 

“The carbon neutral government was supposed to be the first step in B.C. adopting cap-and-trade regulations,” Cull explains.

The cap-and-trade system would have provided a massive new market in which the credits could have been sold. 

Two bald eagles perch on old-growth in the Great Bear Rainforest. Photo: TJ Watt

“Demand would have been in the millions or tens of millions of tonnes, right out of the gate,” Pallant says. Each of those tonnes can be worth as much as $15 to a buyer. 

But the system never happened. In 2011, the B.C. Liberal government under premier Christy Clark abandoned the cap-and-trade plan, meaning all the offsets generated in the Great Bear Rainforest are either bought voluntarily, or bought by the provincial government. 

The provincial government buys about 600,000 to 700,000 tonnes of carbon offsets each year to account for what it generates in emissions. But the Great Bear Rainforest produces much more than the province needs. It’s currently sitting on 1.9 million tonnes of unsold “inventory,” or credits.

“Collectively, the Great Bear projects generate more carbon offsets each year than the province can reasonably purchase under the carbon neutral government program,” a spokesperson for the Ministry of Environment and Climate Change Strategy wrote in an emailed response to questions.

Meanwhile, demand from the voluntary market (the do-gooders who want to offset their emissions) hasn’t kept up with supply: a report from Forest Trends in 2017 found the total worldwide value of offsets sold was cut steadily, reaching just a third of its 2011 value by 2016. Demand in the voluntary market shrank by 24 per cent between 2015 and 2016 alone. 

Slow sales

When the project was first announced, the belief was that everyone would want to buy their carbon credits from the Great Bear Rainforest because of its worldwide appeal.

“We’ve got a great story behind the tonnes,” Oxley says. “When you buy our carbon offsets, we can tell you exactly where the money is going.”

Guy agrees the region has major cachet.

“The Great Bear is a model of Indigenous self-government and stewardship that’s known around the world,” he says.

But in setting up the project, the B.C. government made a decision that some have blamed for the lack of international interest.

Carbon markets are a relatively new thing, and as a result they can be plagued by mistrust. Buyers are often paying someone not to do something, like cut down a stand of trees. That requires trust that a) the trees exist, b) the trees would have otherwise been cut down, and c) the person will in fact not cut down the trees after the deal is done. Even after all is said and done, parties have to determine exactly how much carbon was spared in the process. So, naturally, there have been carbon-offset scams in the past. 

Third-party verification systems have been set up to audit the claims made by offset projects, and bring some trust into the system. One, the Verified Carbon Standard (VCS) has emerged among the most trusted. And it does have a protocol that could have been applied to the Great Bear Rainforest.

“Corporate voluntary buyers are much more comfortable with VCS as a standard,” Cull explains.

But, anticipating a cap-and-trade market that never arrived, the province created its own standard, the B.C. Greenhouse Gas Emission Offset Protocol. The result is that it’s more complicated and time-consuming to verify them, making them much less attractive to big buyers.

“People didn’t think nature should be commodified.”

“We’ve talked to some purchasers in the States, and they don’t want to buy carbon offsets that aren’t clean and unquestioned,” Oxley says.

Pallant disagrees with the interpretation that the province went wrong in setting up its own system instead of adopting an existing standard. He points out that all governments developing cap and trade compliance systems build their own standards and protocols, rather than utilizing a voluntary offset standard.

Building a tailored system is the standard approach, he says. “It wasn’t really a decision that could go another way.”

The province has subsequently created a way of linking the credits with the Voluntary Carbon Standard for buyers who prefer those credits.

Pallant points the finger more at the lack of a cap-and-trade system and the demand it was supposed to create, and at the general decline in demand for credits on the voluntary market. That lack of demand was exacerbated in this case, he says, by a skepticism from environmental organizations toward forest-based offsets.

A 2008 report from the Pembina Institute and David Suzuki Foundation, which ranked different kinds of offsets, put forest-based offset programs in five of the bottom six ranks out of 20. None were given a “strong performance” rating.

“People didn’t think nature should be commodified,” he says. 

A white kermode bear, or spirit bear, in the Great Bear Rainforest. Photo: TJ Watt

Carbon juggernauts could create demand

To people like Tallio and his crew, these offsets aren’t just jargon. They’re a system to fund jobs that have real value to their communities. They have saved lives across B.C.’s central coast.

The carbon offset revenue also allows First Nations to apply for matching funding from philanthropists and government agencies, opening up even larger new pots of money.

So it is critical for the communities that they find buyers. 

One of the possibilities presents a paradox for the environmentally conscious: liquefied natural gas. The giant LNG Canada terminal being built in Kitimat is going to generate huge carbon emissions — around 3.45 million tonnes of carbon dioxide equivalent per year in its first phase alone, doubling or tripling in its final state.

One way for the carbon behemoth to slightly reduce its impact would be to buy up offsets, protecting rainforest in exchange for its huge carbon output. Cull says the government is considering that. 

Pallant and Oxley both expect the Paris accord to be another source of new interest. Companies will have to account for their emissions starting this year under the agreement, and many are beginning to look for a way to offset their emissions in the voluntary carbon market. The Canadian government is also setting up its own federal offset standard.

Meanwhile, some of the world’s most recognizable brands have begun voluntarily offsetting their own emissions. Microsoft is buying carbon credits to offset its emissions retroactively to its founding, with the goal of being carbon-negative by 2030. Gucci claims it is now carbon-neutral. JetBlue is offsetting as well.

“Voluntary offsetting is going up quite significantly,” Pallant says. “The interest is picking back up.” 

Oxley says he’s “quietly optimistic” that things will start to pick up, and the carbon credits will start to move off the shelf. If they do, guardians up and down the coast can breathe a sigh of relief.

“The work that it’s supporting,” Oxley says, “it just makes it all worthwhile.”

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On Dec. 9, after much deliberation and political theatre, the federal government, eight provinces and three territories signed the Pan-Canadian Framework on Clean Growth and Climate Change.

Saskatchewan and Manitoba were notably absent from the list of signatories.

But also absent was an explanation of just how and how much Canada will rely on emissions trading  — technically known as internationally transferred mitigation outcomes — to meet its 2030 target of cutting greenhouse gas emissions down to 524 megatonnes of carbon dioxide equivalent per year, a reduction of 30 per cent compared to 2005 emission levels.

In its framework Canada vaguely pledged to “continue to explore which types of tools related to the acquisition of internationally transferred mitigation outcomes may be beneficial to Canada.”

Yet Canada may be eyeing the offset tool as a fundamental part of achieving emissions reductions, especially if global resource prices rebound and the oilsands expand to production levels allowable under newly approved pipelines.

Simon Donner, climate scientist and assistant professor of geography at the University of British Columbia, says Canada was “definitely a leading part of the push to have a carbon trading market” included in the UN Paris Agreement, which aims to limit temperature increases to as close to 1.5 degrees Celsius as possible.

Dale Marshall, national program manager with Environmental Defence says emissions trading is “clearly something that’s being held up as not only an option but as a priority” for the Canadian government.

The new federal climate framework contains a gap, Marshall says, between expected emissions and climate targets.

“That gap can be filled by being more ambitious with regulations, it can be filled by ensuring the carbon price continues to rise…or it can be filled with the purchase of international credits.”

“The last option is certainly in the framework.”

However, emissions trading has developed a shoddy reputation over the years — which may account for the government’s decision to downplay the possibility of deploying it.

So, what exactly are emissions offsets or emissions trading schemes? How do they help reduce emissions? And what are the potential downsides?

How Does Emissions Trading Work?

If you’ve travelled on an airplane in recent years, you may have been invited to pay for offsets to mitigate the emissions associated with your flight. The money can be used to protect trees from deforestation, fund renewable power projects or cogeneration technology, or eliminate pollutants such as nitrous oxide and hydrofluorocarbon.

Governments have also participated in voluntary, one-time offsets, such as when the federal Conservatives spent $226,450 to make the 2010 Winter Olympics “carbon neutral.”

The purchase of offsets, whether personal, corporate or by government, basically amounts to a voluntary accountability mechanism.

An emissions trading scheme (ETS) is a different kind of beast, and one that arguably makes a bit more sense given there are now national climate commitments under the Paris Agreement that countries are expected to meet (as opposed to individuals who could ostensibly choose not to travel, for example).

Under a trading scheme, a jurisdiction can have an abatement opportunity “certified” by a governing body.

Investments in a wind farm or preservation of a peat forest designated for burning would be deemed equivalent to a certain number of tonnes of carbon dioxide equivalent. These tonnes are then represented in the form of certificates.

Other jurisdictions can buy those certificates and the seller can use the profits to fund further emissions abatements.

The seller can’t count the sold emissions reduction towards its national commitments — but the buyer can.

So How Does this Help Climate Change Again?

Ultimately, it’s about rooting out the cheapest ways to prevent a tonne greenhouse gas destined for the atmosphere from getting there.

If a country or a province can purchase cheaper offsets elsewhere, an international emissions trading scheme opens up the market to those purchases.

For instance, Ontario and Quebec are in the process of establishing cap-and-trade schemes that will link their emissions reduction efforts to inexpensive carbon offsets in California via the Western Climate Initiative.

Blake Shaffer, doctoral student at the University of Calgary with an expertise in energy economics, says it makes sense for provinces to seek out the least expensive carbon abatement opportunities.

He points to a recent study that found Ontario would require a $157/tonne carbon tax if it tried to achieve its emissions reduction target domestically, yet could achieve those same reductions by purchasing much cheaper offsets in California.

Shaffer says that means Ontario will get an equal amount of emissions reductions for a cheaper price. That same principle applies internationally.

“International offsets are an intriguing solution because in the end, a tonne is a tonne is a tonne,” he says.

“If a country like Indonesia has reduction opportunities for less than a dollar per tonne, it’s a fair question as to why we’re paying $50/tonne in Canada.”

The cost savings are potentially very large, he says, noting that if Canada is short 100 Mt in 2030, the difference between abating between $50/tonne or $10/tonne on international markets is $4 billion a year in savings (and there’s a likelihood Canada’s carbon price could be higher by then).

Shaffer also notes there are more emissions coming from Indonesia’s peat fires in one year than all of Canada so “there’s really big-sized potential” for reductions.

Have Emissions Offsets Been Used Before?

Emission offsets have been used before — with seriously mixed results.

Donner says that although emissions offsets had been discussed since the early 1990s, it was under the Kyoto Protocol — with its binding emissions limits that entered into force in 2005 — that the idea really gained steam.

“It’s not a new idea, “ Donner says. “And there are mechanisms in place, like Kyoto. Under previous governments, under the Chretien government and then the Harper government, when we were part of the Kyoto Protocol it was assumed for a long time that the only way we could meet our targets was to purchase offsets on a trading market.”

It’s those binding limits that really give rise to market approaches. If a nation or province isn’t close to meeting its own targets, the option exists to buy your way to the finish line.

The Kyoto Protocol spawned the European Union Emissions Trading System, the largest of its kind in the world. The system had certain “flexibility mechanisms” built into it to help countries purchase different kinds of offsets to meet their targets.

But the system was plagued with problems, like the so-called Clean Development Mechanism which has been accused of inefficiency, the undermining of Indigenous rights and fraud.

Donner says a major controversy under the mechanism involved companies purposely creating hydrofluorocarbon and other human-made gases only to destroy them for money.

In a similar vein, the whole trading system was marred by major issues such as a massive oversupply of allowances on the market and huge price spikes.

In 2015, it was found that the Joint Implementation scheme created in Russia and Ukraine following Kyoto led to “significant criminal activity” and the release of 600 million tonnes of emissions that should have been abated.

Many smaller offset initiatives have hit similar pitfalls.

In February 2013, it was found that many public institutions in B.C. had been paying $25/tonne for certificates only worth between $9/tonne to $19/tonne; later that same month, conflict flared up “over the appropriateness of counting credits in [Great Bear Rainforest] where it was understood that large swaths of land would be protected anyway.”

Indigenous groups have also voiced opposition to emissions offsets, due to the historic displacement of communities for privatization and commodification of nature into property.

The #Carbon Offset Question: Will Canada Buy its Way to the #Climate Finish Line? https://t.co/L2p32ArBS9 #cdnpoli #emissions

— DeSmog Canada (@DeSmogCanada) December 13, 2016

So Why Are We Still Considering Emission Offsets?

The UN Paris climate conference changed everything.

Specifically, Article 6 of the Paris Agreement changed everything, allowing for the use of emission offsets to achieve national targets.

Former CEO of the International Emissions Trading Association, Andrei Marcu, called its unlikely inclusion a “major success and minor miracle.”

The recent UN climate summit in Marrakech expanded on that opportunity, effectively making decisions about the process for making the decisions about implementing it (that’s international geopolitical bureaucracy for you).

Marshall, who attended the climate talks in Marrakech as part of the Canadian delegation said the emissions trading scheme under Article 6 is undetermined as of yet.

“What we don’t have all the information on is how Article 6 will be articulated [in the Paris Agreement]. We still have two more years of negotiations to determine what the market mechanisms are and what the non-market mechanisms are as part of Article 6,” he says.

“Those will also determine to what extent Canada can rely on [emissions trading] as an option.”

Despite uncertainties, Canada was eager to have the option included in the agreement. Canada’s climate and environment minister Catherine McKenna chaired the negotiations on Article 6 in Paris and Canada’s senior negotiators described the element as “very dear” to them, Marshall says.

Emissions trading is expected to play an important and positive role in the way the Paris Agreement influences international climate policy.

So why such optimism?

For one, unlike with Kyoto, China is a full participant in the Paris Agreement. Shaffer suggests the momentum from its inclusion is resulting in an acknowledgment that global integrated action is cheaper than individual unilateral action.

Having China on board increases the potential of eventually equalizing abatement opportunities across the globe.

Amin Asadollahi, lead on climate change mitigation for North America at the International Institute for Sustainable Development, says the Paris Agreement specifically called for a detailed measurement, reporting and verification process.

While such a process has yet to be developed at the international level, some more localized systems, like the one serving the Western Climate Initiative, could serve as models.

Donner is also confident that we won’t see a repeat of previous problems with emission offsets.

Canada, he adds, pushed for guaranteed accounting to ensure incremental reductions that wouldn’t otherwise be performed and avoids double counting (in which both parties, buyers and sellers, take credit for emissions reductions).

“The good news is that by making mistakes in the past, the world can maybe figure out a better system this time,” he says.

Downsides of Emissions Trading

Of course, there are potential downsides associated with an international emissions trading scheme.

George Hoberg, environmental policy professor at the University of British Columbia, worries an over-reliance on offset measures could draw down ambitious climate leadership.

“Sharing technology and climate financing are also important indications of leadership, but only if they are a supplement to, not a substitute for, meeting domestic emission reduction obligations internally,” Hoberg says.

Asadollahi agrees: “Longer term, if you just rely on that and your emissions continue to go up, you’re not preparing your economy for this changing world.”

Marshall adds it is still important to focus on the hardline domestic policies and sectors that influence Canada’s emissions.

“I think the priority for those who want to see as much domestic action as possible is to continue to push for more ambitious emission reductions at home and for Article 6 to be relied on only to get Canada beyond its 2030 target, which we know is a weak target,” he says.

Critics also worry emissions trading could potentially be used to cover poor policymaking at the expense of public coffers.

Shaffer notes that offsets result in capital outflow — money leaving jurisdictions for specific reduction targets — unlike a carbon tax which results in a higher per-tonne price retained in the jurisdiction for possible investments in renewables, energy efficiency measures, rebates or tax cuts (that very debate surfaced at the Pan-Canadian Framework negotiations).

He says that requires governments to compare the trade-offs between a lower price per tonne and keeping all the money in the province.

Possibly the greatest danger of all — and this is something near impossible to assess as the federal government still hasn’t released the specific math of its 2030 plan — is the chance of overbetting on the availability of cheap offsets.

If many other countries manage to greatly reduce their emissions in the next decade-and-a-half due to strong climate policies and the falling price of renewables, the number of offsets on the global market may be fewer than expected.

That low supply of sellable certificates could drive up the price, the inverse of what happened under the European Union Emissions Trading System.

None of this takes into account the fact that the world’s combined national climate commitments don’t result in enough emissions reductions to stay within 1.5 degrees Celsius of warming.

“There are real accounting challenges in doing this,” Donner acknowledges.

With files from Carol Linnitt.

Image: Emissions rise from a processing plant in the Alberta oilsands. Photo: Kris Krug/DeSmog

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