GCPC Workshop No. 3: “Crediting in Domestic Carbon Pricing Instruments”
The Global Carbon Pricing Challenge (GCPC) hosted its third online workshop on "Crediting in Domestic Carbon Pricing Instruments" on 28 August 2024. The event gathered experts from GCPC Partners, Friends, TWG members, and countries interested in the GCPC to discuss the role of crediting and offsetting mechanisms in domestic carbon pricing instruments, and to share insights and experiences. The workshop was attended by over 45 participants, including government oLicials, representatives from international organizations, and experts from research institutions.
Presentations
1. Canada’s Experience with the Federal GHG Offset Credit System
Presented by Jackie Mercer, Program Manager of the Offsets and Emissions Trading Section, Carbon Markets Bureau, Environment and Climate Change Canada (ECCC).
Jackie Mercer provided an overview of Canada’s Greenhouse Gas (GHG) Offset Credit System, launched in 2022 as a key part of the Government of Canada’s 2030 Emission Reductions Plan. She highlighted the system's design, which aims to provide incentives for projects that achieve GHG reductions beyond business-as-usual practices and legal requirements and that are not already incentived by carbon pricing. The system is voluntary and creates new opportunities for various stakeholders, including municipalities, Indigenous communities, farmers, and foresters, to earn revenues from GHG reductions. Carbon credits generated through the system can be used in compliance carbon markets and beyond. There are no restrictions on who can purchase credits. International credits cannot be used. Canada opted for developing its own protocols. The presentation detailed the federal offset protocols in place, including those for landfill methane recovery, reducing GHG emissions from refrigeration systems and improved forest management. Additional protocols, including one for direct air carbon dioxide capture and sequestration, are under development. The price for federal offset credits is set by the seller and buyer and is expected to be traded slightly below the carbon price. Mercer emphasized that Canada’s system ensures high integrity and transparency through rigorous verification and monitoring standards, aiming to protect the environmental integrity of each offset credit issued.
2. Chile’s Green Tax and Emissions Offsetting System
Presented by Ignacio Casielles Maturana, Environmental Economics Specialist, Ministry for the Environment, Chile.
Ignacio Casielles discussed Chile’s green tax experience, which is applied at a rate of USD 5 per ton of CO2 on large polluters exceeding 25,000 tons per year. He explained that while the tax rate is relatively low, it affLects around 90 facilities and covers approximately 30% of Chile’s total GHG emissions. The tax system allows entities to use emissions reduction certificates to lower their taxable emissions, provided these reductions are additional, measurable, verifiable, permanent, and occur within national territory. The system started in 2023. Since the Chilean constitution does not allow for earmarking of collected tax revenues, the provision to allow for the use of credits can be seen as an alternative to incentivize climate-related investment in Chile. Casielles also highlighted the challenge of modifying tax laws to potentially increase the tax rate. The relatively low tax rate makes it difficult to bring certificates into the system.
3. Domestic Crediting in Compliance Carbon Pricing Instruments: Global State and Trends
Presented by Joe Pryor, Senior Climate Change Specialist, Climate Finance and Economics Unit, World Bank.
Joe Pryor provided a global overview of the use of domestic crediting in carbon pricing instruments, noting that around 40% of existing carbon pricing systems globally allow for the use of carbon credits to offset liabilities. While in theory voluntary and compliance carbon markets are separate, in practice there are overlaps and linkages. Pryor emphasized that while crediting frameworks are increasingly being incorporated into national climate strategies, there is significant diversity in approaches, drivers, and implementation across different jurisdictions. Most policies restrict the use of credits to around 5-10% of an entity’s compliance obligation. He outlined the various market segments based on demand drivers and discussed the benefits and trade-offs of designing new crediting mechanisms versus using existing ones. Pryor concluded by highlighting that governments are increasingly using carbon credits not only for compliance purposes but also to attract international finance through voluntary carbon markets.