Carbon offsets plan could clear the way for coal-fired power plants in B.C.

Controversial carbon offset program being retooled to allow LNG and coal power plants to stay within carbon emissions caps

B.C. currently has no coal-fired power plants but could under new carbon offsets and credits regulations | Gary Whitton/shutterstock

When former auditor general John Doyle issued a damning report on B.C.’s carbon offsets program under the Pacific Carbon Trust (PCT) in 2013, Terry Lake, then minister for the environment, dismissed Doyle’s criticisms out of hand.

Despite that dismissal, the government decided several months later to shut PCT down, bringing the controversial carbon offset program in house, where it fell off the public’s radar while continuing to collect millions of dollars in penalties from schools, hospitals and other public organizations for failing to meet government-decreed carbon neutrality objectives and then doling the funds out mostly to industry.

But B.C.’s carbon offsetting scheme appears to be poised for a comeback in the form of what might be called liquefied natural gas (LNG) indulgences.

According to policy discussion papers now in circulation, the B.C. government plans to use carbon offsets and credits to allow LNG and coal-fired power plants to be built in B.C., while staying within the province’s cap on greenhouse gas emissions.

B.C. currently has no coal-fired power plants, although it has plenty of coal.

The Greenhouse Gas Industrial Reporting and Control Act “sets emission limits for liquefied natural gas and coal-fired electricity generation,” one policy intentions paper states.

The province has set limits for the LNG industry that cap carbon dioxide emissions at 0.16 tonnes of CO2 per tonne of liquefied natural gas produced.

LNG plants could stay within those caps by investing in renewable energy, carbon capture and sequestration or other technology that reduces CO2 emissions. Otherwise, they would likely have to buy offsets or pay into a new technology fund being set up.

To date, Woodfibre LNG in Squamish appears to be the only LNG project that has announced plans to use hydroelectricity for its LNG process. The others are expected to burn natural gas as part of the liquefaction process.

Woodfibre LNG could be the only LNG project in B.C. that would be eligible to sell carbon credits, while others might have to buy carbon offsets.

But carbon offsets can be something of a shell game in which the reduction of CO2 emissions is, at best, hard to verify and, at worst, a mirage, according to many critics.

According to a recent Stockholm Environment Institute (SEI) review, carbon offset projects under the joint implementation (JI) mechanism in Europe were found, in some cases, to have increased CO2 emissions.

“Overall, the use of JI may have enabled global GHG [greenhouse gas] emissions to be about 600 million [tonnes of CO2] higher than they would have otherwise been,” the SEI policy paper concluded.

Of six large projects the SEI examined, only one was deemed to have “high environmental integrity.” The rest appear to have failed the additionality test, without which there may be no actual decrease in CO2 emissions.

The SEI policy paper echoes many of the same concerns Doyle raised in his 2013 audit of the PCT.

Mark Jaccard, a Simon Fraser University energy economist and former B.C. utilities commissioner, said the SEI confirms what academics have been saying about carbon offsets for years.

“Its findings are consistent with what leading academic work is showing, namely that offsets are highly suspect as a way of reducing greenhouse gases,” Jaccard told BIV.

Offsets are too often the cheap alternative to more costly technological solutions – sequestration, for example.

“Offsets can be really cheap because they’re fictional,” Jaccard said. “You’re paying someone for something that will not happen and cannot be seen or verified.”

Under offsetting, a polluter can be allowed to continue generating greenhouse gases – or increase them – by buying offsets from another company or entity that can demonstrate that it will reduce GHG emissions by a commensurate amount.

A fundamental offsetting principle is additionality: technology or initiatives that achieve GHG reductions that would not have occurred without the financial incentive of offsets.

While the carbon reduction of some initiatives is relatively easy to quantify, that of others is less so. Carbon sinks, for example – forests, grasslands or bog conservation projects – sequester carbon. But the additionality can be difficult to establish, and a carbon sink can be wiped out with a single forest fire or insect infestation.

Some question how a nature conservancy that never planned to cut down trees or allow grasslands to be cultivated in the first place can qualify for credits, because any carbon sequestration would have occurred with or without credits.

As Business in Vancouver reported in a series of stories between 2011 and 2014, several projects that received PCT credits would likely have gone ahead anyway, or were already approved, before the PCT even existed – a violation of the additionality principle.

Another concern is verification. Third-party verifiers – in Europe called accredited independent entities (AIEs) – are responsible for verifying that a project qualifying for credits does what it’s supposed to do.

The SEI questions the ability of those verifiers to perform reliable audits and said that the fact the project participants select and pay them “may create an inherent conflict of interest.”

“AIEs often failed to identify obvious mistakes, inconsistencies, questionable assumptions or claims,” the SEI stated.

David Rokoss, director of corporate development for Offsetters Climate Solutions Inc. (TSX-V:COO), concedes there are problems with some carbon markets.

He said the key is having solid protocols, monitoring, verification and auditing in place – something that varies from country to country.

The B.C. government’s policy papers on LNG offsetting appear to try to address those concerns with an emphasis on strict protocols, validation and monitoring.

Although Offsetters is in the carbon-trading business, Rokoss said his company isn’t convinced there will be much of a market for companies like his under an LNG-directed offset scheme. His company’s big concern is the LNG Environmental Incentive Program.

“What it essentially is is the province would be required to help ‘finance’ compliance obligations of LNG companies,” Rokoss said.

He said it’s not clear how the program will work, just that it will subsidize oil and gas companies to help them build LNG projects that can stay within the province’s GHG caps.

“They actually help top up the LNG companies to reduce their cost of obligations,” Rokoss said.

That raises the concern that school boards, hospital districts, municipal governments and other public organizations will be subsidizing the LNG sector, because they’re still paying millions each year in penalties for failing to meet carbon neutrality objectives.

In 2014 alone, public organizations in B.C. paid $16.5 million in penalties (mandatory offsets). The money was used to buy credits in 14 projects.

The largest recipient was a harvest reduction project for the Great Bear Rainforest.

BIV requested an interview with Environment Minister Mary Polak to explain some of the government’s proposals for LNG offsetting but was told she was unavailable for comment.

nbennett@biv.com