2024 Oil & Gas Emissions Cap POLICY TOOLKIT – 6e. Domestic Offset Credits

Oil & Gas Cap Policy Toolkit​

6. Compliance Flexibilities

Toolkit Contents

    1. Production Emissions
    2. Consumption Emissions
    1. Scope of Application
      1. Covered Facilities
      2. Covered Activities
      3. Covered Greenhouse Gasses (GHGs)
    2. The Emissions Cap Level: The Starting Point
    3. The Legal Upper Bound: How Much Can Really Be Emitted
    1. The 2030 Cap Level Is Not Ambitious Enough – The Numbers
    2. The Cap Proposed by the Framework Will Make It Almost Impossible to Meet Our Canada-Wide 2030 Target
    3. The Framework’s O&G Emissions Cap Will Do Less Work Than It Appears
    4. The O&G Emissions Cap Has Effectively Been Dictated by the Oil and Gas Producers
    5. The Oil and Gas Industry’s Re-investments to Reduce Emissions Has Been Contemptible
    6. The O&G Emissions Cap is based on O&G Production Increasing by 2030
    7. The “Other Compliance Units” Are Mostly a Very Bad Idea
    1. Emissions Trading
    2. Multi-Year Compliance Periods
    3. Banking of Emissions Allowances
    4. Making Contributions to a Decarbonization Fund
    5. Domestic Offset Credits
    6. Internationally Transferred Mitigation Outcomes (ITMOs)
    7. Delayed Reporting and Verification

e. Domestic Offset Credits

The Framework states:

Covered facilities would have the option to remit offset credits from Canada’s GHG Offset Credit System and provincial offset credits recognized for use under the federal Output-Based Pricing System Regulations for up to the percentage of GHG emissions between the cap (total allowances issued in a given year) and the legal upper bound, net of contributions to the decarbonization fund. Based on current estimates, this is a maximum of approximately 20% of a facility’s GHG emissions. The percentage would decrease for any contributions made to the decarbonization fund, for example, a facility that made contributions to the decarbonization fund up to the maximum limit of 10% of their GHG emissions, could only remit offset credits for up to another 10%.

ECCC defines offset credits as follows:

Offset credits are tradeable units representing verified GHG reductions achieved by a project either by reducing GHG emissions or increasing GHG removals from the atmosphere. Each offset credit is equivalent to one tonne of carbon dioxide reduced or removed from the atmosphere. Federal offset credits can be sold and used for compliance by facilities covered in the federal Output-Based Pricing System or sold and used by others who are looking to meet voluntary climate targets or commitments. [109]

The basic operation of an offset credit is that you are allowed to emit one tonne of GHGs by paying someone else to reduce their emissions by one tonne of GHGs, or to sequester one tonne of GHGs to prevent it from being released into the atmosphere. Examples of projects that are currently sold as offsets around the world include those focused on reforestation and conservation, renewable energy, energy efficiency, waste and landfill management, and carbon capture and storage (CCS). [110]

Offset credits have been aptly likened to Indulgences in the Medieval Church. [111]  Would you like to have an extramarital affair but don’t want to go to Hell for it?  No problem!  Pay a sufficient quantity of money for an Indulgence and receive a guarantee for no time in Hell!

While there are some limited situations where offset credits are a good idea, the concept in general, like Medieval Indulgences, is extremely vulnerable to abuse. Carbon offsets have been linked to human rights abuses such as Indigenous people being displaced from their lands (e.g., for reforestation and conservation projects). [112,113] They also facilitate “greenwashing” by allowing Canadian oil and gas companies to claim to be more climate-friendly than they actually are. 

Most importantly, carbon offset credits are extremely ineffective at actually reducing the world’s GHG emissions and the quantity of GHGs in our atmosphere.

There are at least five serious problems with carbon offset credits:

First, carbon offsets rarely deliver the benefits they promise. In order for carbon offsets to cancel out their buyers’ emissions, they must accurately reflect additional climate benefits that go beyond business-as-usual outcomes. In contrast, non-additional or over-credited carbon offsets increase net emissions…

Second, most carbon offsets claim to avoid emissions, such as building a wind farm instead of a coal power plant, rather than remove CO₂ from the atmosphere. The distinction matters because reaching and sustaining near-net-zero CO₂ emissions requires unabated CO₂ emissions to be matched with carbon removal and durable storage…

Third, carbon storage must be durable enough to mitigate the near-permanent warming effects of CO₂, but nearly all credited carbon storage is only temporary. Although the warming effects of fossil CO₂ emissions persist on geologic time frames, carbon storage in forests and soils is credited on much shorter time frames that range from one to one hundred years.  This is a problem because offsetting the effectively permanent consequences of CO₂ with temporary carbon storage necessarily leads to higher temperatures at the end of the temporary carbon storage period…

Fourth, buyers of imperfect carbon credits are making unsubstantiated claims. When a company or government uses an offset to report lower net CO₂ emissions, it is making a compensatory claim that is premised on the equivalence of the harms of CO₂ emissions and the benefits of the carbon credit. Such a claim is physically inaccurate if the carbon credit is non-additional or based on non-durable storage…

Fifth, even the most robust [international] carbon offsets are poised to be double-counted.  Under the Paris Agreement’s emissions accounting rules, governments must report greenhouse gas emissions and removals that arise within their borders. This creates a dilemma whenever a carbon offset is traded across borders:  should the buyer or the seller’s host country get to book the credit’s climate benefits? Absent an intervention, both parties could claim the same benefits.  Under Article 6.2 of the Paris Agreement, trades between governments must include a corresponding adjustment in which the seller country increases its climate mitigation efforts for every carbon offset transferred abroad. But under Article 6.4, trades between private parties do not require the seller’s host country to make a corresponding adjustment. If private buyers make international offsetting claims without a corresponding adjustment, they will double-count the same benefits the seller’s host country reports under the Paris Agreement. [114] [Footnotes omitted.]

Almost every action that an emitter could pay someone else to do to reduce or sequester emissions elsewhere could be better accomplished by a government statute or regulation, even by an extension of the “carbon tax”.

For example, ECCC’s most recent Compendium of Federal Offset Protocols includes “Landfill Methane Recovery and Destruction” and “Reducing Greenhouse Gas Emissions from Refrigeration Systems” as GHG-reducing projects that can be sold as carbon offsets. [115] Both of these sources of GHG emissions could be better dealt with with rules prohibiting these types of unabated emissions and requiring that the emissions be trapped at source and sequestered or otherwise rendered less harmful, rather than by letting oil and gas producers pay money to emit more GHGs from oil and gas production as long as someone else reduces emissions from old garbage dumps or refrigeration systems.  Moreover, to the extent that the methane currently being emitted from old garbage dumps is due to the fact that we did not have a sufficient collective understanding of this problem back when we created it, it is an issue that should be fixed by a combination of a future prohibition and the spending of tax money to fix the current problem.

As noted above, there are also serious problems about whether any given offset credit worth, say, one tonne of GHG emissions truly removes one tonne of actual GHG emissions.  In a notorious example, “[t]he British band [Coldplay] claimed to have rendered a concert tour carbon-neutral by planting 10,000 mango trees in India. Then the trees died.” [116]

Importantly, offset credits used for oil and gas production are fundamentally different from offset credits used in almost any other industry, because the very product that is being produced – fossil fuels – is the precise source of our climate change crisis.  By far the largest cause of climate change is that we burn fossil fuels.  We need to stop burning fossil fuels! If we don’t, no amount of tree planting or carbon capture and storage (CCS) will save us.

In 2022, for the Canadian Oilsands, 67 kg of carbon dioxide equivalent (“CO2e”) GHGs were emitted to produce one barrel of oil. [117] When that barrel of oil is burned, it emits 430 kg of CO2e. [118]

Based on those numbers, an oil producer can buy an offset credit and then emit one extra tonne of GHGs to produce approximately 15 extra barrels of oil.  The offset activity used for the one tonne credit will almost certainly not reduce one tonne of CO2e GHGs.  Still, for offset credits used to produce most goods, that would be the end of the analysis.

However, based on those numbers, when those 15 extra barrels of oil are consumed (i.e. burned), they will produce an extra 6,450 kg, or 6.45 tonnes of extra CO2e GHG emissions.  It does not matter if some or all of those 6.45 tonnes of extra emissions are accounted for within Canada or in other jurisdictions:  The damage will be experienced by the entire world, including Canada.

The federal government cannot restrict the production of oil and gas (see section 3.0).  Under s.92A of Canada’s Constitution, the exploration for, and development and management of, non-renewable natural resources, including oil and gas, is under the exclusive jurisdiction of the provinces. [119] The federal government does have Constitutional authority to regulate pollution under its exclusive jurisdiction over the criminal law power. [120] That is why the Framework takes the approach of limiting GHG emissions.

Despite this delicate balance, in exercising its wholly legitimate jurisdiction over the criminal law power, there is no need for the federal government to bend over backward in using “compliance flexibilities” to help oil and gas producers produce as much oil and gas as possible.

We need to directly reduce emissions from oil and gas production itself, not let it remain at current or higher levels and use offsets in other areas to pretend we’ve dealt with O&G.

There is a growing body of research showing that, the majority of the time, offset credit systems do not work.

“Carbon Plan” is a non-profit that analyzes climate solutions.  Its team includes several academics with PhDs.  They analyzed California’s forest carbon offsets program.  They stated:

By digitizing and analyzing comprehensive offset project records alongside detailed forest inventory data, we provide direct evidence that comparing projects against coarse regional carbon averages has led to systematic over-crediting of 30.0 million tCO2e… or 29.4% of the credits we analyzed…  These excess credits are worth an estimated $410 million (90% CI: $280–$528 million) at recent market prices. Rather than improve forest management to store additional carbon, California’s forest offsets program creates incentives to generate offset credits that do not reflect real climate benefits.The scale of the problem is enormous: 29% of the offsets we analyzed are over-credited, totaling 30 million tCO₂e worth approximately $410 million.” [121]

A recent academic study that is currently in the pre-publishment phase (meaning that it is awaiting the completion of peer review) found that only 12% of existing carbon offset credit systems worldwide create real emissions reductions:

Net-zero targets have significantly increased carbon offset demand. Carbon offsets are issued based on ex-ante estimates [meaning based on forecasts rather than actual results] of project emissions reductions, though systematic evidence on ex-post evaluations [meaning based on actual results rather than forecasts] of achieved emissions reductions is missing. We synthesized existing rigorous empirical studies evaluating more than 2,000 offset projects across all major offset sectors. Our analysis shows that offset projects achieved considerably lower emissions reductions than officially claimed. We estimate that only 12% of the total volume of existing credits constitute real emissions reductions, with 0% for renewable energy, 0.4% for cookstoves, 25.0% for forestry and 27.5% for chemical processes. Our results thus indicate that 88% of the total credit volume across these four sectors in the voluntary carbon market does not constitute real emissions reductions.  This offset achievement gap corresponds to almost twice the annual German CO2 emissions. [122]

An investigation by the Guardian, the German weekly Die Zeit and SourceMaterial, a non-profit investigative journalism organisation, found that more than 90% of rainforest offsets sold by a major supplier are “worthless”.

The research into Verra, the world’s leading carbon standard for the rapidly growing $2bn (£1.6bn) voluntary offsets market, has found that, based on analysis of a significant percentage of the projects, more than 90% of their rainforest offset credits – among the most commonly used by companies – are likely to be “phantom credits” and do not represent genuine carbon reductions. [123]


Tell the federal government (using references to the papers we cite here, as you  may wish) that:

• Offsets do nothing to meet the objective of this Framework to reduce GHG emissions from oil and gas production.

• Offsets do not work. They create almost no emissions reductions in the real world.

• Offsets are linked to human rights abuses and greenwashing, [124] and the federal government should not promote their use.

• It’s not fair to allow oil and gas companies to pay to keep polluting rather than doing their part to reduce Canada’s GHG emissions.

 Tell the federal government (using references to the papers we cite here, as you  may wish) to:

• Eliminate the use of offset credits in the cap-and-trade system and force companies to directly reduce GHG emissions from oil and gas production instead.

• If offsets are not eliminated, reduce the percentage of a facility’s allowable emissions that could be covered by offset credits.

• If offsets are not eliminated, develop a credible system to confirm with certainty that offset projects have permanently removed or prevented the promised GHG emissions beyond what would have resulted if the offset had not been purchased.

  1. ECCC, “Canada’s Greenhouse Gas Offset Credit System”.  Retrieved on 4 January 2024 from https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system/federal-greenhouse-gas-offset-system.html
  2.  Gurgel, Angelo, “Carbon Offsets”, Massachusetts Institute of Technology Climate Portal, November 8, 2022. Retrieved January 7, 2024 from https://climate.mit.edu/explainers/carbon-offsets.
  3.  Richard Conniff, “Carbon Offsets: The Indispensable Indulgence”, YaleEnvironment360, 26 September 2008.  Retrieved on 4 January 2024 from https://e360.yale.edu/features/carbon_offsets_the_indispensable_indulgence
  4.  Gabbatiss, Josh, Daisy Dunne,  Aruna Chandrasekhar,  Orla Dwyer,  Molly Lempriere,  Yanine Quiroz,  Ayesha Tandon and Dr Giuliana Viglione, “In-depth Q&A: Can ‘carbon offsets’ help to tackle climate change?”, CarbonBrief, 24 September 2023. Retrieved January 15, 2024 from https://interactive.carbonbrief.org/carbon-offsets-2023/?utm_content=buffer9c29a&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer  
  5.  Arthur Neslen, “‘Green’ dam linked to killings of six indigenous people in Guatemala”, The Guardian, 26 March 2015.  Retrieved 15 January 2024 from https://www.theguardian.com/environment/2015/mar/26/santa-rita-green-dam-killings-indigenous-people-guatemala
  6.  Cullenward, Badgley, and Chay, “Carbon offsets are incompatible with the Paris Agreement”, One Earth 6 (Cell Press Open Access), 15 September 2023, pp. 1085-1086.  Retrieved on 13 January 2024 from https://www.cell.com/one-earth/fulltext/S2590-3322(23)00393-7?_returnURL=https%3A%2F%2Flinkinghub.elsevier.com%2Fretrieve%2Fpii%2FS2590332223003937%3Fshowall%3Dtrue
  7.  Environment and Climate Change Canada, Compendium of Federal Offset Protocols. Version 3.0, December 2023, pp. 2-3.  Retrieved on 6 January 2024 from https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/output-based-pricing-system/federal-greenhouse-gas-offset-system/compendium-protocols.html
  8.  Richard Conniff, “Carbon Offsets: The Indispensable Indulgence”, YaleEnvironment360, 26 September 2008.  Retrieved on 4 January 2024 from https://e360.yale.edu/features/carbon_offsets_the_indispensable_indulgence
  9.  S&P Global, “Absolute Greenhouse Gas Emissions from Canadian Oil Sands Did Not Increase in 2022 Even as Production Grew”, 9 August 2023.  Retrieved on 5 January 2024 from https://press.spglobal.com/2023-08-09-Absolute-Greenhouse-Gas-Emissions-from-Canadian-Oil-Sands-Did-Not-Increase-in-2022-Even-as-Production-Grew#:~:text=The%20S%26P%20Global%20Commodity%20Insights,Commodity%20Insights%20estimates%20are%20available.
  10.  United States Environmental Protection Agency, “Greenhouse Gases Equivalencies Calculator – Calculations and References”.  Retrieved on 5 January 2024 from https://www.epa.gov/energy/greenhouse-gases-equivalencies-calculator-calculations-and-references#:~:text=The%20average%20carbon%20dioxide%20coefficient,gallon%20barrel%20(EPA%202022).
  11.  The Constitution Acts of Canada1867-1982, s. 92A.  Accessed at https://laws-lois.justice.gc.ca/eng/const/page-3.html#h-19 on 11 August 2022.
  12.  s. 91(27) The Constitution Acts, 1867 to 1982.  Retrieved on 8 January 2024 from https://laws-lois.justice.gc.ca/eng/const/
  13.  Badgley et al, “Systematic over-crediting of forest offsets”, Global Change Biology, 21 October 2021.  (Abstract).  Retrieved on 6 January 2024 from https://onlinelibrary.wiley.com/doi/10.1111/gcb.15943
  14.  Probst et al, “Systemic review of the actual emissions reductions of carbon offset projects across all major sectors”, Research Square, 27 July 2023.  (Abstract.)  Retrieved on 6 January 2024 from https://assets.researchsquare.com/files/rs-3149652/v1/27c5b6ec-75a0-4a5a-84c6-e3e5e30e1cb8.pdf?c=1690482609 via https://interactive.carbonbrief.org/carbon-offsets-2023/?utm_content=buffer9c29a&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer
  15.  Weston, Phoebe and Patrick Greenfield, “Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows”, The Guardian, January 18, 2023. Retrieved January 15, 2024 from https://www.theguardian.com/environment/2023/jan/18/revealed-forest-carbon-offsets-biggest-provider-worthless-verra-aoe
  16.  Gabbatiss, Josh, Daisy Dunne,  Aruna Chandrasekhar,  Orla Dwyer,  Molly Lempriere,  Yanine Quiroz,  Ayesha Tandon and Dr Giuliana Viglione, “In-depth Q&A: Can ‘carbon offsets’ help to tackle climate change?”, CarbonBrief, September 24, 2023. Retrieved January 15, 2024 from https://interactive.carbonbrief.org/carbon-offsets-2023/?utm_content=buffer9c29a&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer