f. Internationally Transferred Mitigation Outcomes (ITMOs)

The Framework advises that Internationally Transferred Mitigation Outcomes (“ITMOs”) are being considered as a compliance option:

To provide additional flexibility, consideration is being given to allowing the use of ITMOs as a compliance option. The use of ITMOs would be limited to a portion of the percentage of GHG emissions that can be covered by offset credits (i.e., a portion of the 20% of a facility’s GHG emissions that can be covered by offset credits), to ensure that investment in domestic offset projects continues to be prioritized. Options for including ITMOs within a potential offsets fund are also under consideration. [125]

ITMOs are similar to the domestic offsets described above, but with an international scope. ITMOs allow a company to reduce or sequester GHGs in one country and then sell the credits for those emission reductions to a company in another country. The second company then uses the ITMOs as a credit towards their own emission reduction obligations. [126]

ITMOs were established under Article 6.4 of the Paris Agreement as a mechanism for countries to meet their voluntary emission reduction targets. The parties to the Paris Agreement have agreed on rules and procedures for ITMOs and have established a 12-member supervisory body. [127] However, ITMOs are only just starting to be implemented. The first-ever authorized transfer of ITMOs took place in 2022 when, “the Government of Ghana officially authorized the transfer of mitigation outcomes to Switzerland as a result of the climate-smart rice project that supports the training of over thousands of rice farmers.” [128]

ITMOs have all the same problems as domestic offsets (described above) plus a few additional concerns. 

First, it is very unlikely that ITMOs will result in any actual emissions reductions anywhere in the world. In the case of the Ghana-Switzerland deal noted above, what if increasingly-likely climate-fueled storms wash away the rice fields? Or in the case of a reforestation project, what if wildfires burn it all down and release the GHGs into the atmosphere? Between problems with verification, incentives for dishonesty, and the changing climate wiping out any gains made, it’s no wonder that as little as 12% of offset projects end up creating real emissions reductions. [129] There is no substitute for directly eliminating GHG emissions at the source.

In addition, 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). [130,131] They facilitate “greenwashing” by allowing Canadian oil and gas companies to claim to be more climate-friendly than they actually are. 

These concerns about offsets in general are magnified for ITMOs. The system is brand new and unproven, so there is even less certainty that the emissions reductions will actually materialize. And, given the international nature of ITMOs, Canada would have absolutely no control over the offset projects in other countries, including whether they are operated ethically and effectively. There is even a potential moral hazard involved with richer countries paying poorer countries for emissions offsets, some of which can be generated by limiting economic development to avoid GHG emissions. Climate justice demands that rich countries like Canada, that are responsible for the vast majority of historical GHG emissions, reduce their own emissions at home.

As an international offset credit system, ITMOs, are prone to “double counting”, meaning that the emissions reductions are counted in both the selling country and the purchasing country. Transactions between private parties without government oversight are particularly vulnerable:

[E]ven 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. [132]

Because of the “double counting” problem , if the Oil & Gas Emissions Cap permits ITMOs at all, it must ensure that private transactions between a Canadian oil and gas producer and foreign nation are not permitted. ITMOs should only be permitted if managed by the Canadian government so that Article 6.2 of the Paris Agreement applies.

A big United Nations and World Bank-sponsored offset credit system, REDD+, has been shown to not work.  “‘REDD’ stands for ‘Reducing emissions from deforestation and forest degradation in developing countries. The ‘+’ refers to additional forest-related activities that protect the climate, namely sustainable management of forests and the conservation and enhancement of forest carbon stocks.” [133] “ART” is the  “Architecture for REDD+ Transactions”.  TREES is “ART’s standard for the quantification, monitoring, reporting and verification of…GHG emission reductions and removals from REDD+ activities at a jurisdictional and national scale.” [134]  Verra is a non-profit organization that creates and monitors standards in various environmental and social markets, including markets for certain international carbon offset credit systems. [135]

A study looked at this combined scheme, which is used by some of the world’s largest polluters:

Research by the Rainforest Foundation UK into Verra, the World Bank’s Forest Carbon Partnership Facility (FCPF), the UNFCCC REDD+ Results system and the ART-TREEs standard has found that all of them fell short against a set of 13 social and environmental criteria developed for the study. Among the report’s key findings are that:

• All, to a greater or lesser extent, allow or actively rely on inflation or artificial ‘adjustment’ of baselines in order to create the impression of, or to increase, the claimed emissions reductions.

• The systems are susceptible to conflicts of interest. For example, Verra receives significant commissions on every project verified, which leaves limited incentive to carry out thorough verification and validation processes.

• Verification and Validation bodies – who exist to check projects are delivering what the developers and certifiers say they are – are, in many cases, completely ignoring ‘red line’ problems with the emissions reductions claims being made.

• None of the schemes fulfils the UN requirement for ‘predictable, continuous and equitably distributed benefits’. An oversupply of credits is leading to a price crisis in the voluntary markets where carbon prices have crashed to below $2 per tonne – far less than is needed to keep forests standing. [136]

Most importantly, though, ITMOs do nothing to accomplish the Framework’s objective to reduce GHG emissions from oil and gas production. By allowing companies to pay to keep emitting GHGs instead of reducing them, they actually detract from that objective.

Regarding ITMOs, the Canadian Climate Institute has stated:

“While ITMOs and low-carbon exports have the potential to reduce global emissions, they do not provide Canada with an excuse for having weaker climate policies at home. In fact, article 6 (of the Paris Agreement) is explicit that ITMOs should be used to increase “ambition” — to promote greater efforts to cut emissions. To meaningfully contribute to global GHG mitigation, Canada must not only look abroad but also examine its own GHG emissions.” [137] [Emphasis added.]

Clearly there is no place for ITMOs in a “Framework To Cap Oil and Gas Sector Greenhouse Gas Emissions.”

Recommendations:

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

• Not to include ITMOs as a compliance flexibility option for the Oil and Gas Emissions Cap.
• Note that ITMOs are an even less effective instrument than domestic offsets and do nothing to accomplish the Framework’s objective to reduce GHG emissions from the oil and gas sector.
• Note that the Paris Agreement, which created ITMOs, states they are intended “to allow for higher ambition in their mitigation and adaptation actions and to promote sustainable development and environmental integrity”, [138] not to create an excuse to permit emissions in any given industrial centre.
• If ITMOs are included as part of the Oil and Gas Emissions Cap, the federal government must manage the transactions in order to avoid the emission reductions being “double counted” in both Canada and the foreign country.