Alberta filed 1st ever charges against a carbon offset firm. Here's why they may not be the last
25 charges filed against company involved in auditing carbon offsets highlight regulatory challenges
For the first time ever, a Canadian province has charged a business for providing false information related to carbon offsets, a spokesperson for Alberta's Environment Ministry said, underscoring the sometimes murky activities of companies in a complicated, rapidly growing industry worth hundreds of millions of dollars annually.
Carbon offsets are bought and sold under a trading system with governments putting a price on carbon dioxide emissions to compel companies to fight climate change.
Since 2007, Alberta has run a mandatory carbon offset system for large emitters, such as oil and gas companies, landfills and food processing firms. If they produce more than their allotted levels of carbon dioxide, they must purchase credits to offset those emissions. The credits are generated by companies that reduce emissions by doing things like building wind farms or installing solar panels. To ensure accuracy, the credits are verified by third-party auditors. The Alberta litigation centres on the role of one of these third-party verifiers.
With Alberta and Canada betting big on carbon offsets as a tool to tackle global warming, the case spotlights the difficulties in verifying whether emission reductions are legitimate.
"These are the first charges before the courts related to the Emissions Management and Climate Resilience Act," Tom McMillan, director of communications for Alberta Environment and Protected Areas, said of Alberta's carbon trading system, which he said is the longest running in North America.
In 2020 alone, large emitters in Alberta made $548 million in compliance payments under Alberta's offset rules, McMillan said.
He noted that the federal government and other provinces are basing their systems for carbon trading on Alberta's approach, meaning the legal action has ramifications far beyond the oil-rich province.
There doesn't seem to be a lot of fraud or irregularities in Alberta's carbon offset trading system, said Janetta McKenzie, acting director of the oil and gas team at the Pembina Institute, a non-profit research group focused on clean energy.
"But it's crucial that those systems are producing good data, that we are tracking those offsets, and that they are additional and verifiable," she said.
With carbon markets being "very complex" and "kind of opaque," having transparent practices for verifying offsets is crucial to reduce climate change, said McKenzie, who broadly supports the strategy.
25 charges filed
Alberta Environment and Protected Areas filed 25 charges against Amberg Corp., an environmental services company, and Olga Kiiker for not following environmental legislation, according to a June 23 statement.
The charges, filed at the Alberta Court of Justice in Calgary, include providing false information, providing functions of a third-party assurance provider without the required qualifications and breaching other rules related to auditing and verifying carbon offsets, according to court records.
The next court date is set for July 19, according to a statement from Alberta's Environment Ministry. None of the charges have been proven in court.
Amberg didn't respond to phone calls seeking comment. The company's website no longer functions and emails to executives bounced back.
The company provides verification services similar to an auditing firm reviewing a company's financial statements, but for carbon emissions.
Put simply, if a business claims it has created 10 tonnes of carbon offsets, for example by building a wind farm or reducing fertilizer use on farms, someone needs to verify whether those offsets are legitimate and can be sold into the broader market.
Those auditors play a crucial role in the carbon offset regulation system to ensure that "credit generation is accurate," McMillan said.
Debates over offset effectiveness
If a verification firm is producing fraudulent or inaccurate data on emissions reductions, as the province alleges Amberg has done, then the whole carbon trading system is undermined.
Currently, the price of a tonne of carbon dioxide in Alberta is $65. That will more than double by 2030 to $170 per tonne, as part of an agreement between the province and federal government.
Supporters of carbon offsets believe companies are more likely to adopt conservation measures or new technologies to reduce their pollution if a price is put on emissions.
Critics say carbon trading allows consumers and companies to feel like they're making a difference, but does little to actually address global warming.
Canadian jurisdictions run several different carbon trading systems, including the mandatory reductions compliance system in Alberta, voluntary carbon offsets — such as when an individual purchases carbon credits after taking a long-distance flight — and a system of carbon trading involving Quebec and California.
A federal offset system was launched last year, a spokesperson for Environment and Climate Change Canada said, and its first offset credits are likely to become available in 2024.
Calls for market oversight
Graham Gilchrist works on the front lines of the carbon offset trading industry. Based in Leduc, Alta., he's an agronomist, an expert in the science of soil management and crop production, who advises farmers on how to reduce emissions in order to generate carbon credits which they can sell.
For instance, he works with ranchers to switch up what they feed their cows. Different bovine diets can lead to fewer cow burps, Gilchrist said, meaning they release less climate-changing methane gas over their lifespan.
His non-profit group, Biological Carbon Canada, has another project that involves adjusting how fertilizer is applied, ensuring more of the nitrogen farmers use on fields ends up directly in the soil, rather than in the atmosphere contributing to climate change.
Farmers who implement these projects and have them verified as scientifically sound by an independent third party auditor can generate carbon offsets which are then sold to large polluters. Ideally, this puts money back in the pockets of rural residents and reduces overall pollution in the process.
Since 2007, Gilchrist estimates farmers in Alberta have received about $180 million for selling emissions credits to middle men, known as aggregators, who then sell them to industrial polluters.
The charges against Amberg, a company responsible for verifying the legitimacy of carbon credits, spotlight a broader problem in Canadian carbon trading systems, Gilchrist said.
Though he doesn't like the idea of more "red tape" for farmers, the agronomist does want to see a federal regulator responsible for guaranteeing the quality of offsets rather than leaving it to third-party auditors.
Ideally, this would mean national standardization, so buying a credit for one tonne of carbon anywhere in the country would come with a "made in Canada" stamp, showing that the emission reductions have been properly vetted.
Authorities in Alberta, normally skittish about federal regulation of the energy sector, seem to back that perspective.
"As the federal government and other jurisdictions implement regulations and programs that require third party assurance, they will also have to provide [oversight] to ensure that those assurances can be relied upon," said Alberta Environment's McMillan.
Corrections
- An earlier version of this story said that Alberta had launched criminal charges against Amberg Corp. for alleged violations related to carbon offsets. In fact, Alberta has launched environmental, not criminal, charges against the company. The story and headline have been updated.Jul 16, 2023 3:25 PM ET
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