I. Title of the Best Practice

II. Overview of the Best Practice

A. Main Elements of the Pilot Trading Projects
1. Pilot objectives
The key objective of both pilots is to evaluate project-based emission reduction trading for greenhouse gases in the Canadian context. More specifically, the pilots are designed to:

develop principles and program elements for the creation of an emission reduction commodity and for the exchange of this commodity in a greenhouse gas trading market ;

provide practical experience with the creation and trading of greenhouse gas emission reductions ('learning by doing'); and,

inform decision-makers on design options and the potential use of this tool for achieving operating flexibility and cost-effective greenhouse gas reductions.

2. Voluntary, multi-stakeholder initiatives
The Greenhouse Gas Emission Reduction Trading Pilot (GERT) is a multi-stakeholder initiative supported by governments (federal, provincial (6) and local), industry, environmental and labour groups. The GERT Pilot has been operating for eighteen months and will be completed in December 2001.

The Pilot Emission Reduction Trading Project (PERT) was launched in 1996 as an industry led multi-stakeholder initiative. The Pilot was initially focused on smog reductions in one province and adjoining airsheds; it was expanded in 1997 to include greenhouse gases. The extension of PERT to March 2001 will allow the Pilot to complete its work.

In both pilots the stakeholders work cooperatively to develop and implement the eligibility criteria and review processes. Consensus is sought but alternative views are recorded as needed. The pilots are not policy making bodies, but members use the experience gained from participation to inform their respective decision-makers.

The experience of the pilots is shared broadly through workshops and conferences. In addition, the pilots' guiding documents (rules, processes, project guidelines) and reports (annual reports, issue discussion papers, evaluations) are available to the public and comments are welcomed.

To date, both pilots have received all their funding from membership and participant fees. The in-kind contribution of members has been significant.Involvement in the pilots is supported by agreements that provide participants some assurance that the commodity created and traded under the pilots will be accepted/considered by government(s) for compliance purposes in a future voluntary or regulatory regime.

3. Scope and review of projectsIn order to enhance the learning potential of the pilots, participation from all sectors (private and public) and all types of innovative emission reduction initiatives are encouraged. Projects have varied in size from 1 tonne to millions of tonnes. Direct, indirect and avoided emission reduction projects have been reviewed; projects involving sinks are currently being considered. Industry and governments (federal and provincial and municipal) have submitted projects and the aggregation of small 'citizen' projects are also being encouraged. Projects with either the buyer or seller located outside Canada are included. All six greenhouse gases identified in the Kyoto protocol are eligible for consideration.

Under GERT the emission reductions must have been initiated no earlier than January 1, 1997 and the reductions must be traded before registration. The GERT Pilot involves a rigorous review and registration occurs only after all the mandatory criteria of the Pilot have been met. PERT, on the other hand, has adopted a strong 'buyer-beware' approach. There is no established start date for emission reductions considered, and it is not required that the project be traded before it can be registered. Though the PERT review process has been less demanding, the reductions considered by the two pilots could be of similar quality.

B. Reasons for Inclusion as a Best Practice

1. Canada is a leader in the development and evaluation of project-based emission reduction credits and trading for greenhouse gases.
   
   
2. The pilots cover all six Kyoto gases, all major sectors (residential, commercial, industrial sub-sectors, energy production, transportation), Canadian jurisdictions and international projects and different project types (energy and process efficiency, renewable energy, fuel-switching, landfill management, sequestration).
   
   
3. Eligibility criteria for projects and evaluation criteria and procedures for reviewing projects/trades have been established. The project reviews allow examination of the major requirements for a tradable instrument and the elements of an emission reduction trading system.
   
   
4. The two systems being piloted have many similarities; however, examining different approaches, criteria, processes and mechanisms has also contributed valuable information.
   
   
5. The pilots represent real action to cut greenhouse gases and to engage in trading. GERT had received 4,732,996 tonnes CO2E in offers to sell (7 projects) and 23,082,229 in trade-matched applications (5 projects) as of October 1999. By this date PERT had reviewed projects with reductions equal to 8,807,166 CO2E, (12 projects) though only 887,520 tonnes had been registered. There is an 'intent to create' 11,231,700 tonnes in 1999 from three of these projects. (Neither pilot has applied an additionality test to these reductions.) Experience with trading has so far been limited (GERT - 5 trades; PERT - approximately 7 trades). All of these trades are bilateral trades handled under private contracts; many of them involve options to purchase. A wide variety of project types and sizes have been considered.
   
   
6. The pilots are contributing to the development of Canada's national strategy to reduce greenhouse gases in a number of ways, including

• providing an early voluntary, market-based reduction measure
• developing and testing quantification and verification methods and requirements for project-based reductions
• improving our understanding of emission reduction trading as a potential policy measure (capacity-building)
• helping define a mechanism that could be used to include project-based offsets in trading systems
• helping formulate domestic rules for the baseline protection initiative and assisting with the refinement of these rules through further work on baselines, etc.
• providing experience that could assist Canada's participation in discussions on the Kyoto Mechanisms
• adapting as needed to an evolving domestic greenhouse gas reduction strategy

C. Problems and their solutions

1. 1.More reviews of emission reductions and trades are required before the objectives of the pilots can be met. Though many emission reduction projects exist and many contractual arrangements to transfer the benefits of emission reductions between buyers and sellers are in place, there is little incentive to bear the cost and scrutiny involved in taking these projects through the pilot review process. The main factor that would increase participation - demand for verified greenhouse gas emission offsets - is an external factor that cannot directly be influenced by the pilots. Both pilots were initially two year initiatives and both have recently been extended. Targeted efforts to encourage participation from some sectors/types of activities where there are gaps will enhance the usefulness of conclusions drawn from the pilot experience.
   
   
2. 2.Publication of technical reports on key elements/issues of an emission reduction trading systems is needed. The extension of the pilots as well as the hiring of more dedicated management and administrative support will allow this objective to be met.
   
   
3. 3.Some key policy issues affecting the achievement of the pilots' objectives remain unresolved (e.g., the design and implementation of the project-based Kyoto Mechanisms, the role for project-based emission trading and voluntary credit trading in our domestic strategy). Continuing with the work of pilots and sharing the experience gained more broadly could assist with the resolution of these policy issues.

III. Categorizing the Best Practice

1. Classification(s) (Indicate main classification(s) only.)
( ) Regulatory Approach (Policy approaches - regulations, incentives, etc)
( ) Practical Action (Action undertaken independently by a social actor)
( X ) Social Network Mechanism (Cooperative structure)

2. Social Actor(s) Involved (Indicate main social actor(s) only)
( ) Citizens
( ) Central government
( ) Local government
( ) Business

3. Sector(s) (indicate main sector(s) only.)
( X ) Energy
( ) Household
( ) Transportation
( ) Industrial Enterprises
( ) Other (Non-Industrial) Business
( ) Agriculture / Land Use / Forestry
( ) Other

4. Target Greenhouse Gas(es)
( X ) CO2
( X ) CH4
( X ) N2O
( X ) HFC
( X ) PFC
( X ) SF6
( ) Other (Please specfy.)

IV. List of Attachments

GERT (www.gert.org)
#1 - Pilot Rule (December 10, 1999)
#2 - Terms of Reference (June 1998)
#3 - Memorandum of Understanding (October 13, 1998)

PERT (www.pert.org)
#4 - Draft Rules for Emission Reduction Trading in Ontario (October 1998)
#5 - Terms of Reference (1997)
#6 - Letter of Understanding

V. Please indicate a person to contact for more information about this Best Practice.

Contact Person:	Judith Hull
Title:	Senior Economist
Organization:	Policy & Communications, Environment Canada
Email:	judith.hull@ec.gc.ca
Tel:	(819) 953-4282
Fax:	(819) 997-2769
Address:	10 Wellington Street, 22nd floor, Hull, Quebec, Canada K1A 0H3
Notes:	n/a