Blowing smoke: The importance of third party assurance under Alberta’s Technology Innovation and Emissions Reduction Regulation system

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Blowing smoke: The importance of third party assurance under Alberta’s Technology Innovation and Emissions Reduction Regulation system

Blowing smoke: The importance of third party assurance under Alberta’s Technology Innovation and Emissions Reduction Regulation system

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August 9, 2023

Recent charges by the Province of Alberta against a third party assurer in conjunction with Alberta’s Technology Innovation and Emissions Reduction Regulation (TIER) system are focusing the spotlight on the most important aspect of any carbon offset system – verification. The Crown filed 23 charges against Amberg Corp. and Olga Kiiker under Alberta’s Technology Innovation and Emissions Reduction Regulation, Alta Reg 133/2019 regulations and two charges under the Emissions Management and Climate Resilience Act, SA 2003, c E-7.8. (EMCRA)¹. These charges include failing to meet the standard required to verify carbon dioxide equivalent (tonnes CO2e) emissions under Alberta’s industrial carbon pricing and emissions trading system, wrongly purporting to be qualified to conduct verifications on carbon credits and offsets created under the legislation and knowingly providing false or misleading information to regulators. This is the first time charges have been laid against a third party assurer or verifier under the legislation. The possible repercussions are steep and include both fines and potential incarceration.²

The independence and integrity of third party assurance and verification under TIER is at the core of a transparent, reliable and functional carbon pricing and emissions trading system. Below, we will provide insight into the evolving role of the third party assurance provider (Verifier) under the legislation and discuss the increasing importance of this role in a rapidly growing carbon market in Alberta and beyond.

What are third party assurance providers under TIER?

Alberta’s TIER program enables large-scale industrial emitters, or smaller scale emitters that have “opted in,” to partially meet their emissions output reduction obligations through the purchase of compliance carbon credits (Credits) rather than make payments to the TIER Fund.³ These Credits function to give TIER regulated facilities options for compliance other than purchasing TIER Fund Credits – Credits purchased directly from the government at a price point prescribed by the legislation. Currently, there are three kinds of Credits available under the TIER program. They are generated by i) facilities not subject to the TIER regulations who reduce Greenhouse Gas Emissions in accordance with a TIER-approved protocol, ii) TIER regulated facilities that reduce their emissions below their emissions production benchmark for a given reporting period or iii) project developers for facilities not subject to the TIER regulations who remove or sequester Greenhouse Gas Emissions in accordance with a TIER standard.

As part of the TIER program, producers of Credits as well as entities with emissions regulated under TIER must have their emission production and reduction verified by a Verifier.⁴ Alberta Environment and Protected Areas (AEPA) intended that a verification be completed by an independent third party who possesses certain qualifications and/or expertise. This verification process ensures that any CO2e emissions reductions reported under TIER are tracked per project, serialized, not duplicated and quantified according to a government approved methodology. In short, Verifiers ensure that the regulatory requirements set out in TIER are followed by regulated facilities and Credit generators. Without independent parties confirming activities have/have not taken place, there would be little confidence that emitters or Credit generators are doing what they said they were doing. In addition, it would undermine the value of TIER generated Credits, as well as the transparency desired by market participants and government entities in the TIER program.

Verification standard regarding Verifiers under the TIER

Currently, the process for Verifiers under TIER is set out in the Standard for validation, verification and audit Version 5.2 (Verification Standard).⁵ The Verification Standard sets out qualifications to act as a Verifier and outlines the verification process under TIER. The Verification Standard governs three different processes – validation, verification and audits – as transparency and certainty is needed throughout the entire process. For this particular set of charges, the focus is on 1) the qualifications of the Verifier and 2) the verification process. The Crown alleges that the charged individual and corporate defendants did not have the qualifications required by the legislation. It further alleges that the accused parties improperly conducted the verification work on certain carbon credit projects and also knowingly provided false and misleading information. It is clear from the gravity of the allegations that AEPA wishes to address any situation that has the potential to undermine the work of project proponents and emitters obligated to comply with TIER regulations and retain the market’s confidence in a TIER regulated trading system.

i. Qualifications of a Verifier

To become a Verifier under TIER, a third party assurance provider must meet certain criteria set out under the legislation. Since January 2023, the criteria to qualify as a Verifier under TIER has become more stringent and requires specific training in addition to having professional skills and qualifications. It is worth noting that the charges filed against the individual and corporate defendants were under the previous Verification Standard. The charges and recent amendments to the legislation regarding the criteria to become a Verifier underly AEPA’s continued commitment to ensure, improve and enforce the consistency, reliability, and confidence in a TIER regulated compliance marketplace.

ii. The Verification process

The Verification Standard sets out the process of verification of Credits and reports. This establishes consistency, transparency and reliability in the verification and reporting processes under TIER. The verification process involves the submission of projects that are qualified in accordance with the Verification Standard.

First, the Verifier team must create a sampling plan based on a risk-based approach.⁶ This demonstrates the scope of the Verifier’s work, provides an initial risk assessment of the project, and provides a road map for the final report. The Verifier must determine the level of evidence necessary to support the verification statement.⁷
Second, the Verifier must complete a site visit to certify that the assessments in the verification report are correct. The Verifier must complete a set of confirmations for verification of compliance reports or offset project reports only.⁸ This affirms that the data and information in the facility’s reports are accurate and align with the benchmarks for their respective project.
Third, the verification report must be submitted to a peer reviewer by the Verifier. Peer reviews provide an independent inspection of the verification plan and report. This serves as a check and balance on the Verifier’s assurances and reports.
Fourth, a verification report must be generated, along with a statement of verification, and submitted to TIER for review.

Discussion

A functional, transparent and trustworthy emissions trading system is fundamental to meeting emissions reductions targets set under TIER. The charges discussed in this Insight reflect the worst case scenario in a carbon market and could very well impact how TIER credits, or projects registered with TIER, are valued. We draw attention to these charges not only because they are unprecedented in Alberta, but also because as both compliance and voluntary grow worldwide, we are seeing additional scrutiny from the media, stakeholders and market participants as to the projects themselves (and protocols/methodologies underpinning the development of the projects) and the Verifiers (and their integrity and performance standard to which they are upheld). In other words, to maintain the integrity of the TIER program, there must be enforcement of the "rules". The requirements as to expertise and qualifications of the Verifier (as well as the required performance standard) and the oversight provided by AEPA are therefore fundamental pieces of the current TIER system. These requirements go to the core of the Credits that will be ultimately issued. Under TIER, a Credit is revocable meaning that AEPA may cancel a Credit if, in the opinion of the director, the issuance of the Credit was invalid, did not meet the requirements under TIER or is based on incorrect, false or inaccurate information. This first instance of enforcement of the requirements with respect to a Verifier (rather than addressing solely through the invalidation of Credits) demonstrates the Province's desire to uphold system integrity. We do not see this enforcement action demonstrative of any larger issue within the Alberta TIER program, but instead believe that enforcement, critical analysis and careful review of Verifiers' work will lead to a stronger and more reliable system, translating into value for developers and other market participants.

If you have any questions about this topic, please reach out to the authors, Hazel Saffery and Samina Ullah. Special thanks to summer law student, George King, who assisted in preparing this insight.