In its discussion paper Stimulating Effective Carbon Markets in Canada, Environment and Climate Change Canada (ECCC) seeks to strengthen the federal industrial carbon pricing model to improve its cohesion, efficiency, and transparency, promote investments in decarbonization, while preserving the transparency of price signals and their competitiveness.
Despite the recognized effectiveness of existing systems (STFR and cap-and-trade), ECCC identifies persistent challenges: market fragmentation, limited liquidity, lack of transparency, and insufficient access to financing for diffuse decarbonization projects (small projects of less than 10,000 tCO2e/year).
Current limitations on financing small-scale projects
GHG emission reductions achieved by SMEs, municipalities, and NPOs (energy efficiency, buildings, fleets, small-scale methane avoidance, etc.) are structurally underfunded. Their small size results in high auditing and reporting costs (Monitoring, Reporting, Verification – MRV), limited administrative capacity, and revenue uncertainty, which prevents them from contributing fully to Canada’s climate goals.
A framework bridging voluntary markets and the federal model
Authorize—in a regulated manner—the use or recognition of carbon credits from the voluntary carbon market (VCM) generated by projects carried out in Canada that meet internationally recognized standards (e.g., Verra, Gold Standard, CAR, ACR), when they are subject to a “Canadian test” of compatibility aligned with the integrity requirements of the federal model.
This approach strengthens markets in the following areas:
Cohesion and efficiency: a harmonized federal gateway reduces fragmentation and administrative burden, while improving market liquidity.
Investment: Regulated recognition of domestic MVCs creates revenue predictability for diffuse projects, enabling investment primarily from the private sector and civil society, outside the government’s scope, that would not otherwise occur.
Transparency: VCM registries are based on unique identifiers and public records; combined with Canadian disclosure requirements (prices, volumes, categories), they enhance market credibility.
The proposed “Canadian test” (key conditions)
1. Acceptance of recognized CDM programs and methodologies applicable in Canada.
2. Environmental integrity: real, additional, quantified, verified, unique, and permanent reductions (or with risk management mechanisms).
3. No double counting: prohibition of dual use (regulatory compliance and CDM) in Canada.
4. Traceability and transparency: public registry, unique identifiers, issuance/retirement statuses, and standardized data.
5. Governance: independent verification, conflict of interest rules, correction mechanisms.
Aggregation: the key to making small projects bankable
Aggregation solutions and platforms—particularly projects such as Sustainable Community—play a key role in the deployment of small-scale GHG reduction projects. By pooling MRV and governance functions, they significantly reduce costs per ton, standardize environmental quality, and make thousands of reductions bankable, thereby enabling the financing of micro-projects that would otherwise be inaccessible on an individual basis. They directly address Environment and Climate Change Canada’s (ECCC) objectives of market efficiency, investment mobilization, and transparency.
For example, the Communauté Durable du Québec aggregation project has stimulated a reduction of 11.5 million tons of CO₂e at the source over the period 2010-2024, all verified by independent third parties. These results were achieved through the implementation and operation of more than 2,500 small-scale projects in nearly 3,000 buildings operated by SMEs, municipalities, and non-profit organizations. In addition, a second pooled project in Ontario—aimed at aggregating thousands of source reduction projects—is currently being registered with the Verra program. Together, these two projects could generate an additional 30 million tons of CO₂e over the period 2025-2032.
Recommendations to Environment and Climate Change Canada
1. Create a recognized category of “eligible domestic MVC credits” in the federal model for the Canadian needs of regulated issuers and those affected by the CORSIA market (international civil aviation).
2. Regulate usage through caps and explicit integration into the net demand test.
3. Enhance transparency (aggregate publication of prices/volumes with confidentiality protections).
4. Recognize aggregator status with minimum governance requirements and appropriate MRV.
Conclusion — A pragmatic lever to accelerate decarbonization in Canada
A cautious and structured opening to MVC credits from Canadian projects makes it possible to mobilize diffuse reductions, improve liquidity, increase investment, and enhance transparency, while preserving the rigor and price signal of the federal model. This approach is consistent with ECCC’s objectives and offers concrete leverage to accelerate decarbonization in Canada.
Turn your intentions into impact: support local decarbonization today by purchasing carbon credits from the Sustainable Community!
VP Public & Government Affairs