Canada Publishes Draft Offset Protocol for Direct Air Carbon Dioxide Capture and Geological Storage

In January 2025, Environment and Climate Change Canada (ECCC) released a preliminary draft of its Federal Offset Protocol (Protocol) for direct air carbon dioxide capture and geological storage (DACCS) projects. The Protocol is intended for projects capturing carbon dioxide (CO₂) directly from the atmosphere and storing it in subsurface geological formations.

DACCS projects in compliance with the Protocol will benefit from federal offset credits issued under the Canadian Greenhouse Gas Offset System Regulations (Regulations), allowing them to monetize greenhouse gas (GHG) reductions under the federal Output-Based Pricing System.

The deadline for comments on the draft Protocol is March 28, 2025.

Background

Canada’s GHG offset credit system allows project developers to generate federal offset credits by registering and implementing innovative projects that reduce GHG emissions and meet the requirements of the Regulations and an applicable federal offset protocol.

The draft Protocol is therefore an expression of Canada’s intention to expand the federal offset system to include DACCS projects.

The Draft Protocol

The draft Protocol proposes a framework that proponents will have to respect if they wish to generate federal offset credits. DACCS projects and activities would thus be subject to specific conditions, as well as measurement, reporting and verification requirements to quantify GHG removals generated by the project.

Eligibility Conditions

The Protocol includes various eligibility criteria, such as:

• Start date: the project must have a start date (i.e., the date of the first injection in the storage site) on or after January 1, 2022
• No “double dipping”: the project cannot be registered in any other offset credit system or be based in a province with an equivalent offset regime
• New projects only: it must be the first time CO₂ is being captured at the capture facility
• Eligible storage jurisdiction: the project site must be located in a single province or territory that has sufficient laws governing the permanent storage of captured CO₂. At present, only Alberta, British Columbia and Saskatchewan have been designated as such
• Additionality: the GHG removals must be additional (i.e., not required by law)
• No aggregation: the project site must include only one capture facility and one injection infrastructure. Aggregation of DACCS projects is not eligible

With respect to technology, project proponents can employ any specific direct air capture process including chemical, mechanical or electrochemical processes. Project proponents can also use any type of geological storage reservoir, although the captured CO₂ cannot be used for enhanced oil recovery purposes.

Measurement Requirements

DACCS projects would be subject to a quantification methodology to calculate emissions from project activities, which include the operation of the capture facility, transport infrastructure, injection infrastructure and activities associated to the storage reservoir.

The project scenario GHG removals, which capture the aggregate of all GHGs emitted to and removed from the atmosphere in the project scenario, are quantified by deducting the project emissions and releases of CO₂ from the gross CO₂ injected into the storage reservoir for a calendar year. The methodology accounts for all deductible emissions, including on-site and off-site generation of electricity and combustible fuels for the project’s operation, as well as fugitive emissions from the project infrastructure.

Practical Considerations

Other key elements set out in the Protocol would have significant implications on how a DACCS project may be structured. These practical considerations would need to be considered by proponents at the early design phases of any new potential project:

1. No Point-Source / Industrial Emissions

CO₂ captured and stored must come directly from the atmosphere and may not be captured from any point-source (e.g., an industrial facility).

2. Procurement of “Additional” Renewable Energy

A DACCS project may not result in the displacement of any renewable energy, meaning that the renewable energy must be generated explicitly for the project and not be displaced and removed from the grid.

While the Protocol acknowledges that power purchase agreement (PPA) arrangements may be used for this purpose, it is not exactly clear how renewable electricity supplied through the grid would be accounted for. The Protocol is seeking various comments on this additional renewable energy criterion.

3. No Cross-Border Projects 

A project must be located in a single Canadian province or territory. This means that, as currently drafted, a project transporting CO₂ between provinces or territories to optimize the location of the capture and storage operations would not be eligible for federal offset credits. The Protocol is specifically inviting comments on this point.

4. A Single Proponent

A DACCS project must have a single proponent who is legally responsible for the project and the offset credits issued.

While this does not require single ownership of all parts of the projects (e.g., the capture, transport and storage components), agreements, contracts or partnerships with all entities involved in a DACCS project will be essential to ensure the proponent is in compliance with all requirements under the Regulations and the Protocol, such as authorizations, exclusive entitlement, measurement and data, and permanence monitoring.

5. Permanence and Reversals

The Protocol provides that the proponent must monitor the permanence of its project’s GHG removals for 100 years after the end of the last crediting period. However, it also highlights that in some CO₂ geological storage regulatory frameworks, long-term liability for a site may be transferred to the government when the project reaches its post-closure phase, which can be as soon as 10 to 50 years post-injection.

ECCC is still considering how the permanence requirements set out under the Protocol should be applied in circumstances where long-term liability has been transferred to government under the applicable regulatory framework.

Looking Ahead

The Protocol represents a significant shift in how DACCS projects can monetize CO₂ removal. Having historically relied upon the sale of carbon credits in voluntary markets (i.e., to buyers not subject to compliance obligations, often aiming to achieve net-zero objectives), the Protocol would effectively broaden the scope of potential buyers to include large emitters and other entities subject to compliance obligations. A similar approach is being considered in the United Kingdom, which is seeking to include “negative emissions” within the scope of the U.K. Emissions Trading Scheme.

It remains to be seen whether DACCS project proponents will favour this approach. We expect this to be a function of various key factors, including:

• Which of the compliance or voluntary market price will be higher at any given time
• The stringency of the final Protocol’s eligibility conditions (which would not apply in the same manner to voluntary markets that would be subject to accreditation standards)

For more information, please contact the authors of this bulletin or any other member of our Environmental group.