Minister of the Environment Jim Prentice speaks with the media after giving a speech about establishing a carbon market to the Economic Club of Canada in Ottawa on Wednesday. (Sean Kilpatrick/Canadian Press)

The federal government has issued rules for claiming greenhouse gas reductions or "offsets" that will form the basis for a national carbon market.

Environment Minister Jim Prentice unveiled two key draft documents Wednesday related to the offset system at a speech before the Economic Club of Canada in Ottawa.

The documents set out the rules and requirements for generating offset credits that represent emissions reductions and guidelines for checks to ensure those reductions are real and quantifiable.

They provide important details and certainty about the carbon trading system that the government had proposed earlier as part of its climate change plan, Prentice said.

"Canadians can begin to plan for the future, to proceed with confidence, to proceed with a clear understanding of the rules of the road."

Under the government's climate change plan, rules will limit emissions of greenhouse gases such as carbon dioxide. However, emitters will be able exceed the limits if they purchase offset credits to compensate for their excess emissions.

The federal government's greenhouse gas reduction target is a 20 per cent reduction from 2006 emissions by 2020 and a 60 to 70 per cent reduction by 2050.

Market to set carbon price

The offset system is intended to generate real emission reductions, Prentice said.

"It does so by establishing a price for carbon in Canada — something that has never before been done in this country," he said. In theory, this would make it profitable to generate offsets.

However, the actual price will be set by those who buy and sell the offset credits in the marketplace, Prentice said.

The new rules describe how projects can qualify to earn offset credits, each representing greenhouse gases equivalent to one tonne of carbon dioxide. Some project examples provided by the government include wind power and the collection and burning of methane from landfills to produce electricity. The verification process is based on international standards.

Both companies and individuals will be able to purchase the credits, Prentice said.

"And they can do so with the assurance that the credits they purchased represent real and verified emission reductions."

The credits will also be bankable.

Canadians will have 60 days to comment on the draft documents, which are available on the website for Environment Canada. The final versions will be published in the fall.

Trading could start this year: Prentice

Prentice said offset projects started after Jan. 1, 2006, can qualify for certification in 2010, and the credits would begin to apply after Jan. 1, 2011. However, credit trading could begin earlier, he told reporters after his speech.

"Frankly, in the marketplace, these credits could begin to start trading in 2010, prospectively even in 2009."

Prentice acknowledged that some provinces such as Alberta already have carbon markets, but the federal system will complement and not duplicate them.

He added that the U.S. is also establishing a domestic carbon trading system and predicted both countries will eventually move toward a continental carbon marketplace.

The Conservatives pledged in their 2008 election platform to work with the U.S. and Mexico to develop and implement a continent-wide system between 2012 and 2015. On the other side of the Atlantic, the European Union established an emission trading scheme in January 2005.

Meanwhile, Prentice said, Canada plans to announce the remaining elements of its climate change plan, including reduction standards for each industry, by December. That is when a key international meeting will take place in Copenhagen in an effort to produce a UN treaty on climate change to replace the Kyoto Protocol, which expires in 2012.

Canada's detailed climate change regulations will be released in 2010 and they will go into effect in 2011, Prentice told reporters.

The environment minister opened Wednesday's speech by emphasizing the importance of taking action.

"I don't think that any of us … can afford, for the sake of our children or our grandchildren, not to succeed in the battle against climate change. The consequences are too great and the stakes are too high."

With files from The Canadian Press