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Auditor general and province in almighty carbon clash

Two projects that received $6 million from the Pacific Carbon Trust dubbed ‘freeriders’ by John Doyle, whose report is slammed by environment minister
James Tansey, Offsetters CEO

The B.C. government last week rejected a damning auditor general’s report that concludes the B.C. government’s carbon neutral policies have failed and that industry has been getting a free ride on the carbon-credit gravy train at the expense of cash-strapped school boards and hospitals.

John Doyle’s report confirms what a series of Business in Vancouver stories concluded: carbon reduction projects being funded by the public through the Pacific Carbon Trust (PCT) would have occurred anyway.

That means they failed the government’s own additionality test, which is intended to fund only those projects that would not otherwise have gone ahead, due to financial or technical hurdles.

“Pacific Carbon Trust has not purchased credible offsets,” Doyle’s report concludes.

Environment Minister Terry Lake rejected Doyle’s report out of hand and questioned his ability to judge the complex process of carbon offset verification.

“The fundamental conclusion that the auditor general comes to, we absolutely reject,” Lake said.

“We have an auditor general’s office with no expertise in examining the work of auditors who actually have that internationally recognized expertise.”

He added the one independent expert that Doyle hired – environmental law expert Stewart Elgie – resigned, when he saw which way the review was headed.

“When you have eight independent, internationally accredited organizations all saying that the conclusions you have come to are wrong, I think there’s a pattern here.”

In 2010, as part of its plans to reduce greenhouse gas emissions, the B.C. government began forc-ing public organizations such as school boards and hospitals to pay fines to the PCT for failing to hit carbon-neutral targets.

To date, more than $50 million has been raised through public organizations, with the money used to fund projects undertaken by private corporations that are supposed to reduce carbon emissions.

About half of that – $25 million – was paid out between 2009 and 2012 to forest conservation, fuel switching and other projects intended to reduce greenhouse gas emissions.

In his audit, Doyle looked at two major projects funded by the PCT – the Nature Conservancy of Canada’s Darkwoods forest conservation project, and an EnCana Corp. (TSX:ECA) natural gas flaring reduction initiative. Combined, they received $6 million in PCT credits.

He concluded neither met the additionality test. In EnCana’s case, the project had already started as a cost-saving measure before the company even applied for PCT carbon credits.

Similarly, the Nature Conservancy had already bought the privately owned Darkwoods forest to protect it from logging before applying for carbon credits.

“It must be an incentive, not a subsidy, for the reduction of GHGs,” Doyle wrote in his report. “Yet neither project was able to demonstrate that the potential sales of offsets were needed for the project to be implemented.

“In industry terms, they would be known as ‘freeriders’ – receiving revenue [$6 million between the two] for something that would have happened anyway.”

But those weren’t the only PCT-funded projects that appear not to meet the additionality test.

As reported in BIV as far back as 2011 (“Smoke and mirrors” – BIV issue 1139, August 23-29, 2011), International Forest Products (TSX:IFP) received $613,890 in PCT funding for a $22 million fuel conversion project as part of its $100 million Adams Lake sawmill project, which was approved in March 2006, two years before the PCT came into existence.

In February this year (issue 1217, February 19-25), BIV reported TimberWest received $5.6 million to preserve old-growth timber that, according to a report to its former shareholders, it had already deemed uneconomic to harvest – another apparent breach of the additionality test.

The PCT and B.C. government both point out that the projects must be approved by third-party verifiers, which base their complex calculations on international standards, like the Verified Carbon Standard (VCS).

It was Doyle’s refusal to follow those standards that prompted a number of carbon marketers and brokers to launch a letter-writing campaign to the government questioning Doyle’s approach.

One of the carbon brokers with the most to lose, should Doyle’s report have a negative impact on the carbon market in B.C., is Offsetters Climate Solutions Inc. (TSX:COO), which was formed recently with the merger of ERA Carbon Offsets Ltd., Offsetters Clean Technology and Carbon Credit Corp.

The Darkwoods project is just one of the projects Offsetters has marketed, both to the PCT and other carbon investors.

In letters that were leaked to the press, Offsetters CEO James Tansey warned the B.C. government it could be opening itself up to a lawsuit, should Doyle’s report harm his company.

Offsetters has thus far received $2.7 million in PCT credits, which has been invested in 10 different projects.

Tansey said it became apparent during the audit process that Doyle had an agenda and refused to follow the carbon project verification standards that companies like his must follow.

“The prevailing view of people’s experience from meeting him was that it was guilty until proven innocent,” Tansey told BIV. “He refused to accept the advice and opinion of at least nine international organizations and experts.”

“If none of the validators and verifiers will operate in the province anymore – because they have this risk of an AG going rogue and second-guessing their professional integrity – then we would seek compensation from the province for those losses.”

Bob Simpson, the Independent MLA for Cariboo North, said the auditor general is not obliged to follow protocols established by outside bodies in his reviews of government operations and organizations.

“They’re arguing that you can only ask the people who believe in Catholic indulgences whether Catholic indulgences are appropriate or not,” Simpson said.

“[Tansey] is attacking this because, I think in many respects, he’s in a position where if this thing goes down, his business model no longer works.”

Simpson has called for the PCT to be dismantled – something neither the Liberal nor NDP governments are contemplating. School boards, hospitals and public organizations will therefore continue to subsidize large corporations for investments they appear to be making for economic reasons.

The Surrey School District alone has been paying roughly $500,000 a year to the PCT.