The B.C. government accepts recommendations included in a report released today by the Office of the Auditor General (OAG) titled "An Audit of Carbon Neutral Government", but rejects its conclusion that government has not met its objective of achieving a carbon neutral public sector.

"British Columbia became the first carbon neutral government in North America in 2010 and is recognized as a world leader in climate action - I stand by our achievements," said Environment Minister Terry Lake. "The audit was limited in scope - only covering B.C.'s first year as a carbon neutral government and the first two offsets purchased by Pacific Carbon Trust - and does not reflect the changes made to B.C.'s offset system as the market has evolved."

B.C.'s offset system is based on international standards. A key feature of B.C.'s offset program is that third-party, accredited professionals validate and verify projects to ensure they meet the requirements of B.C.'s emission offsets regulation. This approach is consistent with new offset systems now being implemented in Quebec, California, Australia, China, South Korea and elsewhere.

The Province will move forward on the recommendations of the OAG, and has already accomplished significant improvements in the following areas during the past year while the audit has been underway:

• Developed a diversified offset portfolio of 32 projects in all sectors of the economy and all regions of B.C.

• Completed extensive engagements across the public sector, with offset professionals, and with academics and experts to improve the Carbon Neutral Government program.

• Eliminated reporting costs to the entire public sector.

• Implemented a new Carbon Neutral Capital Program which has already provided $10 million dollars over two years in new capital funding to the kindergarten-to-Grade 12 education sector.

• Created a Carbon Offset Advisory Panel to advise Pacific Carbon Trust (PCT) on the development of its offset portfolio.

• Provided greater transparency by publicly releasing the purchase price of every offset in PCT's portfolio.

• Initiated a review to determine if the financial surplus currently generated from offset purchases should be used to lower public-sector costs or invested to further reduce emissions.

In addition, the Climate Action Secretariat (CAS) is currently working with PCT and offset professionals to improve B.C.'s offset system. To address the OAG's recommendation that CAS provide stronger oversight to ensure that offsets purchased on behalf of government are credible, the CAS director with statutory authority has already begun to consult with the professional community and develop more formal and rigorous procedures to ensure that the director's oversight role is clear, clearly communicated to PCT and delivered consistently.

Pacific Carbon Trust is a Crown corporation created in 2008 to purchase high-quality offsets and support the growth of the offset market in B.C. As the market develops, PCT's policies and operations will also continue to evolve. With this in mind, PCT has been working with Deloitte to improve its business processes, policies and risk management.

Learn More:

To view further information on offsets, visit Pacific Carbon Trust at: www.pacificcarbontrust.com

A backgrounder follows.

Contact:

Media Relations
Ministry of Environment
250 953-3834

BACKGROUNDER

The following is the text of the Province's response to the Office of the Auditor General regarding recommendations in its "An Audit of Carbon Neutral Government" to be included in the final report.

Recommendation #1: The Climate Action Secretariat work with public sector organizations to ensure each is pursuing reasonable actions to minimize emissions. As part of this, government should consider establishing public sector emission reduction targets.

The audit examined BC's Carbon Neutral Government achievement in 2010, our first year of establishing our carbon footprint and the baseline to assess our future actions to reduce emissions.

By law, all public sector organizations are required to publicly report on their emissions as well as the actions they have taken to reduce them. The Climate Action Secretariat has worked across the public sector on these plans and has highlighted key success stories through our Carbon Neutral Government reports in 2010, 2011, and soon for 2012.

To reduce emissions across the public sector, BC has taken efforts such as:

• committed $75 million from 2007 to 2010 to reduce emissions across the public sector

• reduced emissions from core government travel by 60%;

• required that new government buildings be built to LEED Gold or equivalent standards

• required that all new vehicle purchases first consider hybrid or clean energy vehicles;

• established agreements with BC Hydro and Fortis BC to provide financial incentives to energy projects as well as energy managers to work with public sector organizations across the province to develop plans to reduce emissions and save energy costs;

• established a new Carbon Neutral Capital Program that has provided $10 million towards energy efficiency projects in school districts to help them reduce GHG emissions;

• used the fixed price of offsets of $25/tonne as a concrete financial incentive to change capital planning and influence behaviour change across the public sector.

In support of this recommendation, the Climate Action Secretariat will take greater efforts to promote emission reductions across the public sector. As we report on BC's Carbon Neutral Government commitment over time, we will assess whether emission reductions are broadly in line with BC's provincial greenhouse gas reduction targets to ensure government's achieving appropriate results.

Recommendation #2: The Climate Action Secretariat ensure supplementary guidance to the Emission Offsets Regulation be finalized and adhered to.

The audit has assessed two of the first offset projects purchased by the Pacific Carbon Trust. Since that time, the Climate Action Secretariat has been working with the Pacific Carbon Trust and the professional community to ensure that roles and responsibilities are clear and that the requirements of the Emission Offset Regulation are understood by all parties.

In support of this recommendation, the Climate Action Secretariat will review guidance provided to date with the Pacific Carbon Trust and the professional community and formalize the guidance and procedures for offsets.

Recommendation #3: The PCT, to better manage offsets purchase risk, ensure that the results of its due diligence are satisfactorily analysed, concluded and documented.

The Pacific Carbon Trust is a relatively new Crown corporation supporting the development of a new market in BC, and as such it recognizes the need to continuously improve, and implement processes to manage risk. With this in mind, PCT has been working with Deloitte & Touche to improve its business processes, policies and risk management. Since 2010, Pacific Carbon Trust has:

• Supported the development of provincially-approved protocols such as the Protocol for the Creation of Forest Carbon Offsets in BC.

• Implemented risk management policies and procedures including an enterprise risk management registry.

• Implemented a second risk assessment for all offset projects.

• Clarified Pacific Carbon Trust's role in relation to protocol development.

• Initiated monthly data reporting to better monitor supply chain risk.

In support of this recommendation, Pacific Carbon Trust will continue to work with Deloitte & Touche and other industry experts to implement continuous improvement. Deloitte has provided a follow-up performance review to assess PCT's implementation of previous recommendations and to suggest further areas for improvement.

Recommendation #4: The Climate Action Secretariat provide stronger oversight to ensure that offsets purchased on behalf of government are credible.

The Emission Offset Regulation defines BC's offset system and includes key elements to ensure offsets are credible including:

• Projects must be validated and verified by independent, accredited third parties;

• Offsets are purchased by a Crown Corporation arms-length from government and under the direction of an independent Board of Directors; and,

• A Director at the Climate Action Secretariat has statutory authorities to work with the professional community as well as set protocols to ensure the effectiveness of BC's offsets system.

The Climate Action Secretariat has been working with the Pacific Carbon Trust and the professional community to continuously improve BC's offset system. This has included increasing the number of CAS employees with ISO training in validation and verification of offsets.

In support of this recommendation, the Climate Action Secretariat will consult with the professional community and international experts and release formal procedures on how the Director's oversight role will be delivered.

Recommendation #5: The PCT provide greater transparency about the cost effectiveness of its purchases.

With the maturation of the BC carbon market and a portfolio of more than 30 carbon offset projects, Pacific Carbon Trust now has sufficient data to establish the range of prices it will negotiate with suppliers. The purchase price ranges correspond to the three project types in the PCT portfolio: forest sequestration, energy efficiency and fuel switching. Pacific Carbon Trust is restricted to purchase offsets within BC, and each project is evaluated on its own costs, risks and value.

• On February 15, 2013, the Pacific Carbon Trust released a pricing framework for each of the three project types in its portfolio. This will help guide potential offset project developers as they build financing for their projects.

• In addition, PCT has made all carbon offset payment and pricing information from 2009 through 2011 available on its website. http://www.pacificcarbontrust.com/propose-a-project/carbon-offset-pricing-structure/

• Going forward, PCT will release this information on an annual basis every June in conjunction with the release of its annual carbon neutral government portfolio.

The carbon market has sufficiently matured to allow for more transparent financial reporting and a clear pricing structure ensures that releasing these details will not create any potential financial risk to B.C. taxpayers.

Recommendation #6: The Climate Action Secretariat and the Pacific Carbon Trust ensure that reporting on carbon neutrality assess the trade-offs between minimizing government emissions and offsetting those emissions through the purchase of offsets.

Since the time of the audit, BC has reported on its 2011 Carbon Neutral Government commitment and will soon report on its 2012 commitment.

Since beginning this program, the Climate Action Secretariat, the Pacific Carbon Trust and the broader public sector has been able to develop a series of public information products communicating the value of Carbon Neutral Government, including both the benefits of reducing emissions and energy costs in the public sector as well as the value of the Pacific Carbon Trust's offset portfolio across BC.

The Climate Action Secretariat and the Pacific Carbon Trust have also introduced since 2010 expert committees to improve the measurement and reporting of actions taken by PSOs as well as the effectiveness of the Pacific Carbon Trust's offset portfolio.

In support of this recommendation, Government will take further actions to communicate the value of reducing public sector emissions as well as investing in emission reductions across BC.

Contact:

Media Relations
Ministry of Environment
250 953-3834