Carbon offset credits will be created when an entity such as a municipality, a farmer or a company reduces its own emissions more than they have to.
The proposed regulations say one credit would be created for every tonne of emissions reduced, but the credits have to be registered and independently verified before they can be sold.
Companies that are paying the federal carbon price can buy those credits to reduce the amount of carbon price they have to pay.
Big industrial emitters can already buy and sell carbon credits created by other companies covered by the federal carbon pricing system, but carbon offset markets will expand the credit system beyond that group of companies.
The first carbon offset market will be for credits produced by municipalities that capture methane from their landfills, with future markets to be created for cutting emissions from farmland, forests and from reducing or eliminating fluorinated refrigerants in advanced refrigeration systems.