Upstream Methane Abatement Toolbox: Emissions Reduction Fund

Overview

The Emissions Reduction Fund is a Government of Canada contribution program that provided funding to conventional oil and gas companies to deploy existing methane abatement technologies. The program’s total funding was CDN $750 million (M) over 5 years, of which $675M was dedicated to onshore oil and gas operations and $75M to offshore operations. The majority of the funding was used for projects that eliminate methane, helping to achieve reductions above and beyond regulations as opposed to simply subsidizing. Funding was restricted to upstream conventional oil and gas companies to reduce or eliminate the routine flaring or venting of natural gas. Midstream companies were eligible insofar as it facilitated the capture of upstream natural gas.

The ERF provided interest free five-year loans, with the potential to have a portion of the funding delivered as a grant depending on the overall project cost per tonne of CO2e emission reductions. Funding was provided at a minimum of $100K to a maximum of $50M, and projects that received a grant surrendered any potential carbon offset credits to ensure no double counting. In 2022, the program was refocused to only support projects that would eliminate emissions and not those projects that were only reducing emissions.

Key points of interest

Implicated parties

Government funding is provided to private companies to deploy or implement methane abatement technologies that result in the elimination of routine flaring or venting of methane emissions in conventional oil sites.

Impact

As of May 1, 2023, the program resulted in 87 projects with overall emission reductions of over 1.5 Megatonnes CO2e using $180M (27%) of the total funding available at an average project cost/tonne of 166$ for emissions reductions additional to regulations which came into force in January 2023. Overall program results are subject to change until projects are fully completed and results officially reported. 

Challenges

• Eligibility of retroactive costs – The program allowed pre-agreement costs to be eligible for reimbursement. These pre-agreement costs were capped at 30% of total project funding to ensure the program wasn’t funding projects that were already complete or nearly complete. This allowed for necessary costs, such as the Baseline Opportunity Assessment – a required analysis for the application – to be eligible for reimbursement. However, as the 30% cap was based on total project costs, if the project came in under budget, the 30% cap would necessarily be reduced. The proponent could then end up in a position of overpayment of funds dispersed for pre-agreement costs requiring the proponent to return some of the funding already disbursed.
• Project scope creep – Projects submitted as part of the application process would occasionally change during project implementation, sometimes for legitimate reasons. Re-assessment of such project scope changes were required to ensure the project remained consistent with original objective. If not, an amendment to the agreement was required that delayed reimbursement of costs and increased administrative delays.
• Additionality – Funding was provided primarily to projects that would eliminate the routine venting and flaring of methane. This exceeded regulatory requirements, but accounting for the emission reductions associated with the funding when there were different and changing regulatory requirements in different jurisdictions presented a challenge.

Lessons learned

• Program demonstrated the low cost per tonne of many methane abatement projects, particularly as companies would gain additional revenue from captured gas. A number of projects came in under $50/tonne.
• Flexibility features, such as allowing retroactive costs, increased the complexity of the program resulting in additional administrative burden and administrative delays.
• An audit of the program was completed by the Commissioner of the Environment and Sustainable Development. NRCan refocused the program for its third and final intake in response to recommendations by the audit to only support projects that would eliminate emissions and not those projects that were only reducing emissions.

Additional resources

• Emissions Reduction Fund