Emissions Reduction Fund Onshore Program: Greenhouse gas accounting methodology and regulatory additionality review (Executive Summary)

Summary of the project

Table 1: Project summary

Item	Description
Project title	Emissions Reduction Fund Onshore Program: Greenhouse Gas Accounting Methodology and Regulatory Additionality Review
Project description	Performance of an independent third-party review of the Natural Resources Canada (NRCan) Emissions Reduction Fund (ERF) Onshore Program’s GHG and SLCP quantification methodologies and validation of the Program’s calculation of anticipated net GHG and SLCP Emission Reductions for projects approved under Intakes 1, 2, and 3. The review and validation shall be performed in accordance with the applicable ISO 14064-1,2,3 principles, and, where appropriate, provide specific recommendations for improvement. ISO 14064-1,2,3 comprises the following parts: Part 1: Designing, developing managing, and reporting organizational-level inventories Part 2: Quantification, monitoring and reporting of GHG and SLCP emission reductions or removal enhancements at the project level Part 3: Verifying statements related to GHG and SLCP inventories, GHG and SLCP projects, and carbon footprints of products
Project locations	British Colombia (BC), Alberta (AB), Saskatchewan (SK), and Manitoba (MB).
Project start date	The contract start date for this review and validation project was 23 February 2023. The start data of the individual emission reduction projects approved under the ERF Program varies by individual project. All projects are to be implemented by 31 March 2024.
Reduction reporting period	The Program requires that the operators of approved projects report the actual emission reductions achieved for 5 years following the project implementation. Only the GHG and SLCP emission reductions that are anticipated to occur within the first 12 months follow the implementation of each approved project are considered for the purposes of this validation.
GHG assertion (anticipated emissions reductions/sequestration to be achieved in the first 12-months following project implementation)	NRCan’s assertion is that the anticipated net GHG and SLCP emission reduction relative to the dynamic baseline in the first 12 months following implementation of all projects approved under the three application Intakes, which is in addition to any regulatory related requirements is 1.287 megatonnes (Mt) CO2E.
Government Approved Quantification Protocol	All approved ERF project activities are to be completed by 31 March 2024
Ownership	Approved recipients of ERF funding are not entitled to retain any carbon offset credits generated by partially repayable projects under the Program. Carbon offset credits generated through repayable projects under the Program (i.e., eligible projects that lower GHG and SLCP emissions or eligible projects where a recipient forgoes partial re-payability) can be maintained by an eligible recipient, as permitted through applicable carbon offset provisions.
Project Activity	Emissions reduction or elimination at upstream oil and gas facilities.
Project Contact	The designated NRCan contact for this review and validation project was Derrik Budden derrick.budden@NRCan-RNCan.gc.ca
Lead Validator	David Picard, P.Eng. Clearstone Engineering Ltd. 900 6 Avenue SW, Suite 700 Calgary, AB, T2P 3K2 (403) 215-2730 david.picard@clearstone.ca

Introduction

Natural Resources Canada (NRCan) administers the $675 million Emissions Reduction Fund (ERF) Onshore Program (the Program), which is focused on eliminating or lowering intentional routine venting of methane-rich gas from upstream and midstream1 oil and gas operations by supporting capital infrastructure investments. The Program has comprised three separate intakes, namely one in each of the following years respectively: 2020, 2021, and 2022. As of 31 March 2023 all funding was allocated. The program requires that all approved projects be implemented by 31 March 2024.

Applications for 103 proposed projects were received across the three intake periods, and of these, 77 were approved, 7 were withdrawn or cancelled, and 19 did not receive consent. Based on the results presented in the Final ERF Templates, the approved projects will achieve a net GHG and SLCP emissions reduction of 3.097 Mt CO₂E relative to the dynamic baseline in the first 12-month period following their implementation. It is NRCan’s assertion that, of this amount, 1.287 Mt CO₂E in GHG and SLCP emission reductions in the first 12-months following implementation is in addition to applicable provincial and federal regulatory requirements. For both the net and additional emission reductions, the dynamic baseline allows for production decline as a function of time.

The approved projects can be grouped into the following scope of work categories as defined by the Program, where ‘E’ denotes elimination and ‘L’ denotes lowering (or reduction) of GHG and SLCP emissions from a target source:

• E1: The conservation and accurate metering of natural gas that is intentionally vented, either directly to the atmosphere or into a flare system, for subsequent use on one or more sites as fuel, or for transfer off one or more sites into natural gas gathering and processing infrastructure. For example, installation of a new vapor recovery unit (VRU) compressor to capture vent gas from a storage tank and transfer the gas to an existing on-site pipeline.
• E2: The development of new or upgrading of existing gas gathering and/or processing infrastructure to enable the increased conservation and off-site transfer of the conserved natural gas from one or more facilities. For example, installation of new gas pipelines, new oil emulsion pipelines, and/or new gas processing infrastructure (e.g., gas plant) to capture wellhead vent gas or flared gas.
• E3: Exchanging pneumatic devices that intentionally vent natural gas to the atmosphere, with zero venting electrically driven devices. For example, installation of a new zero-bleed electric chemical pump to replace an existing pneumatic chemical pump.
• E4: Installation of compressed atmospheric air or inert gas storage and piping infrastructure to activate pneumatic devices, to eliminate the use and intentional atmospheric venting of compressed natural gas from pneumatic devices. For example, installation of an instrument air compressor to actuate existing pneumatic devices (previously actuated with instrument gas).
• L1: Incinerating or flaring natural gas that was previously intentionally vented. For example, installation of a new flare or incinerator system to thermally destruct gas that was previously vented.
• L2: Lowering the volume(s) of natural gas being intentionally vented to the atmosphere from pneumatic devices. For example, installation of a low-bleed pneumatic instrument to replace an existing high-bleed pneumatic instrument.

Table 2, 3 and 4 summarize the number of approved projects by primary work category, source type, and intake period. Table 5, 6 and 7 summarize the anticipated net amount of GHG and SLCP emissions reduction by primary work category, source type, and intake period. Table 8, 9 and 10 summarize the net reduction in the amount of natural gas vented or flared by primary work category and source type.

Each applicant to the ERF was required to complete an online application form and include a baseline opportunity assessment (BOA) (or equivalent) certified by a professional engineer registered in Canada. The anticipated net emissions reduction relative to the dynamic baseline in the first 12-month period following implementation of each approved project was determined using a spreadsheet tool developed by NRCan and information input by the applicant. A separate tool was developed by NRCan to determine the portion of the determined emissions reduction that would be in addition to reductions that would have occurred due to provincial and federal regulatory requirements.

Each proposal was evaluated by an NRCan Technical Review Committee and was ranked based on the cost per tonne of GHG and SLCP emission reductions and the financial viability of the applicant.

The application eligibility criteria established by the Program are delineated in section 9: appendix C: eligibility criteria.

Table 2: Number of projects funded under the program summarized by primary work category and source type – intake 1

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	0	0	0	0
E2	13	7	0	20
F3	0	0	0	0
E4	0	0	0	0
L1	1	0	0	1
L2	0	0	1	1
Total	14	7	1	22

Table 3: Number of projects funded under the program summarized by primary work category and source type – intake 2

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	1	5	0	6
E2	31	5	0	36
F3	0	0	0	0
E4	0	0	2	2
L1	2	1	0	3
L2	0	0	2	2
Total	34	11	4	49

Table 4: Number of projects funded under the program summarized by primary work category and source type – intake 3

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	0	1	0	1
E2	4	1	0	5
F3	0	0	0	0
E4	0	0	0	0
L1	0	0	0	0
L2	0	0	0	0
Total	4	2	0	6

Table 5: Amount of GHG and SLCP emissions reduction (kt) expected from the approved projects in the first 12-month period following their implementation summarized by primary work category and source type – intake 1

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	0	0	0	0
E2	1,124	76	0	1,199
E3	0	0	0	0
E4	0	0	0	0
L1	9	0	0	9
L2	0	0	11	11
Total	1,133	76	11	1,219

Table 6: Amount of GHG and SLCP emissions reduction (kt) expected from the approved projects in the first 12-month period following their implementation summarized by primary work category and source type – intake 2

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	16	23	0	39
E2	1,414	55	0	1,470
E3	0	0	0	0
E4	0	0	9	9
L1	7	3	0	10
L2	0	0	3	3
Total	1,438	81	12	1,530

Table 7: Amount of GHG and SLCP emissions reduction (kt) expected from the approved projects in the first 12-month period following their implementation summarized by primary work category and source type – intake 3

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	0	27	0	27
E2	269	51	0	320
E3	0	0	0	0
E4	0	0	0	0
L1	0	0	0	0
L2	0	0	0	0
Total	269	78	0	347

Table 8: Amount of natural gas venting and flaring reduction (E+03 sm3) expected from the approved projects in the first 12-month period following their implementation summarized by primary work category and source type - intake 1

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	0	0	0	0
E2	203,715	26,919	0	230,634
E3	0	0	0	0
E4	0	0	0	0
L1	1,169	0	0	1,169
L2	0	0	1,003	1,003
Total	204,885	26,919	1,003	232,807

Table 9: Amount of natural gas venting and flaring reduction (E+03 sm₃) expected from the approved projects in the first 12-month period following their implementation summarized by primary work category and source type - intake 2

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	1,025	3,231	0	4,256
E2	197,468	15,733	0	213,201
E3	0	0	0	0
E4	0	0	558	558
L1	386	648	0	1,034
L2	0	0	212	212
Total	198,878	19,613	770	219,261

Table 10: Amount of natural gas venting and flaring reduction (E+03 sm₃) expected from the approved projects in the first 12-month period following their implementation summarized by primary work category and source type - intake 3

Provinces: BC, AB, SK and MB

Project scope	WellheadFootnote *	Storage tankFootnote *	Pneumatic devicesFootnote *	Total
E1	0	5,539	0	5,539
E2	65,374	21,829	0	87,203
E3	0	0	0	0
E4	0	0	0	0
L1	0	0	0	0
L2	0	0	0	0
Total	65,374	27,369	0	92,742

Net emission reductions

Projects are assessed by the Program based on the Net Emission Reductions relative to their dynamic baseline that is expected to be achieved in the first 12 months following their implementation. The net emissions reductions potential of a project is calculated as the difference between:

• the eliminated or lowered methane and non-methane CO₂E emissions from the project (Baseline Emissions)
• any CO₂E emissions that are caused by implementing the project (Project Emissions)

The first step required of a project proponent by the Program in calculating the Net Emission Reductions is to identify eligible emission source(s) and establish an appropriate project boundary. The Program uses a source-based greenhouse gas (GHG) and short-lived climate pollutant (SLCP) accounting boundary for its emissions reduction calculations, where the targeted source is the intentional routine venting of methane (either venting directly into the atmosphere or to a flare/incineration system). This GHG and SLCP quantification approach reflects the magnitude of the methane and non-methane CO₂E emissions reductions and increases that are directly linked to the funded project and within the source based GHG and SLCP boundary.

The GHG and SLCP accounting boundary for an ERF project begins with an individual source where a molecule of methane is vented or flared and extends to the point where its final disposition is one of the following:

• Transferred directly to the atmosphere as methane (for projects that reduce the volume of methane vented to the atmosphere)
• Thermally destructed in an incinerator or flare
• Conserved and transferred into a fuel management system for on-site use
• Conserved and transferred into natural gas gathering and processing

The second step involves calculating the Baseline Emissions that the proposed project will eliminate or lower from each existing or future source. This calculation is done using a Microsoft Excel-based GHG and SLCP calculator developed by the Program (Program GHG and SLCP Calculator), which utilizes the quantified rates of venting or flaring from each existing source, coupled with the chemical composition of vented or flared gas for each source, submitted by the Program applicants.

The third step involves calculating the Project Emissions that will result from implementing the proposed project (i.e., project emissions related to work undertaken to eliminate or lower methane emissions via the proposed project). The Project Emissions are calculated using the Program GHG and SLCP Calculator developed by NRCan and are based on the detailed description of the emissions that will be caused by the proposed project submitted by Program applicants.

The fourth step in calculating the Net Emission Reductions involves subtracting the Project Emissions (Step 3 results) from the assessed Baseline Emissions reduction (Step 2 results).

Additionality

Based on the Program’s GHG and SLCP quantification methodologies, the total Net Emission Reductions for all intakes is anticipated to be 3.097 megatonnes (Mt) of carbon dioxide equivalent (CO₂E) in the first 12 months following project implementation.

The forecasted total net emission reductions of ERF projects potentially comprise two portions:

• Emission reductions that would be required to meet regulation requirements
• Incremental emission reductions in addition to what would be required under regulatory requirements

Under the first two intake periods of the Program, projects were assessed based on the total Net Emission Reductions that would be achieved by the proposed project activities. However, applicants were not required to demonstrate that their proposed projects would exceed pending regulatory requirements (that is pending regulatory requirements published at the time of application to the Program, which will come into force).

Under the third intake period, the Program was refocused and implemented more stringent eligibility requirements, such that only projects that fully eliminate methane emissions and surpass regulatory requirements were considered. Specifically, under the third intake period, it was required that the assessed emissions reduction potential of proposed projects be net of any reductions required to comply with the following regulations:

• Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector), SOR/2018-66 (hereinafter ‘Federal Methane Regulations’), including sections 26, 27 and 37 to 41, which will come into force on 1 January 2023)
• Applicable Provincial Regulations, including all pending regulatory requirements included within said Applicable Provincial Regulations as of the opening date of the third intake application period (February 20, 2022), which will come into force

When assessing applications submitted under the third intake period, the Program calculated the Additional Emission Reductions of proposed projects relative to the applicable regulatory requirements. Only projects that achieved Additional Emission Reductions were considered for funding.

For projects funded under the first two intake periods of the Program, NRCan re-evaluated the assessed emission reduction potential relative to the applicable regulatory requirements (pending regulatory requirements published at the time of application to the Program, which will come into force) to determine their net emissions reduction potential.

The portion of the aggregate net emission reduction of the funded projects from all three intake periods that is in addition to what would be required under the applicable regulatory requirements is the basis for NRCan’s assertion of the anticipated additional emissions reduction outcome of the Program.

Project GHG boundary

The project boundary contains the eligible project activities and the GHG SSRs that must be assessed by the proponent to determine the GHG emission reductions generated by the project relative to the baseline scenario.

Objective

The objective of this review is to validate the Program’s GHG and SLCP quantification methodologies and to validate the Program’s calculation of the anticipated Additional Emission Reduction outcomes for projects approved under Intakes 1, 2 and 3. A specific requirement is that the reviewer be a GHG validator/verifier that is certified in ISO Standard 14064-1, 2, 3 (or equivalent). This standard defines validation as the process for evaluating the reasonableness of the assumptions, limitations and methods that support a statement about the outcome of future activities. The principles applied by ISO Standard 14064-1, 2, 3 are:

• Relevance – Select the GHG SSRs, data and methodologies appropriate to the needs of the intended user
• Completeness – Include all relevant GHG emissions and removals. Include all relevant information to support criteria and procedures
• Consistency – Enable meaningful comparisons in GHG-related information.
• Accuracy – Reduce bias and uncertainties as far as is practical
• Transparency – Disclose sufficient and appropriate GHG-related information to allow intended users to make decisions with reasonable confidence
• Conservativeness - Use conservative assumptions, values, and procedures to ensure that the GHG emission reductions or removal enhancements are not overstated

Scope

Table 11: Scope of work summary

Scope parameter	Project details
Project name:	NRCan Emission Reduction Fund (ERF)
Project boundary:	The Program approved a total of 77 unique projects at unique locations.
Infrastructure, activities, technologies, and processes associated with the project:	The types of projects are delineated in Section 1 and comprise E1, E2, E3, E4, L1 and L2, where E and L denote net emissions elimination and lowering (or reduction) respectively.
GHG and SLCP sources and sinks:	The primary emissions sources targeted by the program are: General facility venting Venting from pneumatic devices Flaring Other Sources of emissions potentially added by projects under the program comprise: Emissions from internal combustion engines required for gas compression Emissions from an incremental increase in on-site fuel consumption to power gas conservation equipment Emissions from incremental increase in electrical energy consumption (grid or on-site generation)
GHG and SLCP types:	Carbon Dioxide (CO2) Methane (CH4) Black Carbon (BC) Nitrous Oxide (N2O)
GHG and SLCP management system and controls:	The processes, systems, and quality controls used in the management of project data will be assessed.
Reporting Period:	Each project is required to report its net emission reductions relative to the project baseline for a period of 5 years following the project implementation date.
GHG and SLCP Assertion:	The anticipated net GHG and SLCP emission reductions from the projects approved under the 3 intakes that is in addition to regulatory requirements is 1.287 Mt CO2E.

Level of assurance

The validation was conducted to a limited level of assurance in accordance with the requirements of ISO 14064-3. Based on this level of assurance, Clearstone validates that NRCan’s assertion is:

• Materially correct and is a fair representation of the GHG and SLCP data and information.
• Prepared in accordance with the applicable GHG and SLCP quantification, monitoring, and reporting, standards, or practice.

Validation criteria

For this validation, Clearstone applied the following validation criteria:

• ISO 14064-2:20 - Greenhouse gases - Part 2: Specification with guidance at the project level for quantification, monitoring and reporting of greenhouse gas emission reductions or removal enhancements.
• ISO 14064-3:20 - Greenhouse gases – Part 3: Specification with Guidance for the Verification and Validation of Greenhouse Gas Statements.

Additionality

There are various definitions of the term additionality. The following are a few relevant examples that provide useful perspective; however, the definition adapted from ECCC is applied for the purposes of this review and validation:

Greenhouse Gas Management Institute (2012):

Conceptually, additionality is a determination of whether a proposed activity will produce some "extra good" in the future relative to a reference scenario, which we refer to as a baseline. In other words, additionality is the process of determining whether a proposed activity is better than a specified baseline.

ECCC for the purposes of the Canadian GHG Offset Program (the following gas been adapted from the definition given in the ECCC [2023] offset protocol for landfills; the adapted portions are presented in square brackets and is not italicized):

GHG emission reductions generated by a project must not occur as a result of federal, provincial or territorial regulations, municipal by-laws, or any other legally binding mandates such as operating permits. This includes legal requirements to recover and destroy all or a portion of [vented gas] to reduce GHG emissions from the [source] or control of the release of [vent gas] for reasons such as safety precautions (to reduce potential for an explosion) or odour control.

A project at a site with a legal requirement to recover and destroy any portion of its [vent gas] is not considered to be additional and, therefore, is not eligible for registration.

If at any time after project registration the GHG emission reductions generated by the project become required by law or the result of a legal requirement, the GHG emission reductions will no longer be additional and, therefore, can only be quantified and offset credits can only be generated up to the date immediately preceding the date on which the law or the legal requirement comes into force.

Alberta Government (2018) for the Alberta GHG Offset Program:

Establishing additionality is the demonstration that an action to achieve GHG emission reductions or removals is beyond business-as-usual and thus meets one of the main eligibility criteria to generate emissions offsets within Alberta’s emission offset system. The demonstration of additionality is a key component of Alberta’s emission offset system as well as offset systems in other jurisdictions. Additionality is conceptualized through four main components: emissions, technological, legal/regulatory, and financial. Alberta uses a combination of these concepts, expressed within this technical guidance, to determine whether an activity is additional in the context of Alberta’s emission offset system under the Carbon Competitiveness Incentive Regulation (CCIR). In order to determine additionality, activities are subject to regulatory surplus review, an analysis of the penetration rate, and various barriers analyses, depending on the status of the activities.

Materiality

Quantitative misstatements are calculated individually to determine their impact as a percentage of the Assertion. A quantitative materiality threshold of 5% of the total reported emission reductions in the Assertion (determined from the aggregated of the absolute value of all individual misstatements).

Qualitative misstatements are left to the discretion of the validation team to determine if they could adversely affect the Assertion and subsequently influence the decisions of the intended user. If this is deemed to be the case the misstatements are regarded as material. The quantitative materiality threshold is defined as 5% for the subject GHG and SLCP assertion.