Emissions Reduction Fund (ERF) — Onshore Program Frequently Asked Questions

Q1: What does the ERF aim to achieve and how is it broken down?

A1: On April 17, 2020, the Prime Minister, Justin Trudeau, announced the new $750-million Emissions Reduction Fund (ERF) to help onshore and offshore oil and gas companies invest in clean solutions to reduce greenhouse gas (GHG) emissions and retain jobs in the sector. Of the $750 million, the Fund offers up to $675 million to onshore upstream and midstream oil and/or gas sector companies to reduce or eliminate routine intentional venting of methane rich natural gas. The remaining $75 million is dedicated to offshore projects.

Q2: What are the ERF expected outcomes?

A2: This Program provides major environmental and economic benefits for Canadians by reducing emissions and improving air quality, and supporting workers and communities in the sector. This will position Canadian oil and gas companies as leaders in the transition to a cleaner future and more globally competitive for years to come.

Q3: How does the Onshore Program work?

A3: The Onshore Program provides support in the form of repayable contributions similar to interest-free loans to help companies lower their methane emissions. Companies incur the upfront costs for the project, and the Fund reimburses up to 75% of those costs with repayable or partially repayable contributions. Then companies will have flexible options to repay over a five-year period. The Fund provides advance payments for those that need it. This offers access to capital that will help firms reduce their costs, increase their revenues, or both while simultaneously lowering emissions. (For more information, see Section 5.5 of the Applicant’s Guide (PDF, 1.85 MB))

Under the third application intake period, the Program will only consider projects that eliminate routine intentional venting of methane rich natural gas. Companies that eliminate methane emissions may be eligible for partially repayable contributions, meaning that a portion of the funding is forgiven based on the cost/tonne of emissions reductions. The lower the project on a cost/tonne basis, the more that can be forgiven.

Q4: Who is eligible to apply for ERF-Onshore Program?

A4: All Canadian upstream conventional (including cold heavy oil production with sand – CHOPS), tight and shale oil and/or gas companies as well as midstream gathering and processing infrastructure companies. The Program will only consider projects that eliminate routine intentional venting of methane rich natural gas.

Third parties that provide engineering, procurement and construction (EPC) or environmental services and technologies can support their eligible oil and gas company clients in developing a program proposal. However, they are not allowed to apply directly.

Q5: What type of program flexibilities are built into the Onshore Program?

A5: A lot of financial flexibilities have been built into the Program to help companies address both financial and environmental issues. The Program:

• offers a minimum of $100 thousand and a maximum of $50 million per company to attract substantial projects that will have a noticeable impact. One application may include multiple projects at multiple facilities which helps support a wide variety of projects across the sector;
• funds up to 75% of total project cost with the option to stack with funding up to 90% from other sources, such as provincial programs;
• offers repayable and partially repayable contributions;
• offers five-year payback period after project completion;
• covers expenses related to the project, such as Baseline Opportunity Assessment (BOA), salaries and benefits related to the project, capital expenses, and equipment rental; and
• may, when it considers it appropriate, reimburse eligible recipients for eligible expenses the recipient has incurred from April 1, 2021 to the date of execution of the contribution agreement, before March 31, 2023. (For more information, see sections 2.4 and 2.5 of the Applicant’s Guide (PDF, 1.85 MB))

Q6: What has changed for the relaunch of the third ERF application intake period?

A6: There are several key changes to the ERF program design:

• Program Timelines:
• The program’s eligibility periods have been extended by one year to the following:
• expenditure eligibility period to March 31 2023;
• project completion date to March 31, 2024; and
• repayability period to March 31, 2028.
• Project Scope:
• ERF projects considered for funding must:
• eliminate routine intentional venting or flaring of methane emissions (eliminate projects);
• surpass the regulatory requirements relevant to the jurisdiction of facility operation and must result in net emissions reductions that are verifiably incremental to what is required under the relevant regulation(s).
• Note* projects that lower routine intentional venting of methane emissions (lowering projects), will not be funded under the third intake.
• Project Funding:
• ERF projects must achieve a cost per tonne of GHG emissions equal to or below $250/tCO2e in the first year following project completion;
• Applicants must submit project financial analyses with and without Program funding to demonstrate that the proposed project will not be sanctioned internally, or has a very low-likelihood of being sanctioned internally, without the minimum requested funding from the Program.
• The maximum amount of funding to an eligible recipient under the Program has been increased from $40 million to $50 million;
• The repayable portion has been updated as follows:

Q7: Can I apply to more than one application intake period?

A7: A company may apply to more than one intake period but can only submit one application per intake period. One application can include multiple eligible projects at multiple facilities. Only projects that meet all the eligibility requirements and mandatory criteria should be included in an application.

Q8: If my application is not selected for funding, can I submit a revised application during a future intake period?

A8: A company is permitted to submit one application per intake period. If your application is not approved for funding, you may submit a revised application during a subsequent intake period.

Q9: What if some of my projects are approved for funding and some are not?

A9: If a company submits an application with multiple projects and receives a conditional approval for some but not all projects, the company may submit an additional application in a subsequent intake period for unfunded or new projects. The additional application can include projects rejected in the previous intake period.

Q10: What is the minimum and maximum ERF funding contribution a company is eligible to receive?

A10: The minimum amount of ERF funding per contribution agreement is $100 thousand. The maximum amount of ERF funding a company can receive for all of its projects under all ERF applications is $50 million.

Q11: What types of projects can receive funding under the third intake period of the Program?

A11: To be considered for ERF funding capital infrastructure projects must eliminate intentional routine venting or flaring of methane emissions. Potential projects include, but are not limited to, the following examples:

• Projects that eliminate venting and/or flaring sources at surface facilities (e.g. single wells, multi-well batteries, gas processing, tanks, etc.);
• Pipeline infrastructure projects that will facilitate the conservation of otherwise vented and/or flared gas streams;
• Projects that conserve otherwise vented or flared methane rich gas for onsite fuel use; and,
• Projects that eliminate venting from pneumatic devices (including high-bleed pneumatic instruments, low-bleed pneumatic instruments and pneumatic pumps) by
  • conserving vent gas from pneumatic devices 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; and,
  • installing compressed atmospheric air or inert non-hydrocarbon gas storage and piping infrastructure to activate pneumatic devices. For recently executed high-bleed to low-bleed pneumatic conversions, this offers the opportunity to bring venting to zero for recently-installed low-bleed pneumatic instruments.

Ineligible projects for ERF support include: projects dealing with fugitive equipment leaks.

Q12: Are projects that lower routine venting of methane emissions eligible for funding under the third intake period of the Program?

A12: Capital infrastructure projects that lower routine intentional venting or flaring of methane emissions (lowering projects) are eligible under the Program but will not be funded under Intake 3.

Lowering projects include:

• Projects that lower venting from pneumatic devices (e.g. installation of low-bleed pneumatic devices); and,
• Projects that lower emissions by flaring or incinerating otherwise vented methane.

Q13: Are projects that eliminate routine venting of methane emissions from high-bleed or low-bleed pneumatic devices by installing zero-venting electrically driven pneumatic devices eligible for funding under the Program?

A13: The installation of zero-venting electrically driven pneumatic devices are eligible under the Program but will not be funded under Intake 3.

Q14: With the exemption of projects that will install compressed atmospheric air or inert non-hydrocarbon gas storage and piping infrastructure to activate high-bleed or low-bleed pneumatic devices (e.g. installation of instrument air compressors), projects under the third intake period must fully eliminate all continuous sources of intentional routine venting, either directly to the atmosphere or into a flare/incinerator system, at the targeted facility(ies). If only one continuous source of intentional routine venting exists at the targeted facility(ies), would that proposed project be eligible for funding under the third intake?

A14: If the baseline operating condition at the targeted facility(ies) includes only one source of intentional routine venting (e.g. storage tank venting), then the proposed project would need to fully eliminate that source of intentional routine venting. However, if the baseline operating condition at the targeted facility(ies) includes multiple sources of intentional routine venting (e.g. associated gas venting from well casings and storage tank venting), then the proposed project would need to fully eliminate all sources of intentional routine venting (both associated gas venting from well casings and storage tank venting).

For more information, see Section 2.3 of the Applicant’s Guide (PDF, 1.85 MB).

Q15: What additional information will applicants need to provide for the third intake period to demonstrate that a proposed project will achieve net emissions reductions that are verifiably incremental to what is required under the relevant regulation(s)?

A15: First, applicants will need to describe how they plan to meet the regulation(s) relevant to the jurisdiction of facility operation, at the facility wherein the proposed project is being implemented, without receiving financial support under the ERF program. If applicable, this would include a detailed technical description of any project(s) that either will be executed to meet regulatory requirements (project(s) that will be executed independently of an ERF funding decision) and/or any project(s) that would be executed to meet regulatory requirements if the proposed ERF project did not receive ERF funding.

Second, applicants will need to describe how they plan to surpass the regulation(s) relevant to the jurisdiction of facility operation, at the facility wherein the proposed project is being implemented, following execution of the proposed ERF project. This would include a detailed technical description of the proposed ERF project, as well as a calculation of the corresponding net emission reductions.

For more information, see Section 2.3 of the Applicant’s Guide (PDF, 1.85 MB).

Q16: If a proposed project will meet, but not exceed, pending regulatory requirements included within the regulation(s) relevant to the jurisdiction of facility operation (which will come into force) prior to those pending regulatory requirements coming into force, would that proposed project be considered for funding under the third intake?

A16: A proposed project must surpass the regulatory requirements relevant to the jurisdiction of facility operation, including all pending regulatory requirements included within applicable regulation(s) as of the opening date of the third intake application period (January 19, 2022), which will come into force. Therefore, a project that will meet, but not exceed, a pending regulatory requirement prior to that pending regulatory requirement coming into force (e.g. early compliance with regulations) will not be funded under the third intake.

Q17: What types of technologies, projects, and activities will be considered for funding under the third intake?

A17: The ERF is agnostic to proposed technology solutions, so long as the emission reductions are achieved, verifiable and sustainable. ERF will prioritize projects that eliminate emissions at the lowest possible cost per tonne of GHG emissions, and will only fund projects with a cost per tonne of GHG emissions equal to or below $250/tCO2e.

Q18: What is the ERF funded project boundary?

A18: The ERF will consider a project that begins with an individual source where a molecule of methane is intentionally vented, and extends to the point where it is either

• Conserved and transferred into a fuel management system for on site use as fuel gas (excluding on site use for actuating pneumatic devices, as well as pilot, purge, sweep, blanket, and makeup gas); or
• Conserved and transferred into natural gas gathering and processing.

For ERF projects where pneumatic devices are no longer actuated by methane, the project boundary starts and ends with the upstream and downstream connections to the new equipment (e.g. instrument air compressor).

Q19: Can the ERF funded project boundary extend beyond one operator?

A19: Gas conservation projects may have a spatial system boundary that extends across infrastructure managed by more than one operator.

Q20: Are greenfield projects eligible for funding under the ERF?

A20: To be considered by ERF, proposed projects must result in an immediate GHG reduction from an existing (brownfield) venting, flaring or incineration source. A standalone greenfield project is therefore not eligible for funding under the ERF because it does not have any associated emissions by which baseline emissions could be established, and emission reductions measured against.

However, greenfield projects may be considered if they tie into existing infrastructure previously supported by ERF, or if the greenfield project (e.g., new wells) is as part of a new proposed ERF project to eliminate emissions from brownfield sources. When greenfield projects are eligible for funding under the ERF, future emissions from greenfield sources can be included in the calculation of the baseline emissions. Please see Section 2.3 of the Applicant’s Guide (PDF, 1.85 MB) for additional information on eligibility of greenfield projects (potential eligible activities and ineligible activities) and calculation of future emissions from greenfield sources (including the baseline operating condition and timing requirements relative to the conservation of brownfield sources).

Q21: How will cost per tonne of carbon dioxide equivalent GHG emissions reduced by an ERF project be calculated?

A21: The carbon dioxide equivalent cost per tonne is calculated for individual projects using the total project cost (Class 3 cost estimate) and the annualized projected emissions reductions, where projected emission reductions are calculated by the Program using accurately quantified and certified vent gas volumetric data, combined with chemical analyses of vented gas from individual sources provided by an accredited laboratory. Total eligible project costs are divided by the GHG emissions reductions realized in the first 12-month period following project completion.

When converting to carbon dioxide equivalent, NRCan will calculate, in a standardized manner, any associated emissions of black carbon. The global warming potential for methane and black carbon are taken respectively from the Fifth Assessment report from the Intergovernmental Panel on Climate Change (IPCC) and peer reviewed academic papers/reports.

Q22: Is the Baseline Opportunity Assessment (BOA) eligible for reimbursement?

A22: The BOA is an eligible expense under the program’s Terms and Conditions for successful applicants who receive ERF funding. This means that the cost of the BOA can be included in overall project expenses.

Q23: What if project costs are incurred outside of the expenditure eligibility period (April 1, 2022 to March 31, 2023), including costs prior to signing of a contribution agreement (e.g. cost of the BOA)?

A23: The Program may fund eligible project costs incurred from April 1, 2022 to March 31, 2023 (expenditure eligibility period). Any reimbursement of pre-agreement eligible expenses, from April 1, 2022 to the date of execution of the contribution agreement will not exceed 30% of the amount of the Program’s contribution to the eligible recipient. Eligible project costs incurred between April 1, 2021 to March 31, 2022 and between April 1, 2023 to March 31, 2024 may be considered as part of total eligible project costs (and therefore contribute to the applicant’s minimum contribution) but are not eligible for reimbursement.

See below example project where the applicant is applying for a Program contribution of 75% of the total project cost, 30% of the Program’s contribution is incurred between April 1, 2022, and the contribution agreement execution date, and costs are incurred outside of the eligibility period (10% of total eligible project costs and therefore under the applicant’s minimum contribution of 25% of the total eligible project costs).

Q24: If a proposed project is implemented within a facility in Alberta, and that facility is regulated under the Technology Innovation and Emissions Reduction (TIER) regulation, is the applicant entitled to retain environmental performance credits (EPCs) when receiving partially repayable contributions from the ERF Program?

A24: When a proposed ERF project is implemented within a facility that is regulated under the Alberta TIER regulation (regulated facility), an eligible recipient of ERF funding is entitled to retain any EPCs issued to the eligible recipient (person responsible for the regulated facility) following execution of the proposed ERF project when receiving partially repayable contributions from the ERF Program.

Q25: What should be included in the mandatory Financial Statements?

A25: For a business incorporated for three or more years:

• The last three years of Audited or Reviewed Financial Statements (by an independent auditor), and the most recent interim Financial Statements.

For a business incorporated for less than three years:

• All of the annual Audited or Reviewed Financial Statements (by an independent auditor), since business incorporation, and the most recent interim Financial Statements.

If no interim statements are available: identify why, or confirm that you do not compile interim Financial Statements. If Financial Statements have not been audited or reviewed by an independent auditor, provide Chief Financial Officer Certified Financial Statements.

Q26: What should be included in the mandatory Budget and Cash Flow Forecast?

A26: The mandatory Budget and Cash Flow Forecast should ideally be presented at the same level of detail as the Financial Statements (and include a Balance Sheet, Income Statement and Statement of Cash Flow) for the current and next two fiscal years.

If this level of disclosure is not possible, the forecasts should provide, at minimum, a summary calculating field/operating and cash/corporate netbacks (earnings before interest, taxes, depreciation, and amortization for midstream companies) on a total dollar and $ per barrel of oil equivalent (BOE) basis for the current and next two fiscal years.

The forecasts should include the major assumptions used and a discussion of potential risks that may impact financial performance.

Q27: When can I apply?

A27: The latest intake period (Intake 3) opened on January 19, 2022 and closed on March 31, 2022, 8:00 p.m. (EST).

Q28: How do I apply?

A28:Companies can access the application form from the ERF website and are required to register with Integro. This web-based platform is designed to make applying easier, while helping to streamline the assessment of applications. More instructions are available in Section 6.1 of the Applicant’s Guide (PDF, 1.85 MB).

Q29: How can I get additional information regarding project eligibility?

A29: Any questions about project eligibility or the application process can be directed to our ERF Concierge Service.

Q30: How can I stay informed and connected?

A30: Visit our ERF website and sign up for email updates at erf-fre@nrcan-rncan.gc.ca.

Download the Applicant’s Guide, which provides application requirements, including eligibility criteria and mandatory documentation.

For clean technology providers:

• In Budget 2017, the Government of Canada created the Clean Growth Hub, an interdepartmental team co-chaired by Natural Resources Canada and Innovation, Science and Economic Development Canada with a mandate to help clean technology producers and users better navigate the Government of Canada’s clean technology programs.
• If you are a clean technology provider and are in need of more information on federal programs and supports, the Clean Growth Hub is well placed to provide further guidance. To contact the Hub, please complete their online questionnaire and they will promptly get back to you.