Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document

Aussi disponible en français sous le titre : Crédit d’impôt à l’investissement pour l’hydrogène propre – Guide sur la validation et la vérification

Foreword

The Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document (“this Guide”) outlines requirements and guidance for validation and verification activities required under the Clean Hydrogen Investment Tax Credit (ITC), as well as other taxpayer requirements for clean hydrogen projects, including those that produce ammonia, that must be submitted as part of the clean hydrogen project plan. This version of this Guide is limited to validation requirements. The next version will outline the verification requirements.

Disclaimer

This Guide does not in any way supersede or modify the Income Tax Act (ITA) or the Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document (“CI Modelling Guidance”). Any information in this Guide that relates to the provisions of the ITA or the CI Modelling Guidance in respect of the Clean Hydrogen ITC is provided for information purposes only and does not offer any interpretation of the ITA or CI Modelling Guidance.

This Guide reflects the ITA and the CI Modelling Guidance as they stand at the time of its publishing. Therefore, taxpayers should always consult the latest versions of the ITA and the CI Modelling Guidance. Where there are any inconsistencies between this Guide and the ITA or between this Guide and the CI Modelling Guidance, the ITA and the CI Modelling Guidance take precedence.

List of Figures
List of Tables
Definitions
Acronyms and Abbreviations
1 Introduction
2 Requirements for Qualified Validation Firms
3 Requirements Relevant to the Validation Process
4 Requirements Relevant to the Verification Process (coming in the next version of this Guide)
5 Other Taxpayer Requirements
Appendix A: Attestation of Independence Form Contents
Appendix B: Validation Report
- B.1 Standard Validation Statement
- B.2 Additional Information
Appendix C: Examples of Opinions in Validation Statements
Appendix D: Minimum Validation Records
Appendix E: Uncertainty
Appendix F: Data Sampling
- F.1 Non-Probabilistic Data Sampling
- F.2 Probabilistic Data Sampling
Appendix G: Sample Questions for Validators
Appendix H: Complete Monitoring Plan and Measurement Requirements

List of Figures

Figure 1-1: Timing of Validation and Verification in the Clean Hydrogen ITC
Figure 3-1: Validation Report Composition
Figure 3-2: Decision Tree for Validation Opinion Types

List of Tables

Table 2-1: Examples of Threats to Independence and Potential Mitigation Measures
Table 3-1: Documentation Required for FEED Study or Equivalent Study
Table 3-2: Project Carbon Intensity Documents
Table 3-3: Other Validation Documents
Table 3-4: Measurement Point Information
Table 3-5: Clean Hydrogen Project Documentation Examples
Table 3-6: Qualitative Materiality Examples
Table 3-7: Inadequate Disclosure Qualitative Materiality Examples
Table 3-8: Modified Opinion - Example Disclosures
Table 5-1: Qualitative Material Change Examples

Definitions^{Footnote 1}

actual carbon intensity (intensité carbonique réelle): means the carbon intensity of hydrogen that is produced by a qualified clean hydrogen project of a taxpayer, based on the actual inputs to the production of hydrogen and actual emissions from the production of hydrogen by the project (ITA s. 127.48[1]).

advanced modelling (modélisation avancée): one of two modelling approaches described in the Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document. It is applicable when the hydrogen production process and all supporting equipment and activities could be represented by more than one unit process, such as the following unit processes defined in the Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document: B—Oxygen and nitrogen generation system (AM), C—Carbon dioxide (CO2) capture, at HPS (AM), and D—Electricity and heat generation system, in addition to A—Hydrogen production, at HPS (AM).

allocation (affectation): partitioning the input or output flows of a process or a product system between the product system under study and one or more other product systems (ISO 14040).

arm’s length (lien de dépendance)^{Footnote 2}: see ITA s. 251(1).

average actual carbon intensity (intensité carbonique réelle moyenne): the average of the reported actual carbon intensities for each operating year of the project’s compliance period, weighted by quantity of hydrogen produced in each year (ITA s. 127.48[1]).

captured carbon (carbone capté): means captured carbon dioxide that (a) would otherwise be released into the atmosphere or (b) is captured directly from the ambient air (ITA s. 127.44[1], s. 127.48[1]).

carbon dioxide equivalent (équivalent en dioxyde de carbone): means the carbon dioxide emissions that would be required to produce a warming effect equivalent to the emissions of any specified greenhouse gas, as determined in accordance with the Clean Hydrogen Investment Tax Credit—Carbon Intensity Modelling Guidance Document published by the Government of Canada over an assessment period of 100 years‍ (ITA s. 127.48[1]).

carbon intensity (intensité carbonique): means the quantity in kilograms of carbon dioxide equivalent per kilogram of hydrogen produced (ITA s. 127.48[1]).

CCUS process (processus de CUSC): means the process of carbon capture, utilization and storage that includes the (a) capture of carbon dioxide (i) that would otherwise be released into the atmosphere, or (ii) directly from the ambient air, and (b) storage or use of the captured carbon (ITA s. 127.48[1], s.127.44[1]).

CFR carbon intensity (intensité carbonique selon le RCP): means carbon intensity as defined in subsection 1 of the Clean Fuel Regulations‍ (ITA s. 127.48[1]).

clean ammonia (ammoniac propre): means ammonia produced from clean hydrogen (ITA s. 127.48[1]).

clean hydrogen (hydrogène propre): means hydrogen produced, whether solely or in conjunction with other gases, that has a carbon intensity of less than four (ITA s. 127.48[1]).

clean hydrogen project (projet pour l’hydrogène propre): means a project involving (a) the operation of eligible clean hydrogen property; (b) the production of clean hydrogen; and (c) if applicable, the production of clean ammonia that uses a feedstock of clean hydrogen produced by the project of the taxpayer (ITA s. 127.48[1]).

clean hydrogen project plan (plan de projet pour l’hydrogène propre): see ITA s. 127.48(1) and Section 1.3.1 of this Guide.

controls (contrôles): taxpayer’s policies and procedures that help to ensure that the statement (e.g., expected CI or actual CI and actual hydrogen production, as appropriate) and report (e.g., validation information package or compliance report, as appropriate) are free from material misstatement with respect to the criteria and conform to the criteria.

compliance period (période de conformité): period during which the taxpayer’s operating activities will be subject to compliance monitoring and verification, and over which the average actual carbon intensity will be calculated. In respect of a clean hydrogen project of a taxpayer, compliance period means the period of time beginning on the first day of the compliance period of the project and ending on the last day of the fifth operating year of the project (ITA s. 127.48[1]).

cradle-to-gate (berceau à la porte): scope of a carbon intensity which covers all life cycle stages up to the production facility gate.

criteria (critères): a policy, procedure, or requirement used as a benchmark against which the statement (e.g., expected CI or actual CI and actual hydrogen production, as appropriate) and report (e.g., validation information package or compliance report, as appropriate) are compared.

data trail (trace des données): a complete record by which information can be traced to its source.

dedicated geological storage (stockage géologique dédié): in respect of a CCUS project, means a geological formation that is (a) located in a designated jurisdiction; (b) capable of permanently storing captured carbon; (c) authorized and regulated for the storage of captured carbon under the laws of the designated jurisdiction; and (d) a formation in which no captured carbon is used for enhanced oil recovery (ITA s. 127.44[1]).

designated jurisdiction (juridiction désignée): means (a) the provinces of British Columbia, Saskatchewan and Alberta; and (b) any other jurisdiction within Canada (including the exclusive economic zone of Canada) or the United States for which a designation by the Minister of the Environment under subsection (13) is in effect (ITA s. 127.44[1]).‍

eligible clean hydrogen property (bien admissible pour l’hydrogène propre): means property that (a) is acquired by a qualifying taxpayer and becomes available for use in respect of a qualified clean hydrogen project of the taxpayer in Canada on or after March 28, 2023; (b) has not been used, or acquired for use or lease, by any person or partnership for any purpose whatever before it was acquired by the taxpayer; and (c) is a property situated in Canada and meets all other requirements stipulated in the definition in ITA s. 127.48(1).

eligible hydrocarbon (hydrocarbure admissible): means, at any time, (a) natural gas; (b) a substance sourced all or substantially all from raw natural gas; (c) an eligible renewable hydrocarbon or (d) a substance that is (i) a by-product from processing one or more substances described in paragraphs (a) or (b), and (ii) included in the Clean Hydrogen Investment Tax Credit—Carbon Intensity Modelling Guidance Document published by the Government of Canda at that time (ITA s. 127.48[1]).

eligible pathway (méthode admissible): means the production of hydrogen (a) from electrolysis of water; or (b) from the reforming or partial oxidation of eligible hydrocarbons, with carbon dioxide captured using a CCUS process (ITA s. 127.48[1]).

eligible power purchase agreement (entente pour l’achat d’électricité admissible): a written agreement that allows or will allow a taxpayer to purchase electricity from an eligible electricity generation source and in compliance with the definition in ITA s. 127.48(1).

eligible renewable hydrocarbon (hydrocarbure renouvelable admissible): a hydrocarbon produced from non-fossil carbon that is included in the Clean Hydrogen Investment Tax Credit—Carbon Intensity Modelling Guidance Document, for which a CFR carbon intensity can be calculated, and that meets the requirements outlined in the ITA s. 127.48(1).

eligible use (utilisation admissible): means (a) the storage of captured carbon in dedicated geological storage; or (b) the use of captured carbon in producing concrete in Canada or the United States using a qualified concrete storage process (ITA s. 127.44[1]).‍

emissions (émissions): a release of greenhouse gases to the atmosphere, but in this Guide it is also used as an abbreviation for emissions, removal, and storage for brevity.

evidence (preuves): information to support the taxpayer’s statement and report (validation information package or compliance report, as appropriate).

evidence-gathering activities (activités de collecte de preuves): activities that collect evidence upon which to base a validation/verification opinion. Evidence-gathering activities can include observation, inquiry, analytical testing, confirmation, recalculation, examination, retracing, tracing, control testing, sampling, estimate testing, cross-checking, and reconciliation.

expected carbon intensity (intensité carbonique attendue): means the carbon intensity of hydrogen that is expected to be produced by a particular clean hydrogen project of a taxpayer, as documented in the taxpayer’s clean hydrogen project plan in respect of the project. The expected carbon intensity is calculated according to s. 127.48(6) based on the projected performance of the clean hydrogen project and is validated by the qualified validation firm (ITA s. 127.48[1]).

feedstock type (type de charge d’alimentation): category of feedstock included in the Fuel LCA Model and as specified in the Clean Hydrogen Investment Tax Credit—Carbon Intensity Modelling Guidance Document.

first day of the compliance period (premier jour de la période de conformité): the day the compliance period begins, either one hundred and twenty (120) days after the clean hydrogen project first produces hydrogen or up to two years and 120 days after, if appropriate elections are filed by the taxpayer (ITA s. 127.48[1]).

Fuel LCA Model (Modèle d'ACV des combustibles): means the Government of Canada’s Fuel Life Cycle Assessment Model that is published by the Minister of the Environment (ITA s. 127.48[1]).

functional unit (unité fonctionnelle): quantified performance of a product system for use as a reference unit (ISO 14040).

greenhouse gas (gaz à effet de serre): gaseous constituent of the atmosphere, both natural and anthropogenic, that absorbs and emits radiation at specific wavelengths within the spectrum of infrared radiation emitted by the Earth’s surface, the atmosphere, and clouds.

ineligible use (utilisation non admissible): means (a) the emission of captured carbon into the atmosphere, other than (i) for the purposes of system integrity or safety, or (ii) incidental emission made in the ordinary course of operations; (b) the storage or use of captured carbon for enhanced oil recovery; and (c) any other storage or use that is not an eligible use (ITA s. 127.44[1]).‍ Any captured carbon subject to an ineligible use is treated as an emission to the atmosphere for the purposes of calculating expected or actual CI under the Clean Hydrogen ITC (ITA s. 127.48[6]).

input (intrant): product, material, or energy flow that enters a unit process (ISO 14040).

intended users (utilisateurs prévus): are the Minister of Natural Resources (Natural Resources Canada), the Minister of National Revenue (Canada Revenue Agency), and the Minister of the Environment (Environment and Climate Change Canada), who rely on the reported information to administer the Clean Hydrogen ITC.

level of assurance (niveau d’assurance): a degree of confidence^{Footnote 3} in a statement. There are two levels: limited and reasonable. The Clean Hydrogen ITC requires a reasonable level of assurance for verifications. There is no level of assurance for validation as the validator is required to address all applicable GHG related activity characteristics in the design of the validation and collect sufficient and appropriate evidence to support their conclusion.

material change (changement important): generally, any change to a clean hydrogen project design that can modify the decisions of the intended users. Material changes to projects are discussed in Section 5.2 of this Guide, and include changes that the taxpayer reasonably expects will increase the CI of the project by more than 0.5 kg CO₂e/kg H₂ (ITA s. 127.48[7]).

materiality (importance relative): concept that individual misstatements or the aggregation of misstatements could influence the intended users’ decisions.

materially modified (modifié substantiellement): means modified in such a way as to reasonably be expected to cause a quantitatively material change to the expected CI, or in a sufficiently complex manner that NRCan considers a detailed re-evaluation necessary to estimate the quantitative or qualitative impact.

misstatement (déclaration erronée): a difference between the amount reported, classification, presentation, or disclosure of an item and the amount reported, classification, presentation, or disclosure that is required for the item to be in accordance with the criteria. Misstatements arise from errors or fraud. Misstatements can also be classified as errors, omissions and misreportings, where misreportings include differences in classification, presentation and disclosure.

modified opinion (avis modifié): opinion that is issued by the validator/verifier when there are no material misstatements and the validation information package/compliance report has been prepared in accordance with the criteria; however, there is a departure from the requirements of the criteria or a scope limitation.

openLCA (openLCA): free and open-source software into which the Fuel LCA Model must be imported.

operating year (année d’exploitation): means each cumulative 365-day period, the first of which begins on the first day of the compliance period of a taxpayer’s clean hydrogen project, disregarding any period during which the project is not operating (ITA s. 127.48[1]).

output (extrant): product, material or energy flow that leaves a unit process (ISO 14040).

product system (système de produits): defined as a collection of unit processes with elementary and product flows, performing one or more defined functions, and which models the life cycle of a product (ISO 14040).

qualified concrete storage process (processus de stockage dans le béton admissible): means a process evaluated against the ISO 14034:2016 standard Environmental management — Environmental technology verification for which a validation statement confirming that at least 60% of the captured carbon that is injected into concrete is expected to be mineralized and permanently stored in the concrete has been issued by a professional or organization that (a) is accredited as a verification body, under ISO 14034:2016, Environmental management – Environmental technology verification and ISO/IEC 17020:2012, Conformity assessment — Requirements for the operation of various types of bodies performing inspection, by the Standards Council of Canada, the ANSI National Accreditation Board (U.‍S.‍) or any other accreditation organization that is a member of the International Accreditation Forum; and (b) meets the requirements of a third-party inspection body described in ISO/IEC 17020:2012, Conformity assessment — Requirements for the operation of various types of bodies performing inspection (ITA s. 127.44[1]).‍

qualified validation firm (firme admissible de validation): an independent, arm’s length professional engineer or professional engineering firm that meets the experience, training, jurisdictional, insurance, and other requirements outlined in ITA s. 127.48(1) and in Section 2 of this Guide. Qualified validation firms are permitted to validate expected carbon intensity for clean hydrogen project plan submissions under the Clean Hydrogen ITC.

qualifying taxpayer (contribuable admissible): means a taxable Canadian corporation (ITA s. 127.44[1]).‍

qualified verification firm (firme admissible de vérification): an independent, arm’s length professional engineer, professional engineering firm, or verification body accredited under the Clean Fuel Regulations that meets the experience, training, jurisdictional, insurance and other requirements outlined in ITA s. 127.48(1) and in Section 4 of this Guide. Qualified verification firms are permitted to verify actual carbon intensity for final compliance report submissions under the Clean Hydrogen ITC.

reasonableness (caractère raisonnable): generally means that the clean hydrogen project design is for a facility that provides the intended service or product, does not violate fundamental physical laws, assumes efficiencies that are aligned with typical equipment in that service, has operating parameters that are within the specifications of the process and equipment, is designed to survive the anticipated life of the facility (consumables, repairs, and replacements excluded), and enables future verification.

simplified modelling (modélisation simplifiée): one of two modelling approaches described in the Clean Hydrogen Investment Tax Credit—Carbon Intensity Modelling Guidance Document and is applicable when the entire hydrogen production process and all supporting equipment and activities, can be represented by only one unit process.

specified greenhouse gas (gaz à effet de serre déterminé): means (a) carbon dioxide; (b) methane; (c) nitrous oxide; (d) sulphur hexafluoride; and (e) any other greenhouse gases listed in the Fuel LCA Model and included in the Clean Hydrogen Investment Tax Credit—Carbon Intensity Modelling Guidance Document at the time that a taxpayer files its most recent clean hydrogen project plan with the Minister of Natural Resources (ITA s. 127.48[1]).

specified percentage (pourcentage déterminé): tax credit rate (percentage) applicable to the capital cost of eligible clean hydrogen property. The specified percentage varies depending on the specific carbon intensity of hydrogen to be produced and when the property was acquired. A different tax credit rate applies to clean ammonia equipment and certain equipment used solely in connection with clean ammonia equipment acquired for use in a clean hydrogen project (ITA s. 127.48[1]).

statement (énoncé): factual and objective declaration that provides the subject matter for the validation or verification (e.g., expected CI, or actual CI and actual hydrogen production, as appropriate).

system process (processus agrégé): aggregation of unit processes that models the life cycle emission factors of a certain activity.

taxpayer (contribuable): the proponent of the clean hydrogen project. In this Guide, the term “applicant” may be used interchangeably with “taxpayer”.

uncertainty (incertitude): a parameter associated with quantification, which characterizes the dispersion of the values that could be reasonably attributed to the quantified amount.

unit process (processus élémentaire): smallest element considered in the life cycle inventory analysis for which input and output data are quantified (ISO 14040/44).

unmodified opinion (avis non modifié): opinion that is issued by the validator/verifier when there are no material misstatements and the validation information package/compliance report has been prepared in accordance with the criteria.

validator (validateur): competent and independent person, with responsibility for performing and reporting on the validation process (i.e., member of the validation team as defined in Section 2.2.1 of this Guide).

validation (validation): process for evaluating the reasonableness of the assumptions, limitations and methods that support a statement about the outcome of future activities.

validation information package (dossier d'information pour la validation): documentation required for validation as described in Section 3.3.2 of this Guide.

validation/verification opinion (avis sur la validation ou la vérification): written attestation by the validator/verifier to the intended user that provides confidence on the statement and report.

validation/verification reviewer (examinateur de la validation ou de la vérification): competent person, not a member of the validation/verification team, who reviews the validation/verification team and validation/verification activities.

verification (vérification): process for evaluating a statement of historical data and information to determine if the statement is materially correct and conforms to criteria.

verifier (vérificateur): competent and independent person, with responsibility for performing and reporting on the verification process (i.e., member of the verification team).

Acronyms and Abbreviations

Acronym or abbreviation	Meaning
AM	Advanced Modelling
ANSI	American National Standards Institute
CCUS	Carbon Capture, Utilization, and Storage
CFR	Clean Fuel Regulations
CH-ITC	Clean Hydrogen Investment Tax Credit
CI	Carbon Intensity
CO₂e	Carbon Dioxide Equivalent
CRA	Canada Revenue Agency
ECCC	Environment and Climate Change Canada
FEED	Front-End Engineering Design
GHG	Greenhouse Gas
GWP	Global Warming Potential
HPS	Hydrogen Product System
IFC	Issued for Construction
ISO	International Organization for Standardization
ITA	Income Tax Act
KPI	Key Performance Indicator
LCA	Life Cycle Assessment
LDL	Lower Detection Limit
MOU	Memorandum of Understanding
NRCan	Natural Resources Canada
OPS	Other Product System
P&ID	Piping and Instrumentation Diagram
PPA	Power Purchase Agreement
PSA	Pressure Swing Adsorption
SM	Simplified Modelling
TS	Technical Specification
UFD	Utility Flow Diagram
UP	Unit Process

1 Introduction

1.1 Purpose of this Guidance Document

This Guide has been written for taxpayers, qualified validation firms, qualified verification firms, validation/verification teams and validation/verification reviewers working with Natural Resources Canada (NRCan) and the Canada Revenue Agency (CRA) to support the administration of the Clean Hydrogen ITC under the ITA. The document lays out requirements and guidance for validation and verification (future version) activities required under the Clean Hydrogen ITC. Additionally, this Guide provides guidance on the structure of validation reports (Section 3.5), compliance reports (future version), verification reports (future version), as well as other taxpayer requirements for clean hydrogen projects producing ammonia that must be submitted as part of the clean hydrogen project plan (Section 5.3).

1.2 Background

The Clean Hydrogen ITC is described in s. 127.48 of the ITA and supports projects that produce clean hydrogen through a refundable investment tax credit. The tax credit rates are based on the expected carbon intensity (CI) of the hydrogen that will be produced (i.e., kilogram [kg] of carbon dioxide equivalent [CO₂e] per kg of hydrogen), among other factors (e.g., when the property was acquired). The credit applies to the capital cost of eligible clean hydrogen property that is acquired and that becomes available for use in respect of a qualified clean hydrogen project of the taxpayer in Canada on or after March 28, 2023, and before 2035, subject to a reduced credit rate in 2034.

To qualify for the Clean Hydrogen ITC, the taxpayer must assess the expected CI of the hydrogen that will be produced based on the design of the project using the Fuel LCA Model that is maintained by Environment and Climate Change Canada (ECCC). The expected CI must be validated by a qualified validation firm that is always independent of, deals at arm’s length with and is not an employee of the taxpayer.

Once operating, qualified clean hydrogen projects must demonstrate that the actual carbon intensity (CI) of the hydrogen they produce falls into the same tax credit tier as the expected CI over the compliance period for the project. At the end of the compliance period, the actual CI of the hydrogen produced during each operating year of the compliance period must be verified by a qualified verification firm.

Recovery is triggered if the average actual carbon intensity (CI) is more than 0.5 kg CO₂e/kg H₂ higher than the expected CI and if the average actual CI would qualify for less or no support. Figure 1-1 illustrates the timing of Clean Hydrogen ITC validation and verification activities in reference to typical design and implementation stages of a project.

Figure 1-1: Timing of Validation and Verification in the Clean Hydrogen ITC

diagram

Click for larger image

Text version

Typical project design stages are shown from project feasibility (pre-design) to project operation with the corresponding Clean Hydrogen ITC validation and verification activities. The determination of expected CI, which represents a major validation activity, occurs at the earliest, at the front-end engineering design (FEED) stage. The claim period corresponds, at the earliest, to the stage when equipment becomes available for use, which occurs after project construction but before project operation. The determination of average actual CI, which represents a major verification activity, occurs during project operation.

1.3 Validation in the Clean Hydrogen ITC

Under s. 127.48(1) of the ITA, taxpayers are required to submit a report prepared by a qualified validation firm (Section 2) in respect of the project (i.e., validation report, see Section 3.5) as part of the clean hydrogen project plan (Section 1.3.1) filed with the Minister of Natural Resources (i.e., “submitted to Natural Resources Canada [NRCan]”). To become a qualified clean hydrogen project, the Minister of Natural Resources must confirm the taxpayer’s clean hydrogen project plan in writing.

Validation differs from verification in that it provides assurance on the assumptions used to estimate CI values during future operations of a facility (expected CI). Verification provides assurance on actual CI values and thus examines historical information from an operating qualified clean hydrogen project. Consequently, the assurance differs between expected (i.e., validated expected CI values) and historical (i.e., verified actual CI values) in that validation provides negative assurance^{Footnote 4} on the assumptions and verification provides positive assurance^{Footnote 5} on the CI values.

The validation process is iterative. The taxpayer will present a draft expected CI value and supporting documentation to the validator in the validation information package (Section 3.3.2). If material misstatements or other issues requiring disclosure are encountered during the process of validation, the taxpayer and the validator will work together to calculate an expected CI and develop supporting documentation that appropriately represents the project design and its expected CI. The expected CI calculations, supporting documentation, and an accompanying validation report are then submitted to NRCan as part of the clean hydrogen project plan. Validation is generally not a pass/fail evaluation, but an assessment of the assumptions, limitations and variability that the clean hydrogen project may encounter and a best estimate of the expected CI value. Validation acts as a program control on the proper application of guidance, reasonableness of assumptions, and assessment of uncertainty.

Key elements of validation include the validation opinion (Section 3.5.2) and disclosures (Section 3.5.2.5) in the validation report. NRCan will not confirm the clean hydrogen project plan until the validator comes to a conclusion (i.e., issues an unmodified opinion or modified opinion as described in Section 3.5.2) and no material misstatements remain.

1.3.1 Clean Hydrogen Project Plan

As described in s. 127.48(1) of the ITA, a “clean hydrogen project plan” is a plan for a clean hydrogen project of a taxpayer that includes the following:

A front-end engineering design study (or an equivalent study as determined by the Minister of Natural Resources) for the project
The expected sources of electricity to be consumed in connection with the project, including sources described in any eligible power purchase agreements
The expected carbon intensity of the hydrogen to be produced by the project, determined in accordance with s. 127.48(6) of the ITA and supported by a report prepared by a qualified validation firm
Any additional information required by guidelines published by the Minister of Natural Resources, including this Guide

The report prepared by the qualified validation firm must contain attestations by the firm that the assumptions in the modelling of the expected carbon intensity are reasonable and that the expected carbon intensity was determined in accordance with the Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document. See Section 3.5 of this Guide for further guidance on validation report requirements.

If the project is intended to produce clean ammonia, the plan must also demonstrate

that the project can reasonably be expected to have sufficient hydrogen production capacity to satisfy the needs of the taxpayer’s ammonia production facility (Section 5.3.1); and
if the taxpayer’s hydrogen production facility and its ammonia production facility are not co-located, the feasibility of transporting hydrogen between the facilities (Section 5.3.1).

The taxpayer must file the clean hydrogen project plan with the Minister of Natural Resources for confirmation, in the form and manner determined by the Minister of Natural Resources. Ultimately, confirmation by the Minister of Natural Resources is a requirement for the project to become a “qualified clean hydrogen project”.

1.4 Verification in the Clean Hydrogen ITC

Under s. 127.48(16) of the ITA, taxpayers must file annual compliance reports detailing the quantity and actual CI of hydrogen produced during that year, any shutdown time of the project during the year, as well as additional information as described in Section 4. At the end of the compliance period, a qualified verification firm must verify the actual CI of the hydrogen produced during each operating year of the compliance period and submit a verification report as part of the final compliance report.

The verification process is also iterative. The taxpayer will present draft actual CI values for each compliance year and supporting data and documentation to the verifier. If material misstatements or other issues requiring disclosure are encountered during the verification process, the verifier and taxpayer will work together to provide a compliance report that appropriately represents the project’s operations and actual CI value. Verification, which is based on historical evidence, is more of a pass/fail evaluation than validation as the actual operations can be determined. Verification, from NRCan’s perspective, is a control on the most appropriate CI value to be submitted by the taxpayer to the program. NRCan will only consider compliance reports in which the verifier comes to a conclusion and no material misstatements remain. Compliance reporting and verification will be based on the data collection and calculation methods established in the monitoring plan. More information on qualified verification firm requirements and verification activities will be provided in the future version of this Guide.

1.5 Criteria

Criteria are the policies, procedures, or requirements used as a reference against which the statement (e.g., expected CI or actual CI and actual hydrogen production, as appropriate) and reports (validation information package or compliance report, as appropriate) are compared, and serve as the benchmark for comparison in validation and verification. The objective of validation under the Clean Hydrogen ITC is to assess the degree to which the taxpayer’s expected CI calculation and other information in the validation information package conform to the criteria. In verification, the objective is to assess the degree to which the taxpayer’s compliance reports and actual CI calculations conform to the criteria.

Criteria common to both validation and verification are described in Sections 1.5.1 and 3.2.

1.5.1 Criteria Common to Verification and Validation

For determining whether the expected and actual CI values have been quantified appropriately under the Clean Hydrogen ITC, and that the validation information package and compliance reports have been appropriately prepared, the following common criteria are used:

Section 127.48 of the ITA
The Fuel LCA Model and associated documents (Section 1.5.2)
This Guide, which outlines requirements for taxpayers, qualified validation firms, and qualified verification firms in preparing CI documentation required for the Clean Hydrogen ITC
The Clean Hydrogen ITC website
Any instructions contained in relevant templates (i.e., CH-ITC Workbook, Project KPI Workbook)

1.5.2 Fuel LCA Model and Associated Documents

The Fuel LCA Model is a tool used to calculate the life cycle CI of fuels and energy sources used and produced in Canada. The Model helps to support the delivery of regulations and programs as part of Canada's actions on climate change. For example, the Clean Fuel Regulations use the Model to determine the CI of fuels, material inputs and energy sources for credit creation.

The following documents and tools should be consulted and used in parallel for calculating a CI value using the Fuel LCA Model in the context of the Clean Hydrogen ITC:

The Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document (the “CI Modelling Guidance”) is intended for use by taxpayers and provides comprehensive CI modelling instructions for assessing the CI of a clean hydrogen project with the Model. It also provides the main instructions to enter data in the CH-ITC Workbook and in the Fuel LCA Model.
The CH-ITC Workbook contains spreadsheets that help to convert applicant data into data for input into the Fuel LCA Model and document the modelling of the hydrogen product system. It must be used to carry out all calculations prior to data entry in the Fuel LCA Model. This could include unit conversions, weighted average calculations, etc.
The Clean Fuel Regulations (CFR) Specifications for Fuel LCA Model CI Calculations is the central document to consult to determine a CI value using the Fuel LCA Model under the CFR. The CI Modelling Guidance is based on the CFR Specifications to ensure consistency between the CI modelling within Government of Canada regulations and programs, although there are some key differences. The CFR specifications may also be required for the CI modelling of some feedstocks and fuel inputs covered by the CI Modelling Guidance.
The Data Library and Fuel Pathways are the main components of the Fuel LCA Model that must be uploaded in the openLCA modelling software. The Data Library provides a selection of life cycle emission factors (called system processes) that can be used to populate the hydrogen pathway (cradle-to-gate – mass basis) stored in the “Fuel Pathways” folder of the Fuel LCA Model.

2 Requirements for Qualified Validation Firms

2.1 Qualified Validation Firm Qualifications

Subsection 127.48(1) of the ITA defines a “qualified validation firm” as follows:

[…] in respect of a clean hydrogen project of a taxpayer, an engineer or engineering firm that

is registered and in good standing with a professional association that has the authority or recognition by law of a jurisdiction in Canada to regulate the profession of engineering in
1. the jurisdiction where the project is located, or
2. if there is no professional association in the jurisdiction described in subparagraph (i), a jurisdiction in Canada where a professional association regulates the profession of engineering;
has appropriate insurance coverage;
has expertise in modelling using the Fuel LCA Model and engineering expertise in production processes for hydrogen and, if applicable, ammonia;
at all times, is independent of, deals at arm’s length with and is not an employee of the taxpayer; and
meets the requirements described in guidelines published by the Minister of Natural Resources, including the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document.

The requirements for qualified validation firms are further described in Sections 2.2, 2.3, 2.4, 2.5, and 2.6 below.

2.2 Training and Experience Requirements for Validation Team and Validation Reviewer(s)

Validation is executed by the validation team (Section 2.2.1), who performs the validation, and the validation reviewer(s) (Section 2.2.2.1), who are not a part of the validation team but review the validation team’s work and conclusions. The validation team is responsible for executing the validation, and the validation reviewer(s) are a mandatory quality control point for the validation and review the validation prior to submission to the taxpayer. This structure follows the general guidelines of ISO 14064-3.

NRCan requires that the validation team leader be an employee of the qualified validation firm (or the licensed individual who is the qualified validation firm in jurisdictions where firms are not licensed). It is also preferred that validation reviewer(s) be employee(s) of the qualified validation firm. When this is not possible, the validation reviewer(s) may be subcontractor(s), provided they are familiar with the qualified validation firm’s risk tolerance and associated risk management procedures.

Other validation team positions can be filled by employees or subcontractors. NRCan encourages the use of subcontractors for roles that require expertise that may not be housed within the qualified validation firm.

2.2.1 Validation Team

The validation team may be comprised of one or more individuals, provided the team, as a composite, has all the necessary training and experience to conduct the validation. It is mandatory that a single individual be designated validation team leader, but the other roles may not require additional individuals if members of the team have the experience to fulfill multiple roles (e.g., a one-individual validation team would be comprised of a team leader who meets the experience and training requirements for all validation team roles).

Additional expertise may be required in the areas of life cycle assessment, process design, IT systems, etc. to ensure that the subject matter of the validation information package is adequately addressed. Of note, each validation reviewer must be a separate individual who is not part of the validation team.

2.2.1.1 Validation Team Leader

As this work falls within the scope of the practice of professional engineering, the team leader must be an engineer that is registered and in good standing with a professional association, understand the requirements of the Clean Hydrogen ITC, and have sufficient validation knowledge as described in ISO 14064-3, ISO 14065, and ISO 14066, which includes

understanding of the validation process including the design, typical evidence-gathering activities, significant decision points, materiality interpretations
understanding of the qualified validation firm procedures
technical competence in the applicable sector(s)
understanding of the documentation requirements of their role, including the documentation of misstatements and data gaps in conclusion and their resolution; and
sufficient knowledge to manage the validation team, including each member’s competencies, in order to complete a validation assignment

The team leader must

successfully complete ISO 14064-3:2019 formal training^{Footnote 6}
have Fuel LCA Model training and/or relevant experience
attend the Clean Hydrogen ITC Basic Information Session for Validators (Section 2.2.3)

The team leader has the authority to approve validation plans and evidence-gathering plans and is responsible for the validation work.

2.2.1.2 LCA Specialist

For each validation assignment, the validation team must include an individual who meets the below requirements of a qualified LCA specialist.

The specialist must understand and be able to apply the requirements of life cycle assessment according to the most recent versions of

Standard ISO 14040 Environmental management — Life cycle assessment — Principles and framework
Standard ISO 14044 Environmental management — Life cycle assessment — Requirements and guidelines
Technical Specification – ISO/ TS 14071 Environmental management — Life cycle assessment — Critical review processes and reviewer competencies: Additional requirements and guidelines to ISO 14044:2006

The LCA specialist must have knowledge of all of the following:

The use of the Fuel LCA Model, CI Modelling Guidance and current LCA practice
The use of the Clean Fuel Regulations (CFR) Specifications for Fuel LCA Model CI Calculations (if a CFR carbon intensity [CI] is used)
LCA dataset generation and LCA dataset review
Critical reviews of LCA
All scientific and engineering disciplines relevant to the LCA being reviewed
Environmental, technical, and other relevant performance aspects of any product system assessed

The LCA specialist must have all of the following experience:

Has actively participated in at least two LCAs as an LCA practitioner that addressed life cycle inventory, GHG emissions inventory or the global warming impact category and were compliant with ISO 14040/14044 standards
Carried out or participated in at least one LCA review as an internal expert or two LCA reviews as an external expert within the last ten years^{Footnote 7}
Fuel LCA Model training and/or relevant experience

The LCA specialist must conduct their review in accordance with subsection 6.2 of ISO 14044.

2.2.1.3 Process Modelling Specialist

The validation team must include a process modelling specialist with the expertise to critically review the process model used to provide inputs for the LCA. The process modelling specialist must have all of the following experience:

Applying established calculation and design methods to model industrial processes
Producing mass and energy balances using simulation software (e.g., Aspen HYSYS, Aspen Plus, CHEMCAD, gPROMS, ProSimPlus and DWSIM)
Determining and preparing process equipment specifications
Interpreting process flow diagrams (PFD) and piping and instrumentation diagrams (P&ID)

2.2.1.4 CFR Specialist

For each validation assignment where the project proposes to use eligible renewable hydrocarbons for the purpose of producing hydrogen (i.e., uses CFR CI), the validation team must include an individual who has sufficient knowledge of all of the following in the context of CFR CI determination under the CFR:

The use of the Fuel LCA Model, and current LCA practice
The use of the CFR Specifications for Fuel LCA Model CI calculations
The use of a CFR CI carbon intensity in the Clean Hydrogen ITC
CFR verification practices

2.2.2 External to Validation Team

2.2.2.1 Validation Reviewer(s)

Each validation is reviewed by at least one qualified validation reviewer^{Footnote 8}. If required, there may be more than one validation reviewer to address the competencies for the review. The validation reviewer(s) are selected such that they are competent and not part of the validation team. Validation reviewers may provide feedback to the validation team but cannot participate in planning or execution of validation activities.

The validation reviewer(s) may be an employee or subcontractor of the qualified validation firm, or a validator from another independent qualified validation firm. The validation reviewer(s) must have, as a minimum, the same competencies as specified for the validation team leader. Validation reviewer(s) may provide feedback to the validation team but cannot participate in planning or execution of validation activities. See Section 3.6.1 for a detailed description of the scope of evaluation for validation reviewer(s). Validation reviewer(s) must have the following skills and experience:

Experience and a theoretical understanding of the validation process, as applicable, including the design, typical evidence-gathering activities, significant decision points, and materiality interpretations
An understanding of the requirements of the Clean Hydrogen ITC
An understanding of the requirements of an independent reviewer as described in ISO 14064-3
An understanding of the qualified validation firm procedures
Technical competence in the applicable sector(s) (e.g., Fuel LCA Model experience, hydrogen production engineering experience, and ammonia production engineering experience, if applicable)

The validation review may be conducted concurrently with the validation process to allow significant issues identified by the validation reviewer(s) to be resolved before the opinion is issued, provided that the independence of the validation reviewer(s) is maintained, and the activities planned and undertaken by the validation reviewer(s), including the results, are documented.

2.2.3 Clean Hydrogen ITC Specific Validation Information Sessions

To qualify as a validation team leader or validation reviewer under the Clean Hydrogen ITC, individuals must complete the following:

NRCan’s Basic Information Session for Validators^{Footnote 9} which addresses Clean Hydrogen ITC requirements and the validation process (approximately eight-hour online session). Upon completing the information session, the individuals may decide to test their understanding using the optional self-assessment. NRCan will not record the scores on the self-assessment quiz. For greater certainty, these information sessions are only intended to provide basic information and should not be, in any way, considered as constituting sufficient knowledge to become a validator.
Annual Update for Clean Hydrogen ITC Validators (one-hour online session) containing NRCan’s prior year’s validation observations and any program updates.
Validators will have the option of meeting with NRCan to address general Clean Hydrogen ITC and project-specific questions. To qualify for this service, the validator must
- satisfy the requirements of Section 2.2,
- be working with a client who is preparing a clean hydrogen project plan for submission, and
- consent to NRCan publishing their question(s) and NRCan’s response(s) on the Clean Hydrogen ITC website, while keeping the proprietary information of taxpayer confidential.

More information on these services and information sessions will be available in the future version of this Guide and on the Clean Hydrogen ITC website.

2.2.4 Familiarity with Evidence-Gathering Activities

The validation team and validation reviewer(s) should be familiar with evidence-gathering techniques (e.g., those specified in ISO 14064-3) and the level of evidence they provide. The following table lists common evidence-gathering activities in their general order of strength.

Evidence-Gathering Activity	Higher
Observation (of activities)
Examination (of documents and records)
Analytical Testing
Confirmation
Recalculation
Inquiry	Lower

These evidence-gathering activities can be used in techniques such as the following:

Vouching: following data trails back to source records or measurements to determine accuracy
Tracing: following data trails to final reported values to determine completeness
Control testing: testing the mechanisms that ensure that the estimate of CI value is correct
Sampling (sites and data)
Site visits (if possible): to examine the infrastructure and collect further evidence
Estimate testing
Cross checking
Reconciliation

2.3 Insurance Coverage

Qualified validation firms must have appropriate insurance coverage as per s. 127.48(1) of the ITA. That is, the qualified validation firms (i.e., the work of all members of the validation team and the validation reviewer[s]) must be insured against professional liability under a policy of a professional liability insurance. The policy must comply with the professional liability insurance requirements set forward by the geographic region:

Policy values must be the higher of
- professional liability insurance requirements set forward by the province or territory in which the qualified validation firm is licensed, or
- professional liability insurance as appropriate for the range of activities undertaken in the geographic regions in which the qualified validation firm operates
All requirements must be satisfied with respect to claim and aggregate coverage amounts, deductibles, coverage duration, cancellation provisions and insurance types, as applicable.

For example, projects in certain provinces may require the professional liability insurance policy as follows:

Policy limit for each single claim of not less than $1,000,000 and an aggregate policy limit for all claims of not less than $2,000,000 per year or an automatic policy limit reinstatement feature.
A maximum deductible amount under the policy of the greater of $5,000 or 5% of the annual fees the holder billed in the 12 months immediately before the issuance of the policy.
Coverage for liability for errors, omissions and negligent acts arising out of the performance of all services within the practice of professional engineering offered or provided to the public by the insured subject to such exclusions and conditions and otherwise on such terms as are consistent with normal insurance industry practice from time to time.
A provision that neither party may cancel nor amend the policy of insurance in a way that results in non-compliance with this Guide without first giving the other party at least 45 days written notice or, in the event of non-payment of premiums, 15 days written notice.
The insurance must be placed with an insurer with an aggregate capital and surplus of at least $20,000,000 or an underwriter or syndicate of underwriters operating on the plan known as Lloyds.

2.4 Management of Independence and Arm’s Length Relationship

The qualified validation firm, members of the validation team and validation reviewer(s) must not be employees of the taxpayer, and must also maintain an arm’s length relationship (Section 2.4.1) with and be independent (Section 2.4.2) from, the taxpayer. The firm/individuals may not be considered independent if there are threats to their independence, which are discussed further below. As part of the validation report, validators will need to sign and submit documentation confirming the arm’s length relationship and independence of the qualified validation firm, validation team members, and validation reviewer(s), and that they are not employees of the taxpayer (Appendix A).

2.4.1 Arm’s Length Relationship

The qualified validation firm, members of the validation team, and the validation reviewer(s) must deal at arm’s length with the taxpayer. An arm’s length relationship is described in the Income Tax Act s. 251. See the following ITA folio for reference: Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length - Canada.ca.

2.4.2 Threats to Independence

Threats to independence may

exist at the present time;
be reasonably foreseen to exist in the future; or
be perceived as such by a reasonably well-informed observer, who could assume that a threat to independence exists, whether or not it is the case.

Threats to independence may include the following:

Self-interest (Section 2.4.2.1)
Self-review (Section 2.4.2.2)
Advocacy (Section 2.4.2.3)
Familiarity (Section 2.4.2.4)
Intimidation or economic implications (Section 2.4.2.5)

2.4.2.1 Self-Interest

A self-interest threat occurs when the qualified validation firm, a member of the validation team, and/or a validation reviewer could directly benefit, financially or otherwise, based on the conclusion of the validation. Examples of self-interest include, but are not limited to, the following:

Directly owning shares of the taxpayer being validated/verified
Having a close business relationship with the taxpayer
Contingent fees relating to the results of the validation
Seeking potential employment with the taxpayer
Acting as a broker-dealer (registered or unregistered), promoter, or underwriter on behalf of the taxpayer
Taking an equity position in the clean hydrogen project that has or will submit a project plan to NRCan or a qualified clean hydrogen project
Taking equity or payment in the form of future revenues from a project

2.4.2.2 Self-Review

A self-review threat occurs when the qualified validation firm, a member of the validation team, and/or a validation reviewer could be able to review their own work. Examples of self-review include, but are not limited to, the following:

Developed the process model used in the design of the project being validated/verified
Providing consulting services that directly impinge on the report or application being validated/verified, such as designing or implementing the data management systems
Validator of the validation information package becoming a verifier of the project’s compliance report
LCA specialist for validation of the validation information package becoming a verifier for the project’s compliance report
Compiling or reporting the information for the validation information package or compliance report being validated/verified

2.4.2.3 Advocacy

An advocacy threat occurs when qualified validation firm, a member of the validation team, and/or a validation reviewer may be perceived to promote a taxpayer’s position or opinion to the point that objectivity may be, or may be perceived to be, compromised. Examples of advocacy include, but are not limited to, the following:

Participating in the development of relevant fuel pathways for the Fuel LCA Model
Advocating on behalf of the taxpayer to advance a position or point of view on an issue that directly affects the clean hydrogen project plan or compliance report
Acting as an advocate on behalf of the taxpayer in litigation or in resolving disputes with other third parties

2.4.2.4 Familiarity

A familiarity threat occurs when the qualified validation firm, a member of the validation team, and/or a validation reviewer, by virtue of a close relationship with the taxpayer, its directors, officers, or employees, becomes overly sympathetic to the taxpayer’s interests. Examples of a familiarity threat include, but are not limited to, the following:

A person on the validation team has a close personal relationship with a person who is employed in a critical compilation role with the taxpayer
Acceptance of significant gifts^{Footnote 10} or hospitality from the taxpayer

2.4.2.5 Intimidation/Economic Implications

An intimidation or economic implications threat occurs when the qualified validation firm, a member of the validation team and/or a validation reviewer is deterred from acting objectively and exercising professional skepticism because of threats, actual or perceived, from the directors, officers or employees of the taxpayer, and their independence is potentially threatened. Examples of intimidation/economic implications include, but are not limited to, the following:

The threat of being replaced as qualified validation firm due to a disagreement with the validation process
Fees from the taxpayer represent a large percentage of the overall revenues of the validator
The application of pressure to inappropriately reduce the extent of work performed to reduce or limit fees
Threats arising from litigation with a taxpayer

2.4.3 Requirements for Managing Circumstances of Threats to Independence

In preparation for a validation engagement, the qualified validation firm evaluates whether all members of the validation team, including subcontractors, and the validation reviewer(s) meet the applicable requirements for providing an opinion independent of any interference from the taxpayer or partnership.

The taxpayer is responsible to disclose to the Minister of Natural Resources any threats to the independence of the qualified validation firm, members of the validation team and/or the validation reviewer(s) that exist.

If there is a threat to their independence, the qualified validation firm, member of the validation team or the validation reviewer whose independence is threatened cannot perform any validation activities. If the threat to independence in question can be managed, written evidence describing the actions that will be taken to mitigate the threat must be provided to the Minister of Natural Resources by the taxpayer. The Minister of Natural Resources will provide a response within 30 days of the receipt of either the disclosure of the threat to independence or the evidence describing the mitigation actions. Upon written notification by the Minister of Natural Resources that he is satisfied that the threat to independence can be effectively managed, the firm/individuals whose independence will be managed may proceed.

Table 2-1 includes a non-exhaustive list of examples of threats to independence and corresponding potential mitigation measures.

Table 2-1: Examples of Threats to Independence and Potential Mitigation Measures

Threat	Situation	Mitigation Measures
Self-Interest	A validation team member’s spouse sits on the Board of Directors of the taxpayer.	The member of the board abstains from voting on any decisions involving the validation.
Self-Review	A person consults on the taxpayer’s project and later takes a position with a qualified validation firm and is part of the validation team that is hired to validate the same project that they originally consulted.	The qualified validation firm would ensure that this person is not part of the validation team for the taxpayer’s project until five years has passed.
Familiarity	The taxpayer invites the validation team to a sports game (e.g., soccer, hockey) in the corporate box.	The validation team provides compensation for the tickets.

2.5 Complaints Mechanism

The qualified validation firm must have a documented complaints mechanism to address complaints, disputes, challenges, appeals and/or conflicts filed about any element of its validations.

All qualified validation firms must be an engineer or engineering firm that is registered and in good standing with a professional association that has the authority or recognition by law of a jurisdiction in Canada to regulate the profession of engineering. Qualified validation firms may rely on the complaints mechanism of one or more professional engineering associations that have the authority or recognition by law of a jurisdiction in Canada to regulate the profession of engineering in that jurisdiction, provided that it ensures all of the following:

Non-involved individuals who conducted any of the validation activities are not involved in the complaints-handling process
Confidentiality of the individual or qualified validation firm filing a complaint and the subject of the complaint, when applicable
Transparent and timely communication with all the parties involved throughout the complaints management process
The work of all validation team members and the validation reviewer(s) is subject to the mechanism (i.e., that the LCA specialist and validation reviewer(s) are engineers or employees of an engineering firm registered and in good standing with one of the professional engineering associations)
A formal notice of the outcome is issued to the complainant and NRCan

2.6 Maintenance of Records

Qualified validation firms must document and store the working papers and evidence related to validation activities that they performed for a minimum of fifteen years. A minimum list of records appears in Appendix D.

3 Requirements Relevant to the Validation Process

3.1 Introduction

Validation is a process that evaluates the reasonableness of the assumptions, limitations, and methods used to estimate the expected CI and respond to other requirements of the clean hydrogen project plan based on the information in the validation information package. Pre-validation requirements are discussed in Section 3.3, including the contents of the validation information package (Section 3.3.2). Execution of the validation is discussed in Section 3.4.

The output of the validation process is a validation report (Section 3.5), that is used to provide NRCan assurance on the following:

Recognition of clean hydrogen project: the project is recognized as eligible under the Clean Hydrogen ITC.
Recognition of clean ammonia, if applicable: the project satisfies other eligibility requirements under the Clean Hydrogen ITC, if the taxpayer’s project is intended to produce clean ammonia (Section 5.3).
Reasonableness of project design: the assumptions, limitations, and methods for designing the process and for modelling and calculating the expected CI are reasonable.
CI calculation: the expected CI is quantified in a materially correct manner and is presented in conformance with the validation criteria (Sections 1.5 and 3.2).
Monitoring plan: the monitoring plan will enable future verification of the actual CI of the hydrogen produced in each year of the compliance period (Section 3.3.2.4).

NRCan expects that validation reports will be more extensive than verification reports because of the following:

The design nature of the hydrogen facility
The degree of disclosure needed to correctly detail the variability and uncertainty that can be expected in the CI value
Specific equipment selection and minor design changes that remain in the facilities’ design

Depending on the stage of project evolution, applicants at an earlier stage in their design may need to contend with more uncertainty and larger validation reports; however, the advantage is an early indication of Clean Hydrogen ITC support level (specified percentage).

NOTE: Assessing the eligibility of specific process equipment, and the calculation of dual-use factors, etc. for capital support under the Clean Hydrogen ITC is not a responsibility of the validator.

3.2 Validation Criteria

The common criteria listed in Section 1.5.1 are used to validate whether the expected CI value has been quantified appropriately under the Clean Hydrogen ITC.

For other eligibility requirements, s. 127.48 of the ITA and Section 5.3 of this Guide are used as criteria for validation.

3.3 Pre-Validation

3.3.1 Validation Contract

Prior to the validation, the qualified validation firm and taxpayer must have a signed contract. The validation contract must include the following two provisions:

The qualified validation firm will maintain records relevant to the validation services as laid out in Section 3.6.2
In the event of an audit related to the administration of the Clean Hydrogen ITC by NRCan and/or CRA, the qualified validation firm will provide the records retained for review and will make themselves available for interview

Additionally, the recommended minimum information in an appropriate validation contract includes all the following:

The type of engagement (validation)
The objectives of the validation (to assess the reasonableness of the assumptions and methods used to calculate the expected CI and in the project’s design, and to ensure that the quantification and presentation of the expected CI value and validation information package conform to the validation criteria (Sections 1.5 and 3.2)
The scope of the life cycle (cradle-to-gate) including the facilities, physical infrastructure, activities, technologies, and processes
The point in time in the facility’s design that the validation occurs and the period for which the CI value is deemed to be appropriate
The materiality used in the validation

Two critical aspects of the contract are: (1) the scope of the life cycle to be examined and (2) the materiality to be used as these define, to a large extent, the validator’s level of effort.

3.3.2 Validation Information Package – Documents Required for Validation

To adequately perform the validation, a validation information package must be provided to the validator by the taxpayer. A validation information package includes the following:

Front-End Engineering Design (FEED) study or equivalent study (Section 3.3.2.1)
Project Carbon Intensity Documents (Section 3.3.2.2)
Other Validation Documents (Section 3.3.2.3)

3.3.2.1 FEED Study or Equivalent Study

For each clean hydrogen project, you must complete a Front-End Engineering Design (FEED) study or an equivalent engineering study and submit it as part of your clean hydrogen project plan submission. An equivalent engineering study would be an engineering package at the Front-End Loading 3 (FEL-3) stage. Documents provided for the FEED (or equivalent) study must cover all elements relevant to the expected carbon intensity determination in the production of clean hydrogen and requirements of the clean hydrogen project plan, including, as applicable:

The clean hydrogen production facility (including any on-site fuel or feed storage or preparation equipment)
Any carbon capture, transportation, or storage equipment
Any on-site clean hydrogen storage
Any on-site clean hydrogen transportation infrastructure
The clean ammonia production facility, applicable to clean hydrogen projects that produce clean ammonia
Any infrastructure related to transportation of clean hydrogen between the hydrogen production facility gate and the ammonia production facility inlet, applicable to clean hydrogen projects that produce clean ammonia.

Table 3-1: Documentation Required for FEED Study or Equivalent Study

Item Number	Document Name	Requirements
1	Design Basis and Process Description	Documents should include project scope, process description (control narrative), design requirements, including key design assumptions, and constraints, major design decisions, relevant codes and standards, quality documentation (e.g., quality assurance/quality control plan, protocols, and reports, if available), and other relevant design considerations such as feedstock, fuel, product, and performance specifications.
2	Block Flow Diagrams (BFD)	Block flow diagrams for the process presenting the major process and utility areas, and the interconnections between them, as well as expected average annual flow rates for the main heat and energy streams entering and leaving the major process and utility areas, taking into account the expected capacity/utilization factor, and corresponding instantaneous hourly flow rates for the streams shown under item a) above (e.g., the design operating condition from process flow diagrams).
3	Process Flow Diagrams (PFD)	Standard engineering diagrams labelled according to standard engineering practices and presenting all, but not limited to process equipment such as reactors, heat exchangers, compressors, and pumps, main process and utility streams, main operation and control valves, operating capacity, efficiency, as well as heating/cooling and electrical duty of major equipment, stream conditions and flow rates, and any other relevant process and equipment information.
4	Utility Flow Diagrams (UFD)	Standard engineering diagram labelled according to standard engineering practices and presenting all, but not limited to equipment required to generate (where applicable), condition, and deliver utilities to clean hydrogen property, including dual-use electricity and heat and project support equipment, utility distribution networks (e.g., cooling water distribution, steam distribution, and condensate return networks) presenting the main lines, headers or manifolds, utility consumers, etc., operating capacity, efficiency, as well as heating/cooling and electrical duty of utility system equipment, stream conditions and flow rates, and any other relevant utility system and equipment information.
5	Energy and Material Balances	Energy and material balances for all streams shown in the PFDs and UFDs, including all, but not limited to stream numbers (cross-referenced to stream numbering of PFDs and UFDs), stream properties (including stream phase and heat content), stream composition, stream energy content, and Other information on material entrainment or loss (e.g., air ingress rate, rate of loss of the feedstock, product and other materials)
6	Piping and Instrumentation Diagrams (P&ID)	Standard engineering diagrams labelled with standard engineering symbols and notation, including all, but not limited to all equipment present in the PFDs and UFDs, piping and valves, process control systems including instruments, control devices and valves, control signal lines, etc., process safety and relief systems, and venting systems.
7	Legend and Symbol Sheets	Standard legend and symbol documentation providing details on engineering symbols and annotations (e.g., equipment symbol legends, piping specification keys) used in P&ID, PFDs, and UFDs.
8	Equipment and Instrumentation Documentation	Documentation should include equipment list, instrumentation list, line list, and main equipment specifications (e.g., equipment data sheets).
9	Electrical and Control Documentation	Documentation should include electrical load list, single-line diagrams, electrical and controls equipment list, major equipment specifications (e.g., equipment data sheets), and control system architecture.
10	Site and Plot Plans and General Arrangement Drawings	Civil engineering diagrams and general arrangement drawings showing the location and plans for construction, such as process plant layout, plant boundaries, buildings, general arrangement drawing of major equipment and pipe work, on-site storage of feed materials, products and utilities, pipeline rights-of-way, berms, roads, and connections to external utilities.
11	Itemized Class 3 Cost Assessment* * Cost assessment must be consistent with a Class 3 cost estimate, as outlined by the Association for the Advancement of Cost Engineering.	This cost assessment will not be used by CRA for determination of equipment eligibility as it is strictly a part of the design package. An itemized list of costs that includes itemized purchase cost of property, costs incurred to put the property into service including purchased equipment installation cost, instrumentation and controls and other relevant direct costs (CapEx), and materials, labour, and overhead costs and other indirect costs reasonably attributable to the CapEx of the clean hydrogen property.
12	Level 3 Schedule	A schedule that spans the whole project and includes all, but is not limited to key milestones, major elements of design, engineering, procurement, construction, commissioning including system testing and start-up, and operation.

As part of the validation information package, the taxpayer must prepare a set of annotated drawings from the FEED (or equivalent) study to support the expected CI calculation.

The annotated drawings that support the expected CI calculation and that are included in the validation information package must include sufficient detail so that an individual, who is an engineer but otherwise not familiar with the process, would be able to identify the source of data in the validation information package that was used to populate the CH-ITC Workbook. To provide a clear trail from the FEED study or equivalent study to the CH-ITC Workbook, the taxpayer must follow the instructions below for preparing the requested diagrams for the FEED study or equivalent:

Clearly label all locations on relevant diagrams that delineate the process boundary between the hydrogen product system (HPS) and other production system(s) (OPS), as well as the process boundaries between unit processes (UP) within the HPS (as applicable). The process boundaries must be delineated with coloured dashed lines (different colour for each system/process) that are distinct from any other labelling on the diagram.
Clearly label each flow that is included in the CH-ITC Workbook Activity Map.

3.3.2.2 Project Carbon Intensity Documents

The taxpayer must submit the project carbon intensity documents listed in the following table as part of the validation information package.

Table 3-2: Project Carbon Intensity Documents

Document	Description
CH-ITC Workbook	A copy of the completed CH-ITC Workbook, including any and all calculations performed on the data (side calculations) and the Activity Map, that is consistent with the CI Modelling Guidance and used to determine the data that are entered into the Fuel LCA Model. In addition to the instructions provided in the CH-ITC Workbook, the taxpayer must clearly document the version of the following documents/files that were utilized by the taxpayer in the calculation of the expected CI in the Side Calculations tab of the worksheet: CI Modelling Guidance CH-ITC Workbook CFR Specifications for Fuel LCA Model CI Calculations (if applicable) In each worksheet of the CH-ITC Workbook, the taxpayer must provide sufficient detail so that an individual, who is an engineer but otherwise not familiar with the process, would be able to identify the source of data from the validation information package that was used to populate the CH-ITC Workbook. This includes the source of data for each flow identified in the activity map and each data point entered into the CH-ITC Workbook. Specifically, each worksheet (tab) in the CH-ITC Workbook must include a reference to the source document, included in the validation information package, and each data point must be labelled to allow a cross-reference between the source document and the CH-ITC Workbook. For example, when data is referenced from an annotated PFD, a clear label for the process data (e.g., flow or stream number) must be provided.
Any supporting documents required by the CI Modelling Guidance for Fuel LCA Model CI calculations	The taxpayer is to provide any supporting documentation, as applicable, needed to supplement the information provided in the CH-ITC Workbook.
Export File (hydrogen pathway) from the Fuel LCA Model	The taxpayer must provide the hydrogen pathway, including all processes in which applicants have entered data, exported in a JSON format (with a “.zip” file extension) Please refer to the CI Modelling Guidance for file export instructions.
Process modelling methodology document	The taxpayer must provide a description of the data sources and the methods used to collect and determine the data that is entered into the CH-ITC Workbook. For example, this could include the methodology used to create the project’s process model (e.g., process simulation software) and any significant assumptions when creating the process model. The validator has the option to request additional information from the taxpayer to assess the taxpayer’s process modelling methodology, including a copy of the process model files, if required by the validator to arrive at a validation opinion.
Preliminary documentation	Any items of preliminary documentation laid out in Section 3.3.2.5.
Monitoring plan	See Section 3.3.2.4 for details on monitoring plan.

3.3.2.3 Other Validation Documents

In addition to a FEED (or equivalent) study, and the project carbon intensity documents, the taxpayer must submit the documentation in the following table as part of the validation information package.

Table 3-3: Other Validation Documents

Document	Description
Written justification of hydrogen production capacity for clean ammonia projects (if applicable)	Hydrogen production capacity justification as described in Section 5.3.1 and any supporting documentation required.
Written justification of hydrogen transportation feasibility for clean ammonia projects (if applicable)	Transportation feasibility of hydrogen justification as described in Section 5.3.2.
Project KPI Workbook	The taxpayer must complete all worksheets relevant to the scope of the clean hydrogen project, including the list of key personnel of the taxpayer, and any contractor(s), as applicable, that made key contributions to the validation information package.

3.3.2.4 Monitoring Plan

Monitoring plans are used to ensure that sufficient and appropriate information is collected for successful future verification. Most flows for input into the CH-ITC Workbook are not directly measured but are calculated using data from one or more measurement points.

For the purposes of the Clean Hydrogen ITC, the monitoring plan should at minimum allow for monitoring and collection of data points required to populate the flow information in the CH-ITC Workbook, calculating actual CI values, and verifying actual CI values. As part of the monitoring plan, the taxpayer should identify what data points will be monitored on-site (i.e., at the hydrogen production facility) and which data points might be monitored off-site (e.g., monitoring of data points by another party and reported by the other party to the taxpayer under the terms of an agreement).

A complete monitoring plan used for compliance and verification contains the following sections:

Description of Operations (Appendix Section H.1)
Diagram of Operations (Appendix Section H.2)
Description of Measurement Points (Appendix Section H.3)
Description of Data Processing and Inputs to CH-ITC Workbook (Appendix Section H.4)
Description of the Data Management System and Controls (Appendix Section H.5)

A detailed description of the contents of each section can be found in Appendix H.

3.3.2.4.1 Preliminary Monitoring Plan

The taxpayer must, at a minimum, submit a preliminary monitoring plan as part of the validation information package to be evaluated by the validator. The required level of detail is based on the information generally available for data measurement at FEED and at final design stages. For brevity, the monitoring plan can refer to documents already included in the validation information package if the references are clear. If any details of the monitoring report and data management system are not available for inclusion in the validation information package, this needs to be disclosed in the validation report. A complete final monitoring plan suitable for verification must be submitted as an element of the final detailed engineering designs for the project.

The preliminary monitoring plan must, at minimum, include the following:

The Description of Operations (Appendix Section H.1) and Diagram of Operations (Appendix Section H.1.2) sections as specified for the complete monitoring plan
Preliminary versions of the Description of Measurement Points (Appendix Section H.3) and Description of Data Processing and Inputs to CH-ITC Workbook (Appendix Section H.4), as described below in Sections 3.3.2.4.1.1 and 3.3.2.4.1.2

3.3.2.4.1.1 Preliminary Description of Measurement Points

Furthermore, the preliminary monitoring plan should, at minimum, include information for each measurement point that will be used to measure data to populate the CH-ITC Workbook for the purpose of calculating future actual CI values. For projects that are in the early stages of design (e.g., FEED), a preliminary list of measurement points should be provided with the following information:

Measurement point description (e.g., flow meter type, analyzer type, description of grab sampling procedure)
Measurement point location on a simplified block diagram or a more detailed diagram (e.g., PFD, P&ID), or if the information will be provided by a third-party (e.g., under a contract) a reference to any relevant document(s)
Measurement point minimum design specifications (e.g., accuracy, lower detection limits, operating pressures and temperatures, measurement ranges, response times)
Purpose of measurement point and its reference in the CH-ITC Workbook

Table 3-4 illustrates how measurement point information may be presented. The availability of information will depend on the stage of project development. At a minimum, the information in white cells must be provided and evaluated by the validator. The information in the grey cells is typically available at the final engineering design stage. If the information in the grey cells is unavailable, the information available at FEED can be populated when applicable (e.g., proposed measurement characteristics) and this must be disclosed in the validation report.

3.3.2.4.1.2 Preliminary Description of Data Processing and Inputs to CH-ITC Workbook

For each input to the CH-ITC Workbook, the taxpayer must clearly identify how the data will be gathered, referencing all relevant measurement points. The taxpayer must also indicate whether the data will be used directly as an input to the CH-ITC Workbook, or will need to be further processed (e.g., converting units of measurement, estimating non-measured parameters, interpolating or extrapolating data), and a description of the general processing methodology that will be used. For instance, if the CH-ITC Workbook requires the quantity of heat produced by a combined heat and power plant as an input, six measurement points and a calculation step might be required: the temperature, pressure and volumetric flow rate of input water and output steam could be measured and used to calculate the enthalpy change.

Table 3-4: Measurement Point Information

Measurement (unit)	Measurement Reference Point (i.e., location on PFD, P&ID, or other source)	Minimum Design Specifications (e.g., accuracy, LDL)	Purpose of Measurement Point (including CH-ITC Workbook cell reference)	Actual Device							Measurement Frequency
Measurement (unit)		Minimum Design Specifications (e.g., accuracy, LDL)		Type	Make	Model		Accuracy	Pressure/ Temperature Range	Maintenance	Measurement Frequency
Hydrogen production (m³/h)	FT 203 on P&ID #A3600-14-200	Accuracy: 0.10%	Calculation of total annual hydrogen produced ‘Hydrogen from HPS (H1,H2)'!D75:D79	Ultrasonic	Emerson	Rosemount 3418	RM-29385-011	0.10%	-50 - 257 ⁰C 103 - 25,855 kPag	Weekly - visual inspection Six month - pipe cleaning	1s
Natural gas consumption (m³/h)	FT 103 on UFD #A400-10-001	Accuracy: 5%	Calculation of: (1) annual natural gas consumption as feedstock input quantity ‘Feedstock input (FD1)'!E91:E95 (2) annual natural gas consumption as fuel input quantity ‘Fuel input for HP (FL1)’!E85:E89	Mechanical Wheel	Fill-Rite	901CN1.5	TPLE-348	2%	0-725 kPag	Annual inspection	Monthly
Hydrogen concentration (mol%)	GC 569 on P&ID #A3800-10-300	Accuracy: 1% LDL: 0.1%	Calculation of average purity of hydrogen produced ‘Hydrogen from HPS (H1,H2)'!H75:H79	NDIR	ThermoFisher	PrimaPRO Mass Spectrometer	TFP124M-243	0.30%	0-40 ⁰C 50-100 kPag	Monthly automatic calibration	Continuous
Electricity from off-site solar generation at Swift Current solar farm via PPA* (MWh/year)	Verified annual quantities provided under PPA contract signed with company Y and dated on July 15, 2024	Accuracy: 1%	Calculation of the total annual amount of electricity imported ‘Electricity input (Ea)’!D67:D72	* For third-party contracts (such as PPAs), this information may be provided in the contract documents.							Quarterly

3.3.2.5 Supporting Documents Acceptable at Validation

Proof must be provided for most arrangements that are considered in the calculation of expected or actual CI but that are not adequately covered by the FEED (or equivalent) studies submitted as part of the validation information package. These arrangements could include co-product offtake arrangements, eligible hydrocarbon import agreements, PPAs, agreements for the transport and storage of captured carbon, CFR CI for eligible renewable hydrocarbon feedstock, etc. Preliminary documentation (i.e., minimum initial documentation required to be submitted at validation stage) is acceptable for the purposes of validation of the expected CI value, provided it is considered reasonable and appropriate given the stage of the project design. If preliminary documentation is submitted as part of the validation information package, it must be disclosed in the validation report and the validation opinion must be modified. The final versions of these documents will remain outstanding and will need to be submitted and reviewed by NRCan before the start of the compliance period, and in accordance with the timelines set forward by s. 127.48 of the ITA. If the final documentation (as described in the table below) is available, the final documentation must be submitted as part of the validation information package.

The taxpayer will be required to submit a revised project plan to NRCan if, before the first day of the compliance period of the project, the final detailed engineering designs are not submitted with NRCan.

The following table provides a non-exhaustive list of clean hydrogen project design details that can be validated with preliminary documentation, as well as examples of types of preliminary documentation and the corresponding evidence that must be provided as part of final detailed engineering designs and at compliance/verification of the actual CI.

Table 3-5: Clean Hydrogen Project Documentation Examples

Design Details	Preliminary Documentation^{Footnote 11}	Final Detailed Engineering Designs^{Footnote 12}	Final Documentation^{Footnote 13}
Process design	FEED-stage process design as described in Section 3.3.2.1	Issued for construction (IFC) design package containing IFC versions of the documents that were included in the FEED study Summary of changes from the FEED-stage process design	Updated as-built versions of documents that would impact verification. That is, if changes that may impact actual CI have been made to any IFC versions of the design documents, as-built versions of all impacted design documents must be submitted Summary of changes from the IFC design package
Monitoring plan	FEED-stage monitoring plan as described in Section 3.3.2.5	Complete monitoring plan as described in Appendix H	Complete monitoring plan as described in Appendix H
PPA	Non-legally binding memorandum of understanding signed by all parties	Update on status of agreement NOTE: Final legally binding executed agreement must be available before the start of the compliance period	Final legally binding executed agreement
Transportation of hydrogen for ammonia production	Justification of transportation feasibility of hydrogen to the ammonia facility, if not co-located (Section 5.3.2)	Justification of transportation feasibility of hydrogen to the ammonia facility, if not co-located (Section 5.3.2)	Verified records of hydrogen transportation (e.g., transportation contract, bills of lading, flow measurements)
Co-product delivery for on-site use (e.g., oxygen, nitrogen eligible steam/thermal energy, electricity)	Description of planned arrangement for on-site delivery of co-product (e.g., pipelines, distribution lines)	Description of planned arrangement for on-site delivery of co-product (e.g., pipelines, distribution lines)	Verified records of co-product delivery for on-site use (i.e., not vented; e.g., flow measurements)
Eligible hydrocarbon import/purchase (e.g., eligible renewable hydrocarbons, natural gas as fuel or feedstock)	Non-legally binding memorandum of understanding for eligible hydrocarbon import/purchase, signed by all parties	Final legally binding executed agreement. Description of planned arrangement for transportation of eligible hydrocarbons (e.g., truck, pipelines)	Final legally binding executed agreement Verified records of eligible hydrocarbon import/purchase (e.g., records of sales, flow measurements) Bills of lading (for trucking, if applicable)
Input import/purchase to hydrogen production system (e.g., electricity, steam/thermal energy)	Non-legally binding memorandum of understanding for import/purchase, signed by all parties	Final legally binding executed agreement Description of planned arrangement for transportation of import/purchase (e.g., pipelines, transmission/distribution lines)	Final legally binding executed agreement Verified records of import/purchase (e.g., invoices, flow measurements)
Co-product export/sale for off-site use (e.g., nitrogen, steam/thermal energy, electricity)	Non-legally binding memorandum of understanding for co-product export/sale, signed by all parties	Final legally binding executed agreement Description of planned arrangement for transportation of co-product export/sale (e.g., truck, pipeline, transmission/ distribution lines)	Final legally binding executed agreement Verified records of co-product export/sale (e.g., records of sales, flow measurements) Bills of lading (for trucking, if applicable)
Eligible renewable hydrocarbon CFR CI specifications	Eligible renewable hydrocarbon characteristics for a similar material CFR CI determined in accordance with the Clean Fuels Regulations for a similar material	Eligible renewable hydrocarbon characteristics for a similar material CFR CI determined in accordance with the Clean Fuels Regulations for a similar material	Characteristics analysis for the eligible renewable hydrocarbon(s) used in the clean hydrogen project Actual CFR CI determined in accordance with the Clean Fuels Regulations
CCUS storage and transport	Non-legally binding memorandum of understanding for transportation and storage of captured carbon, signed by all parties	Final legally binding executed agreement Description of planned arrangement for transportation of captured carbon (e.g., truck, pipelines) Description of planned storage site monitoring procedures	Final legally binding executed agreement Verified records of transportation, injection and storage of the captured carbon (e.g., meter readings, storage reports) Bills of lading (for trucking, if applicable)
CCUS storage jurisdiction designation	CCUS storage jurisdiction designation documentation for a similar storage site	CCUS storage jurisdiction designation documentation issued by the Minister of Environment for the selected storage site, including the geological and environmental surveys, pore allocations and site storage capacity	CCUS storage jurisdiction designation documentation issued by the Minister of Environment for the selected storage site, including the geological and environmental surveys, pore allocations and site storage capacity

3.3.3 Materiality

Materiality is the concept that individual misstatements or the aggregation of misstatements could influence the intended user’s (i.e., NRCan’s) decisions. Material misstatements must be revised. There are two types of materiality: quantitative (Section 3.3.3.1) and qualitative (Section 3.3.3.2).

Validators must only issue an unmodified validation opinion if:

The aggregate value of any quantitative misstatements, omissions or changes is below the materiality threshold
No material qualitative misstatements are made.

3.3.3.1 Quantitative Materiality

Quantitative materiality refers to misstatements in the CI value. Examples include calculation errors, incomplete inventories (e.g., omissions of material sources), unreasonable assumptions, and misallocation of GHG emissions.

3.3.3.1.1 Quantitative Materiality Threshold

For the purposes of validation, the quantitative materiality threshold is equal to the aggregate cut-off criteria threshold (i.e., 2% of the CI value) as defined in Section 2.2.3.1 of the CI Modelling Guidance.

3.3.3.1.2 Error vs. Uncertainty

Error (Section 3.3.3.1.4) is different than uncertainty (Section 3.4.4.1). With error, the value can be corrected to a true value. With uncertainty, the value does not change as there is no better value. Uncertainty is an expression of the range the value could be and is treated as a qualitative, not a quantitative, concern (Section 3.3.3.2 on qualitative materiality).

At validation, uncertainty is expected to be much more important than error.

3.3.3.1.3 Aggregation of Quantitative Material Items

NRCan requires that quantitative misstatements be aggregated to determine the total effect on the reported information during the assessment of evidence. The aggregation of the misstatements provides NRCan with the total effect on the calculated expected CI value.

3.3.3.1.4 Relative Error

Relative error is used to assess quantitative misstatements’ materiality.

Assessment of the materiality of quantitative misstatements should be based on the relative error. When calculating the relative error, the numerator should be the sum of the misstatements (net technique) and reference denominator should be the corrected value. Any misstatements caused by following the instructions provided in the CI Modelling Guidance (e.g., exclusion of the emissions associated with water treatment) are not considered in the assessment of error and do not need to be factored into the error calculations.

The calculations for relative error, and percent relative error to be used to evaluate materiality are as follows:

$Relative Error = \sum errors, omissions, and misreporting$

Relative Error is the difference between the reported value and the corrected value. The difference is caused by errors, omissions, and misreporting.
Errors are quantitative inaccuracies in the data.
Omissions are incompleteness in the data that affects the value and can be corrected (e.g., missing sources in the inventory).
Misreporting are misclassifications in the data. Misreporting can be quantitative and qualitative. In the error analysis, only the quantitative values of misreporting are used.

$Percent Relative Error = \frac{\sum (errors, omissions, and misreporting)}{Corrected Value} \times 100$

$Percent Relative Error = \frac{Relative Error}{Corrected Value} \times 100$

Percent Relative Error is an expression of the error relative to the corrected value in percentage.
Corrected value is the value that the validator or verifier determines by the evidence.

3.3.3.2 Qualitative Materiality

Qualitative materiality refers to intangible issues that affect the validation information package or compliance report. Qualitative concerns are more prevalent in validation because of the nature of the information.

The following table is a sample list of concepts that cause a material qualitative concern, accompanied by examples. The list of examples is not exhaustive. We expect that validators will encounter qualitative concerns that are not in the examples. In these cases, the concept should guide the validator as to whether it is material. We anticipate that this list will evolve as the program matures.

Table 3-6: Qualitative Materiality Examples

Qualitative Materiality Concept		Examples
The clean hydrogen project, or portion of the clean hydrogen project, is not eligible (Recognition, Section 3.4.2)	Ineligible hydrogen	Project does not produce clean hydrogen (expected CI value is 4 or greater).
	Ineligible pathway	The project does not produce clean hydrogen from an *eligible pathway* defined in ITA s.127.48(1), i.e., the production of hydrogen from electrolysis of water, or the reforming or partial oxidation of eligible hydrocarbons with carbon dioxide captured using a CCUS process
	Ineligible hydrocarbon	For those projects that produce hydrogen via the reforming or partial oxidation of hydrocarbons, the hydrocarbons are not all eligible hydrocarbons per ITA s.127.48(1), i.e., are not natural gas a substance sourced all or substantially all from raw natural gas a substance that is (i) a by-product from processing one or more substances described in the bullets above, and (ii) included in the Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document published by the Government of Canada at that time, or an eligible renewable hydrocarbon per ITA s.127.48(1), i.e., a substance that is produced from non-fossil carbon; in respect of which a CFR carbon intensity can be determined under the Clean Fuel Regulations; that is included in the Clean Hydrogen Investment Tax Credit – Carbon Intensity Modelling Guidance Document published by the Government of Canada at the time that the taxpayer files its most recent clean hydrogen project plan with the Minister of Natural Resources; that is sourced from a facility that first commenced production of the substance on or after both November 3, 2022, and the earlier of the day that is 24 months before the taxpayer’s first clean hydrogen project plan is filed with the Minister of Natural Resources, and 36 months before the day on which hydrogen is first produced by the relevant clean hydrogen project of the taxpayer; that, if acquired by the taxpayer under an agreement, the agreement grants, or will grant, the taxpayer the sole and exclusive right to the environmental attributes associated with the substance; and that is acquired or produced by the taxpayer for the sole purpose of operating the clean hydrogen project during all or any portion of the first 20 years of the project’s operations.
	Ineligible ammonia, if applicable (Section 3.4.2.1)	For those projects that will produce clean ammonia, the taxpayer has not sufficiently demonstrated the other elements to be confirmed for a qualified clean hydrogen project per the requirements in Section 5.3 of this Guide, i.e.: the taxpayer has not demonstrated that the project can reasonably be expected to have sufficient hydrogen capacity to satisfy the needs of the taxpayer’s ammonia production facility if the taxpayer’s hydrogen production facility and its ammonia production facility are not co-located, the taxpayer has not demonstrated the feasibility of transporting hydrogen between the hydrogen and ammonia facilities
	Ineligible power purchase agreement, if applicable	For those projects that consider a power purchase agreement in the calculation of expected CI the power purchase agreement is not an *eligible power purchase agreement* per ITA s.127.48(1), i.e., is not an agreement or other arrangement in writing that: allows, or will allow, a taxpayer to purchase electricity from an eligible electricity generation source (including incremental nameplate capacity) that first commenced electricity generation on or after both November 3, 2022, and the earlier of the day that is 24 months before the taxpayer’s first clean hydrogen project plan is filed with the Minister of Natural Resources, and 36 months before the day on which hydrogen is first produced by the relevant clean hydrogen project of the taxpayer, and is located in the same province as the clean hydrogen project and is connected to the electricity grid of that province, the exclusive economic zone of Canada and is directly connected to the grid of the province in which the project is located, or another province that has a provincial grid that is directly connected to the grid of the province in which the project is located, if the taxpayer has arranged for the necessary interprovincial transmission; grants, or will grant, the taxpayer the sole and exclusive right to the environmental attributes associated with the electricity; and is entered into by the taxpayer for the primary purpose of operating the taxpayer’s clean hydrogen project during all or any portion of the first 20 years of the project’s operations.
The validation information package is not complete or is ineligible (Reporting, Section 3.4.6)		The validation information package does not have a FEED study (or an equivalent study as determined by the Minister of Natural Resources) does not have a monitoring plan does not have appropriate supporting evidence available for review does not have a completed CH-ITC Workbook is inconsistent (e.g., different equipment is shown on the monitoring plan and P&ID) does not have energy and material balances with sufficient detail to show flows relevant to the CI calculation includes requested information that is difficult to locate or understand
The project design is not reasonable (Reasonableness of project design, Section 3.4.3)		The project design does not provide the intended service or product (i.e., produce hydrogen or ammonia) violates fundamental physical laws (e.g., conservation of energy in the energy balance) has assumed efficiencies that are misaligned with typical equipment in that service has operating parameters that are not within the specifications of the process and equipment has equipment with sizes that are drastically mismatched (e.g., the production capacity and the purification equipment are not sized for the same throughput) is not designed to survive the anticipated life of the facility (consumables, repairs, and replacements excluded) does not enable future CI verification (i.e., monitoring) shows an operating scenario that is not reflective of typical operation
The CI value does not represent the validation information package (CI calculation, Section 3.4.4)		The Fuel LCA Model setup does not reflect the designed project Elements of the clean hydrogen production process are not included in the calculation for CI value (unless the equipment/process does not produce greenhouse gas emissions and/or does not meet the cut-off criteria) If a power purchase agreement applies, a generic, not technology specific, power CI is used Significant unexplained changes in predicted production or emissions between operating years (e.g., not related to changes in the feedstock or input quantity or quality)
The CI value was not calculated in accordance with the criteria (CI calculation, Section 3.4.4)		The CI value was not calculated in accordance with CI Modelling Guidance Incorrect allocation methods were used The CI value was not calculated using the Fuel LCA Model The most recent Fuel LCA Model at the time of filing was not used Substances that have global warming potential but are not specified greenhouse gases (e.g., carbon black) were included in the CI value calculation Upstream emissions are not included Emissions outside the LCA boundary are included (e.g., offsite transportation of hydrogen or ammonia, buildings, construction equipment, off-site storage, on-site vehicles, ammonia production) Hydrogen that was lost within the production process was considered in the calculation of net hydrogen produced by the project If a power purchase agreement is in place, a generic grid factor is used and/or the contribution of the purchased electricity was not calculated in proportion to the number of years for which the agreement will be in place during the first 20 years of the clean hydrogen project operation If an eligible renewable natural gas is reformed into hydrogen, the contribution of the renewable hydrocarbon was not calculated in proportion to the number of years for which the natural gas will be used during the first 20 years of the clean hydrogen project operation Cut-off criteria were used without sufficient justification Captured carbon subject to an *ineligible use* was not considered an emission
Elements required for review of the CI Modelling are missing or incorrect (CI calculation, Section 3.4.4)		Calculations used to adjust data to the conditions or units required for input in the CH-ITC Workbook documented in the “Side Calculations” tab of the Workbook The specific modelling process flow diagram to be included in the “Activity Map” tab of the CH-ITC Workbook is missing, inaccurate, does not follow the naming convention, or is not accompanied by matched and appropriate worksheets The submitted documentation does not comply with the form and manner required
Actual CI cannot be verified in the future (Monitoring plan, Section 3.4.5)		Material on-site flows do not have appropriate and accurate measurement devices to collect input data for actual CI value calculations upon operation Material flows do not have appropriate, accurate, and accessible measurements to collect input data for actual CI value calculations upon operation

3.3.3.2.1 Inadequate Disclosures

Inadequate disclosure is a type of qualitative material misstatement. Disclosure in the validation information package is preferable; however, the validator may also disclose in the disclosure section of the validation report. Items not disclosed in the validation information package and only in the validation report indicate a disagreement between the taxpayer and the validator as to the contents of the validation information package.

Once disclosed, the matter is no longer material (i.e., no longer precludes issuance of an unmodified or modified validation opinion). Material qualitative concepts are described in the table below followed by examples. The list of examples is not exhaustive. If the situation is not represented by the examples, the validator should rely on the concept to judge whether the concern is material. We anticipate that this list will be revised as the program matures.

Table 3-7: Inadequate Disclosure Qualitative Materiality Examples

Qualitative Materiality Concept		Examples
Inadequate disclosure	CI value calculations	Uncertainties that are greater than 30% Unproven technology or technology efficiencies that limit evaluation of input parameters Continually changing or unclear project scope Emissions quantified by unchangeable values in the Fuel LCA Model are not reflective of estimated or actual emissions
	Project eligibility risks	Implementation or permitting difficulties for transportation between clean hydrogen and ammonia facilities (e.g., pending regulations)
	Project capacity and capability	Concerns with records management capacity of project team Unreasonable run times and startup times for operations Unusual contracting arrangements (e.g., complex PPA structure that may affect power delivery)
	Preliminary evidence	Non-disclosure of item where only preliminary evidence is available for validation (Section 3.3.2.5 for preliminary evidence items)

3.4 Validation Execution and Evidence-Gathering Activities

The validation process consists of conducting evidence-gathering activities. Evidence-gathering activities are activities that enable the validator (or verifier) to collect evidence upon which to base a validation (or verification) opinion, and may include such activities as observation, inquiry, analytical testing, confirmation, recalculation, examination, retracing, tracing, control testing, sampling, estimate testing, cross-checking, sensitivity analysis (Section 3.4.1) and reconciliation.

Evidence gathered by the validator should provide the validator with sufficient and appropriate information to assess the following characteristics of the clean hydrogen project, and to develop their opinion (Section 3.5.2):

Recognition of Clean Hydrogen Project (Section 3.4.2)
- Recognition of Clean Ammonia, if applicable (Section 3.4.2.1)
Reasonableness of Project Design (Section 3.4.3)
Expected CI Calculation (Section 3.4.4)
Monitoring Plan (Section 3.4.5)
Reporting (Section 3.4.6)

The validation process is less of a linear process and more of a concurrent evaluation of several aspects of the project, statement, and validation information package; consequently, the above list is not necessarily the order in which the validation is executed, but rather a list of the elements for which evidence must be gathered during the validation.

3.4.1 Sensitivity Analysis

In validation, sensitivity analysis is an important evidence-gathering activity. Sensitivity analysis examines the effects of changes to the input parameters (e.g., assumptions and values from the process model and project design) on the outputs (e.g., expected CI value, quantity of hydrogen production). Validators should use sensitivity analyses to identify areas where there is a risk of material change in CI related to uncertainty (Section 3.4.4.1).

3.4.2 Assessment of Clean Hydrogen Project Recognition

Validators are required to determine whether the project is recognized as eligible under the Clean Hydrogen ITC. Use of the qualitative materiality concepts in Section 3.3.3.2 are particularly applicable; here are some examples:

The project produces clean hydrogen (i.e., expected CI less than 4 kg CO₂e/kg H₂)
Hydrogen is produced from an eligible pathway
Hydrogen is produced from an eligible hydrocarbon with carbon dioxide captured using a CCUS process (if applicable)

In addition to assessing the above eligibility requirements, the validator must determine if the other portions of the clean hydrogen project (portions of the project that are not required to meet eligibility requirements of a clean hydrogen project but must be eligible if considered in the calculation of the expected CI) are recognized as eligible under the Clean Hydrogen ITC, such as:

Eligible renewable hydrocarbon feedstock
Power purchase agreements
Ammonia production

Refer to Appendix G for example questions that could be asked by the validator when determining Recognition of Clean Hydrogen Project.

3.4.2.1 Recognition of Clean Ammonia (if applicable)

A clean hydrogen project can involve, if applicable, the production of clean ammonia that uses a feedstock of clean hydrogen produced by the project. For those projects that intend to produce clean ammonia, the validator must assess whether the ammonia would be recognized as clean ammonia under the Clean Hydrogen ITC. This includes assessing whether the Ammonia Project Requirements document that forms part of the validation information package meets the requirements for ammonia in the clean hydrogen project plan, i.e., determine whether the taxpayer has sufficiently demonstrated:

that the project can reasonably be expected to have sufficient hydrogen production capacity to satisfy the needs of the taxpayer’s ammonia facility, and
if the taxpayer’s hydrogen production facility and its ammonia production facility are not co-located, the feasibility of transporting hydrogen between the facilities.

Refer to Appendix G for example questions that could be asked by the validator when determining Recognition of Clean Ammonia.

3.4.3 Assessment of Reasonableness of Project Design

The taxpayer’s project design is the basis for the calculation of the expected CI as it will be used to generate the inputs into the Fuel LCA Model, including the creation of the activity map in the CH-ITC Workbook, by identifying the unit processes and flows to be modelled, as well as the quantification of flows to be entered in each worksheet of the CH-ITC Workbook. As part of the validation, the validator is required to determine whether the assumptions in the taxpayer’s project design are reasonable.

To assess the reasonableness of the project design, the validator may need to examine the fundamentals of the clean hydrogen project’s technology and design. In general, the following taxpayer documents should be assessed by the validator:

FEED study or equivalent, including:
- Design basis
- Bock Flow Diagrams (BFD)
- Process Flow Diagrams (PFD)
- Utility Flow Diagrams (UFD)
- Energy and Material Balances
- Piping and Instrumentation Diagrams (P&ID)
- Legend and Symbol Sheets
- Equipment and Instrumentation List
- Electrical and Control Documentation
- Site and Plot Plans and General Arrangement Drawings
- Itemized Class 3 Cost Assessment
- Level 3 Schedule
Project KPI Workbook
Any items of preliminary documentation laid out in Section 3.3.2.5.

When assessing the reasonableness of the project design, the validator should at minimum consider whether the facility design

provides the intended service or product
does not violate fundamental physical laws
relies on reasonable selection and application (e.g., appropriateness) of the method^{Footnote 14}, assumptions^{Footnote 15}, limitations and data^{Footnote 16}, and considers complexity, subjectivity, and other risk factors (e.g., taxpayer bias, fraud)
includes equipment that is suitable for the intended application
assumes efficiencies that are aligned with typical equipment in that service;
has operating parameters that are within the specifications of the process and equipment
is designed to survive the anticipated life of the facility (consumables, repairs, and replacements excluded)

The validator should also assess the basis for the modelling of the hydrogen production process, i.e., that an appropriate methodology is used as the basis of the project design (e.g., industry standard process simulation software). The validator must determine if the methodology is sound and capable of creating a process model that represents the clean hydrogen project, although they may not review the process model itself.

Refer to Appendix G for example questions that could be asked by the validator when determining the reasonableness of the project’s design.

3.4.4 Assessment of Expected CI Calculation

As one of the key activities in validation, the validator must assess whether the expected CI has been calculated in accordance with the criteria, particularly the CI Modelling Guidance.

In addition to the taxpayer’s FEED study or equivalent, and any items of preliminary evidence, the following taxpayer documents will generally need to be assessed by the validator:

Project carbon intensity documents, including:
- CH-ITC Workbook
- Export file (hydrogen pathway) from the Fuel LCA Model
- Process Modelling Methodology Document
- Any supporting documentation required by the CI Modelling Guidance for Fuel LCA Model CI calculations

When assessing conformance with the CI Modelling Guidance, the validator will need to assess whether the CH-ITC Workbook has been populated and that the Fuel LCA Model has been set up in conformance with the criteria, particularly the instructions in the CI Modelling Guidance. For example, the validator will need to assess at minimum

the modelling approach (simplified modelling or advanced modelling), and whether that approach is permitted based on the project design,
the activity map, and whether it includes the required UPs, all intermediate flows within the HPS as well as flows to the atmosphere and/or exchanged with another production system,
the worksheets that have been included in the workbook and whether they are consistent with the activity map, and
the flow information contained within each worksheet.

In addition to determining whether the instructions have been correctly followed when populating the CH-ITC Workbook, the validator must determine that the information in the CH-ITC Workbook represents the clean hydrogen project. In other words, the validator must determine whether the taxpayer has properly transferred information from the taxpayer’s FEED study (e.g., energy and material balances) to the CH-ITC Workbook. The validator will need to assess at minimum

the boundary of the HPS,
the boundaries of UPs within the HPS,
the data trail for all flow information contained in each worksheet of the CH-ITC Workbook (e.g., tracing flow information back to the Energy and Material balances or to the preliminary documentation), and
flow exchanges between the HPS and OPS.

Refer to Appendix G for example questions that could be asked by the validator when determining whether the expected CI has been calculated in accordance with the CI Modelling Guidance.

3.4.4.1 Uncertainty in CI

Uncertainty in CI refers to the range of possible values (statistical dispersion) of the expected CI. Uncertainty is distinct from error as discussed in Section 3.3.3.1.2. Uncertainty can originate from several sources including:

Expected spread in parameter values (e.g., anticipated pressure / temperature / concentration ranges, availability of sunlight/wind)
Underlying assumptions and limitations in the project design (e.g., final execution of eligible PPAs, efficiency of equipment or reactions, turndown or full capacity operating scenarios)
Underlying assumptions and limitations in the extrapolation model used for expected CI values (e.g., feedstock source, ramp-up rates, operational uptime)

Validators are expected to assess uncertainty in the expected CI associated with reasonably probable scenarios. An indicative value for “reasonably probable” would be parameter values within the 90% confidence interval. When validators expect that reasonably probable expected CI values would result in a change in the project’s specified percentage, the conditions under which this would occur and the estimated effect on the CI value must be reported in the additional information section of the validation report. Some guidance questions are provided in Appendix G. Further general discussion on uncertainty is presented in Appendix E.

3.4.5 Assessment of Monitoring Plan

Validators are required to determine whether the project’s monitoring plan will enable future verification of the actual CI of the hydrogen produced in each year of the compliance period.

When assessing the monitoring plan, the validator will need to assess whether the taxpayer has established a plan that at minimum allows for monitoring and collection of data points required for populating the flow information in the CH-ITC Workbook, which will then be used to calculate the actual CI in the Fuel LCA Model. The validator will need to assess at minimum

whether data identified are complete (e.g., all inputs to CH-ITC Workbook have corresponding measurement points),
which data points will be monitored on-site (i.e., at the hydrogen production facility) and which data points might be monitored off-site (e.g., monitoring of data points by another party and reported by the other party to the taxpayer under the terms of an agreement),
if appropriate access and data reporting are contractually agreed for data from third party facilities (e.g., under a PPA),
which flows will be directly measured (entered into the worksheets of the CH-ITC Workbook), and which flows will require data processing (e.g., converting units of measurement, estimating non-measured parameters, interpolating or extrapolating data) before being entered in the worksheets, and
whether on-site measurement points are appropriate, by assessing the location and measurement type (e.g., meter type, analyzer type, grab sampling procedure), and whether the correct data (i.e., flow characteristic) is being measured.

In addition to assessing the measurement of data points, the validator should assess the data management system and controls^{Footnote 17} that will be used to manage the measured data. As preliminary monitoring plans prepared for validation may include limited information (e.g., incomplete data management system and controls), the validator should note any missing or preliminary information as part of the disclosures in the validation report. For instance, if the details of the measurement points have yet to be defined or confirmed, the validator should treat the information as preliminary documentation (Section 3.3.2.5). In this case, the validator should disclose in the validation report if any of the measurement point specifications would be challenging to achieve with commercially available devices.

In validating the data management system and controls, the validator assesses the fundamental design of the data management system and controls for the following aspects:

Ability to create, capture, and manage information
Ability of data controls to maintain the integrity of the CI value information (e.g., adequacy of instrument calibration, sampling of feedstock or production composition, reasonability limits on data measurements)
Availability of timely information for the CI value reporting
Adequacy of retained and disposed of records related to CI value
Protection and security of CI value information

The validator does not need to assess the entire data management system, rather the validator assesses the system to ensure that there is sufficient integrity in the data management system and control’s design to ensure the correct calculation of the CI value in the future. The validator must also review any available plans for instrumentation and controls and identify any gaps or control deficiencies in the data trail.

A specialist familiar with COBIT^{Footnote 18}, ITIL^{Footnote 19}, CMMI^{Footnote 20}, or ISO 27002^{Footnote 21} may be of assistance in assessing the data management system.

Refer to Appendix G for example questions that could be asked by the validator when assessing the monitoring plan.

3.4.6 Assessment of Reporting

Validators are required to determine whether the information in the validation information package has been correctly reported, i.e., has been prepared in conformance with the criteria (Sections 1.5 and 3.2).

The validator will need to assess all documents in the validation information package to ensure the information has been presented in accordance with the criteria. The validator will need to assess whether the validation information package is

complete (i.e., contains all required documents and is completed according to instructions),
clear, informative, and easy to understand,
consistent (i.e., information in the FEED study is consistent with information in the CH-ITC Workbook), and
not misleading (i.e., no misleading presentation of data).

Refer to Appendix G for example questions that could be asked by the validator when assessing reporting.

3.5 Validation Report

The validation report contains two sections: the validation statement (Section 3.5.1) and additional information (Section 3.5.3). The validation statement contains the validation opinion (Section 3.5.2). In addition to the contents of the validation report, which will be provided to the taxpayer, the qualified validation firm must retain certain records related to validation (Section 3.6.2). Figure 3-1 illustrates the composition of a validation report.

Figure 3-1: Validation Report Composition

diagram

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Text version

Representation of a validation report, showing that it is composed of a validation statement, which includes the validation opinion, and additional information.

The validation report is structured in the following format:

Validation Statement (2 to 3 pages)
- Basic information
- Expected CI
- Validation opinion
- Validation personnel and process
- Key matters and matters of emphasis
- Taxpayer and validator responsibilities
- Validator and validation reviewer sign-off
Additional Information (15 to 20 pages, plus required printouts)
- Taxpayer information and identification
- Information respecting the validation, including qualified validation firm information
- Any other relevant information

Further details on the contents of the validation report are provided in Appendix B.

3.5.1 Validation Statement

The validation statement acts as a summary of the validation and has a strict structure, as outlined in Appendix B. Deviations from this structure indicate to NRCan that the validation information package and the validation require further scrutiny. The validation statement is typically two to three pages in length and contains the validation opinion (Section 3.5.2).

3.5.2 Validation Opinion

The opinion issued by the qualified validation firm should report the conclusion reached by the validator on whether the assumptions are a reasonable basis for the forecast and that the forecast has been prepared in accordance with the regulations.

Validators can arrive at three types of conclusions: unmodified (Section 3.5.2.1), modified (Section 3.5.2.2), and adverse (Section 3.5.2.3). Only projects with an unmodified or modified validation opinion may be confirmed by NRCan. Figure 3-2 exhibits the decision tree for arriving at the validation opinion.

Figure 3-2: Decision Tree for Validation Opinion Types

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Text version

An opinion tree is presented as a means of arriving at each validation opinion, including denial, unmodified, modified, and adverse. Denial is issued if there is insufficient information provided in the validation information package. Unmodified opinion is issued if there is sufficient information provided and there are no misstatements in the validation information package. Modified opinion is issued if there is sufficient information provided in the validation information package, and while there are misstatements, none of them are material misstatements. Adverse opinion is issued if there is sufficient information provided and there is at least one material misstatement in the validation information package.

3.5.2.1 Unmodified Opinion

An unmodified opinion is issued when there are no material misstatements, and the report has been prepared in accordance with the criteria.

3.5.2.2 Modified Opinion

A modified opinion has no material misstatements but there is a departure from the criteria or a limitation on the scope. The modified opinion serves to inform NRCan of the concern but still provides a reasonable level of assurance because of the lack of material misstatement. NRCan manages modified opinions as unmodified opinions with additional information.

In modifying an opinion, the validator should disclose the following:

The nature of any concern that causes the modification
The potential effect of the concern on the expected CI value or other qualitative material matters (e.g., the ability of NRCan to understand the report)
The context of the modification (see below)

When the validator issues a modified opinion, NRCan requires that the context of the modification be disclosed. If the modification is caused by inability to obtain sufficient evidence, there are generally three reasons for this type of limitation:

Circumstances beyond the control of the taxpayer (e.g., PPA has not been fully executed)
Circumstances related to the timing of the validator’s work (e.g., the design process is not complete)
Limitations posed by the taxpayer (e.g., the taxpayer is unwilling to share proprietary process information)

Inability to perform a specific evidence-gathering activity does not constitute a limitation if the validator is able to obtain sufficient appropriate evidence by performing alternative evidence-gathering activities (e.g., examination of equipment specific manufacturer’s specifications could not be performed because the specific equipment has not been chosen; however, the specifications for average equipment used in that process under similar conditions from other sites have been used as comparators). On the other hand, using alternative evidence-gathering activities may require additional disclosure (e.g., the uncertainty for the specific equipment is higher than using the manufacturer’s specifications).

NOTE: Any validation that includes preliminary documentation as defined in Section 3.3.2.5 is necessarily modified. In such cases, the validator should disclose the following:

The preliminary documentation
The anticipated date by which final engineering details will become available
Whether the final engineering details, once confirmed, are likely to materially change the CI value or other qualitative material matters

Table 3-8: Modified Opinion - Example Disclosures

Situation	Possible contextual disclosure
There is considerable operational range of a facility in which the output and CI value will depend on local feedstock availability	The facility can operate between 10 and 100 Mt H₂ per year; however, the CI value has been calculated at a production of 80 Mt H₂ per year, anticipating that roughly 25% of feedstock will be low-carbon. As this is the maximum estimated low-carbon feedstock supply in the local area, operating at higher capacity would require additional fossil feedstock and change the ratio of low-carbon to fossil feedstock. This could potentially change the CI value and we estimate the increase in CI value due to this effect to be positive 0.45 kg CO₂e/kg H₂.
A solar powered electrolyser located in a northern climate may experience operational disruptions due to winter weather	The facility is anticipated to produce 25 Mt H₂ per year with a CI value of 0.03 kg CO₂e/kg H₂. Solar irradiance significantly decreases in the winter at a latitude of 55°N and snow coverage may be significant. We anticipate that the electricity and hence hydrogen production to be interrupted during the winter months affecting the efficiency of the hydrogen production. The range of CI value will vary due to environmental conditions by ± 0.007 kg CO₂e/kg H₂.
The PPA has been drafted but implementation is pending on the other party approval	The facility has negotiated a power purchase agreement in principle starting June 21, 2028, and extending to June 21, 2044. The terms of the power purchase agreement meet the Clean Hydrogen ITC requirements for preliminary documentation (i.e., a written memorandum of understanding (MOU) signed by both parties signed May 12, 2024); however, a legal PPA, as of the date of this validation, has yet to be executed. We anticipate that the final PPA will be signed by June 2026. The PPA, if executed per the terms of the MOU, will have no effect on the expected CI value. The PPA, if not executed, will likely have a material effect and increase the expected CI value by over 0.5 kg CO₂e/kg H₂ to 3.4 kg CO₂e/kg H₂ ± 30%.
The facility is early in the design process and not all variables have been solidified, although there is sufficient evidence for the validator to reach a conclusion	The facility has completed level 3 cost estimates and scheduling; however, specific measurement equipment needed to calculated CI value has been specified but not selected. We anticipate that this will not have any impact on CI value but improper selection of equipment in the final project design would prevent the necessary verification activities.

3.5.2.3 Adverse Opinion

An adverse opinion is issued when there are material misstatements in the report and/or the report has not been prepared in accordance with the legislation and CI Modelling Guidance. An adverse opinion must be provided if there is a material quantitative or qualitative misstatement. If the validator believes that one or more of the assumptions used in calculating the CI value does not provide a reasonable basis for that estimate, the validator should either express an adverse opinion or withdraw from the engagement.

3.5.2.4 Denial

In validation, a qualified validation firm may disclaim a validation in the event there is insufficient information to arrive at a conclusion. A disclaimer is not an opinion because a conclusion cannot be formed.

3.5.2.5 Disclosures

This section outlines the theory behind disclosures. The qualitative materiality section provides examples and guidance on matters that NRCan considers material. More appropriate and pertinent disclosure is encouraged over less.

There are two types of disclosure:

Key Matters
Matters of Emphasis

3.5.2.5.1 Key Matters

Key matters are those disclosures that the validator considers to be the most significant out of a list of disclosures. Key matters prioritize disclosures such that they can be effectively addressed. Although the validator has the discretion to identify any number of key matters, NRCan anticipates this list to be smaller than the entire list of matters and likely in the range of three to seven items. Key matters do not necessarily cause a modified opinion; however, if there is a modified opinion, the reasons for that modified opinion should appear in the key matters (e.g., any preliminary documentation items from Section 3.3.2.5). Key matters and matters of emphasis should be included in support of both, modified and unmodified, opinions.

3.5.2.5.2 Matters of Emphasis

Matters of emphasis are disclosures that provide clarity to the validation information package or to the validation. They may or may not be sufficiently important to list in the “key matters” section. Matters of emphasis do not cause a modified opinion. Matters of emphasis draw attention to matters that are of such importance that they are fundamental to the understanding of the validation information package or to the user’s understanding of the validation. Examples include but not limited to:

Feedstock availability in the area is at maximum capacity.
Process efficiencies are calibrated for average annual temperatures (or solar irradiance) and actual production will vary on a seasonal cycle.
Reaction rates for catalyst A used in the water gas shift reaction have been assumed to be typical for this type of catalyst. Catalyst A has not been confirmed.
Dual fuel use boilers are used to produce steam for the process. Fuel mix is assumed to be 100% natural gas; however, the boiler is capable of combusting mixtures that vary from 100/0 to 65/35 natural gas/coke.

Any design details that were evaluated with preliminary documentation need to be disclosed in a defined list. Examples include:

PPA contracts
Contracts for renewable feedstock procurement, and confirmation of eligible renewable hydrocarbon CFR CI
Percentage of eligible use of captured carbon dioxide
Designation of the jurisdiction in which captured carbon dioxide will be sequestered
Specific measuring devices that will be used to collect data to calculate and verify actual CI value

3.5.3 Additional Information

Additional information forms an important part of the validation report. NRCan expects the additional information section to comprise most of the report. The “additional information” section includes both prescribed and discretionary information. Beyond the prescribed items, what and how to include in the additional information section is principally at the validator’s discretion, taking into consideration concerns that may be of qualitative concern to NRCan. Appendix B provides a list of the prescribed and discretionary additional information to be included in the validation report.

3.6 Validation Review and Record-Keeping

The validation activities carried out by the validator are assessed by the validation reviewer(s). The validation review may be conducted concurrently with the validation process to allow significant issues identified by a validation reviewer to be resolved before the opinion is issued, provided that the independence of the validation reviewer(s) is maintained, and the activities planned and undertaken by the validation reviewer(s), including the results, are documented.

3.6.1 Validation Review

The role of the validation reviewer(s) is to evaluate whether the qualified validation firm and the validation team meet the requirements laid out in Section 2, and to assess the validation process and activities carried out by the validation team. As the guideline, the scope of the validation review should include the evaluation of the following:

Whether the validation was performed in accordance with the validation process described in this Guide
The appropriateness of validation team competencies, training and experience (Sections 2.2.1 and 2.2.3)
The appropriateness of the validation process and activities (Section 3.4)
Significant decisions made during the validation process
- If any significant issues (i.e., material omissions) have been identified by the validator, they should be resolved and documented (Section 3.3.3).
- If any restatements (i.e., updates to the validation information package based on the feedback from the validator) have been submitted, they should be adequately assessed.
The appropriateness and sufficiency of evidence used to support the opinion, and whether the evidence supports the validation opinion (Section 3.4)
The validation statement (Section 3.5.1) and validation opinion (Section 3.5.2)

The validation reviewer(s) should communicate with the validator when the need for additional information arises and must document this information. The validation team must address any concerns raised by the validation reviewer.

3.6.2 Records Relevant to the Validation Services Provided

During the validation, evidence needs to be collected to substantiate the report being validated. The records stored should be able to document

plausible evidence to support the opinion
- whether the project is recognized as eligible under the Clean Hydrogen ITC according to the criteria (Section 1.5 and 3.2);
- whether the assumptions, limitations and methods used in modelling and calculating the expected CI, including the process design, are reasonable;
- whether the expected CI is properly prepared based on the assumptions, limitations and methods, and is presented in accordance with the criteria;
- whether the monitoring plan will enable future verification of the actual CI of the hydrogen produced in each year of the compliance period; and
- whether the validation information package was properly prepared and is presented accordance with the criteria.
validation reviewers’ notes, records and reports

Individual validation records for each engagement must be documented and stored for a minimum of 15 years. Refer to Appendix D for a list of appropriate documentation to retain.

4 Requirements Relevant to the Verification Process (coming in the next version of this Guide)

Further guidance on requirements for the verification process will be provided in a future version of this Guide.

5 Other Taxpayer Requirements

5.1 Clean Hydrogen Project Plan Revisions

NRCan anticipates that a project’s clean hydrogen plan may need to be revised due to certain significant changes that may occur prior to the start of the project’s compliance period. As detailed in s. 127.48(7) and s. 127.48(8) of the ITA, the taxpayer is required to file a revised clean hydrogen project plan if, before the first day of the compliance period:

the Minister of Natural Resources determines that there has been a material change to the project design and requests that the taxpayer file a revised project plan for the project;
the taxpayer
1. does not file the final detailed engineering designs with the Minister of Natural Resources in accordance with ITA s. 127.48 (9)(d),
2. changes the project’s eligible pathway, or
3. reasonably expects that there will be an increase (as compared to the most recent project plan for the project) of more than 0.5 kilograms of carbon dioxide equivalent per kilogram of hydrogen to be produced by the project;
any eligible power purchase agreement referenced in the most recent clean hydrogen project plan of the taxpayer
1. has not been finalized and executed so as to become legally binding, or
2. has been materially modified or terminated; or
any environmental attributes associated with the agreement have been disposed of by the taxpayer.

If any of the above condition statements apply, the taxpayer shall file a revised clean hydrogen project plan with the Minister of Natural Resources within 180 days. The validation report for the original clean hydrogen project plan will also need to be revised and reissued to reflect the contents of the revised clean hydrogen project plan.

5.2 Material Change

Per s. 127.48(7) and s. 127.48(8) of the ITA, one of the reasons that a taxpayer must file a revised clean hydrogen project plan is if, before the first day of the compliance period of the project, the Minister of Natural Resources (NRCan) determines that there has been a material change to the project design and requests that a taxpayer file a revised project plan. Material changes to a project are generally those that can modify the decisions of the intended users. The Minister of Natural Resources may accept a partial revised clean hydrogen project plan depending on the nature of the material changes.

Additionally, taxpayers must file a revised clean hydrogen project plan with NRCan (i.e., there is no requirement that NRCan request the filing) if the taxpayer is responsible for filing a revised clean hydrogen project plan based on any of the other conditions listed in ITA s. 127.48(7) (Section 5.1) before the first day of the compliance period of the project.

There are two types of material changes: quantitative (Section 5.2.1) and qualitative (Section 5.2.2).

5.2.1 Quantitative Material Changes

Changes to the project that may reasonably be expected to increase the expected CI by more than 0.5 kg CO₂e/kg H₂ and/or that would change the specified percentage are considered quantitatively material.

5.2.2 Qualitative Material Changes

Qualitative material changes refer to changes, relative to the most recent clean hydrogen project plan, that may not result in a quantitative material increase in the expected CI value but are material in that the project is no longer fairly presented in the most recent clean hydrogen project plan and therefore any prior validation opinion is no longer valid. Qualitative material changes could include engineering design changes that require a change in CI modelling approach, or changes in the engineering assumptions that have an appreciable impact on project inputs, outputs, and structure and therefore need to be validated.

The following table is a non-exhaustive list of concepts that cause a qualitative material change, accompanied by examples, similar to the list of concepts for validation qualitative materiality in Section 3.3.3.2. NRCan expects to encounter qualitative material changes that are not listed in the examples below. In these cases, the concepts will guide NRCan as to whether the qualitative change is material. NRCan anticipates that this list will evolve as the program matures.

In addition to the following table, NRCan may identify project-specific items in their confirmation of the clean hydrogen project plan that, if changed, would constitute a material change requiring a revised project plan.

Table 5-1: Qualitative Material Change Examples

Qualitative Material Change Concept	Example of Concept	Example of Qualitative Material Change
Changes in the clean hydrogen project requires re-evaluation of non-quantitative eligibility criteria (i.e., changes impact how the project meets Clean Hydrogen ITC eligibility requirements and prior assessment is no longer applicable)	Eligible pathway change	The project produces clean hydrogen from a different eligible pathway when compared to the most recent clean hydrogen project plan.
	Eligible hydrocarbon change	For those projects that produce hydrogen via the reforming or partial oxidation of hydrocarbons, the hydrocarbons are different eligible hydrocarbons when compared to the most recent clean hydrogen project plan.
	Clean ammonia change	There is a change in whether the project plans to produce clean ammonia (i.e., new clean ammonia production or project will no longer produce clean ammonia) For those projects that plan to produce clean ammonia based on the most recent clean hydrogen project plan: there is an increase to the planned clean ammonia production capacity of greater than 10% if hydrogen production and ammonia production are not co-located, there is a change to the planned method for transporting hydrogen between the hydrogen and ammonia production facilities
	Eligible power purchase agreement change	For those projects that, based on the most recent clean hydrogen project plan, considered an eligible power purchase agreement in the calculation of expected CI, the eligible power purchase agreement is not supplemented by the required eligible power purchase agreement supporting documentation (that forms part of the final detailed engineering designs); has been materially modified or terminated; or any environmental attributes associated with the agreement have been disposed of by the taxpayer.
Quantitative materiality of changes not easily assessed	Project has been “materially modified,” i.e., project design changes are complex and require a detailed assessment to estimate if the impact on expected CI is a quantitative material change	Content to be provided in a future version of this Guide.
The final detailed engineering designs are not complete, are ineligible, or are incorrect.		Content to be provided in a future version of this Guide.
The changes are not reasonable		Based on the final detailed engineering designs, the project design has changed and is inconsistent (e.g., contains documents with conflicting information); does not provide the intended service or product (i.e., produce hydrogen or ammonia); violates fundamental physical laws (e.g., energy or material balances); has assumed efficiencies that are misaligned with typical equipment in that service; has operating parameters that are not within the specifications of the process and equipment; equipment sizes are drastically mismatched (e.g., the production capacity and the purification equipment are not sized for the same throughput); is not designed to survive the anticipated life of the facility (consumables, repairs, and replacements excluded).
Actual CI cannot be verified in the future compliance reports following changes to the monitoring plan.		No design for data management system(s) to manage emission and production data used to calculate CI value Material on-site emissions may no longer have appropriate and accurate measurement devices to collect input data for CI value calculations upon operation Material upstream emissions no longer have appropriate, accurate, and accessible measurements to collect input data for CI value calculations upon operation
Content to be provided in a future version of this Guide.

5.3 Projects Producing Ammonia

Under the definition of clean hydrogen project plan in s. 127.48(1) of the ITA, if a clean hydrogen project is intended to produce clean ammonia, a clean hydrogen project plan of a taxpayer must demonstrate:

that the project can reasonably be expected to have sufficient hydrogen production capacity to satisfy the needs of the taxpayer’s ammonia production facility, and
if the taxpayer’s hydrogen production facility and its ammonia production facility are not co-located, the feasibility of transporting hydrogen between the facilities.

To meet the above requirements, a clean hydrogen project plan of a taxpayer must include a FEED or equivalent study (see the Clean Hydrogen ITC website for more information on what is required as part of the engineering package that would constitute an equivalent study).

FEED (or equivalent) study documents provided must cover all elements relevant to the CI determination in the production of clean hydrogen and requirements of the clean hydrogen project plan, which includes the following, as applicable:

The clean hydrogen production facility (including any on-site fuel or feed storage or preparation equipment)
Any carbon capture, transportation or storage equipment
Any on-site clean hydrogen storage
Any on-site clean hydrogen transportation infrastructure
The clean ammonia production facility, applicable to clean hydrogen projects that produce clean ammonia
Any infrastructure related to transportation of clean hydrogen between the hydrogen production facility gate and the ammonia production facility inlet, applicable to clean hydrogen projects that produce clean ammonia

5.3.1 Hydrogen Production Capacity

The taxpayer must submit a written justification that demonstrates, with reference to specific project design details, that the [clean hydrogen] project can reasonably be expected to have sufficient hydrogen production capacity to satisfy the needs of the taxpayer’s ammonia production facility. The justification must explain how the ammonia production facility is designed to convert clean hydrogen from only the taxpayer’s clean hydrogen production facility, and therefore that the ammonia production facility operations are dependent on the hydrogen production facility operations. The design hydrogen production capacity of the taxpayer’s clean hydrogen production facility (i.e., the net hydrogen production capacity equal to the total hydrogen production capacity less any hydrogen that is consumed or lost within the hydrogen product system) must be equal to or greater than the design hydrogen inlet capacity of the ammonia production facility. An acceptable justification should include at a minimum the following:

Information such as net clean hydrogen production capacity (the total hydrogen production capacity less any hydrogen that is consumed or lost within the hydrogen product system) and ammonia facility feed capacity, making reference to the design bases and energy and material balances of the hydrogen and ammonia production facilities.
Alignment of assumptions on the uptime and downtime of both facilities or an explanation of the operating philosophy that reasonably accounts for any mismatch.
Reference to the design and operating capacities of major pieces of equipment, and a detailed justification if any major equipment will routinely be run at less than design capacity.

If significant fluctuations in hydrogen production or future expansions to either the hydrogen production facility or the ammonia production facility have been identified in the clean hydrogen project plan, the above analysis must be provided following any expansions to either the hydrogen production facility or the ammonia production facility for the first 20 years of the project’s operations.

5.3.2 Transportation of Hydrogen

If the taxpayer’s hydrogen production facility and its ammonia production facility are not co-located, the taxpayer must submit a written justification that demonstrates, with reference to specific project design details, the feasibility of transporting hydrogen between the facilities. The taxpayer must provide sufficient detail so that an evaluator (e.g., validator, validation reviewer or NRCan reviewer) who is an engineer but otherwise not familiar with the process would be able to confirm whether transporting hydrogen between the hydrogen production facility and ammonia production facility has been demonstrated as being feasible from a technical, regulatory, reliability, and safety perspective.

In addition to the documentation submitted as part of the FEED or equivalent study, an acceptable justification should include, at a minimum, relevant information such as the following:

Details of the transportation arrangements between the hydrogen and ammonia production facilities
Relevant codes and standards for storage and transportation of hydrogen and, if applicable, any relevant codes and standards under development, or any gaps in current codes and standards, that must be addressed for successful execution of the clean hydrogen project
Other relevant design assessments, including
- any transportation studies or feasibility studies that assessed transportation of hydrogen from the hydrogen production facility to the ammonia production facility, including transportation routes and availability of any required equipment/infrastructure
- engineering assessments on converting existing transportation infrastructure from non-hydrogen service to hydrogen service.
PFDs of any pipelines between the hydrogen production facility and the ammonia production facility
Line lists with anticipated pipeline specifications, including
- material
- design code
- design pressure and temperature
A list of any equipment, including processing, storage and transportation equipment (whether stationary or mobile) required to transport hydrogen from the hydrogen production facility plant gate to the ammonia production facility plant inlet, including, as applicable
- compression
- liquefaction
- storage
- loading/unloading terminals
- mobile equipment: trucks, trains and associated trailer or container specifications
Civil engineering diagrams showing the location and plans for construction of required civil works such as
- pipeline rights-of-way, including any pipelines between the hydrogen production facility and ammonia production facility
- roads

Appendix A: Attestation of Independence Form Contents

BASIC INFORMATION
Name of Qualified Validation/Verification Firm
Name of Taxpayer
Name of Facility
Name of Report Validated/Verified
Select Validation/Verification		Validation
Select Validation/Verification		Verification
Validation/Verification Team Leader	Name
	Title
	Main Area of Specialization (if any)
Validation/Verification Reviewer	Name
	Title
	Main Area of Specialization (if any)
Validation/Verification Team Member #1	Name
	Title
	Main Area of Specialization (if any)
NOTE: Team member and validation/verification reviewer information is repeated until all members of the validation team and validation reviewer(s) have been addressed.
ATTESTATIONS
The qualified validation/verification firm and each member of the validation/verification team and each validation/verification reviewer, including subcontractors, is independent of the taxpayer^{Footnote 22}, as set out in Section 2.4.2 of the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document and in s. 127.48(1) of the ITA.
The qualified validation/verification firm and each member of the validation/verification team and each validation/verification reviewer, including subcontractors, deals at arm’s length with the taxpayer, as set out in the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document Section 2.4.1 and in s. 127.48(1) of the ITA.
Neither the qualified validation/verification firm, nor any member of the validation/verification team or any validation/verification reviewer, including subcontractors, is an employee of the taxpayer, as set out in the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document and in s. 127.48(1) of the ITA.
For Verification Only:
No member of the verification team, including subcontractors, nor any verification reviewer, has participated in the preparation or validation of the project’s validation information package.
DECLARATIONS
Threat to independence has been discovered: Yes No
Threat to independence that has been discovered will be managed: Yes No
If "Yes", then the qualified validation/verification firm must inform the Minister of Natural Resources within five days after the day on which it discovers the threat(s) to independence, providing a description of the threat(s) to independence and the measures that will be taken to manage it (or them). Informing the Minister of Natural Resources can be done using the following generic email address: itc_cleanh2-cii_h2propre@nrcan-rncan.gc.ca. The subject of the email should read: “CH-ITC Threat to Independence Disclosure – [title of clean hydrogen project plan]”. In the event there is a threat to independence that has been discovered and that can be effectively managed, when informing the Minister of Natural Resources, please describe the nature of threat(s) to independence as well as the actions (the measures) that will be taken to mitigate or eliminate the issue at the source of the threat. If a threat to independence has been discovered, the person who has the threat to independence must not conduct any validation/verification work and the validation/verification must not be the subject of a validation/verification review, unless the Minister of Natural Resources decides that the measures taken will effectively manage the threat. Finally, the Minister of Natural Resources will inform the person who is required to submit the report of its decision within 20 days after the day on which the Minister of Natural Resources is informed of the threat to independence.
SIGNATURES
Validation/Verification Team Leader	Name
	Signature
	Title
	Date of Signature
	Telephone Number
	Email
	Qualified Validation / Verification Firm Address
Validation/Verification Reviewer	Name
	Signature
	Title
	Date of Signature
	Telephone Number
	Email
	Qualified Validation / Verification Firm Address
NOTE: Team member and validation/verification reviewer signature blocks are repeated until all members of the validation team and all validation/verification reviewers have provided their signatures.

Appendix B: Validation Report

B.1 Standard Validation Statement

The validation report contains two parts: the validation statement and additional information. The validation opinion is contained within the validation statement. Please refer to Appendix C for examples of validation opinion.

The validation statement must start on the first page of the validation report (excluding the cover page) and contain the following:

Basic information
- Title of the validation statement (e.g., “Qualified Validation Firm’s Report”)
- Name and title of the addressee (i.e., the Minister of Natural Resources)
- Name of taxpayer and facility
- Expected CI value validated
- Period addressed by the expected CI value
- Identification of the validation information package and any prior versions of the package and/or clean hydrogen project plans
Validation opinion by the qualified validation firm
- Conclusions with respect to the validation information package (i.e., unmodified, modified, adverse), including any modifications or limitations, which should state
  - whether anything comes to the validator’s attention which causes them to believe that the assumptions used in the process modelling, LCA modelling and calculation of the expected CI are not reasonable, and
  - that the expected CI has been prepared in accordance with the Clean Hydrogen ITC validation criteria (Sections 1.5 and 3.2).
- If a modified opinion is expressed, a description of the reason for the modification
Validation personnel
- List of the validation personnel (detailed information provided under Additional Information)
Validation activities
- Brief description of the validation activities conducted (detailed information provided under Additional Information)
Key validation matters and matters of emphasis
- Key validation matters
  - any prior validation information packages and/or clean hydrogen project plans associated with the clean hydrogen project
  - modifications of the opinion
  - any appropriate caveats concerning the achievability of the results indicated by the validation information package. Example statement may be
    - Actual results are likely to be different from the expected CI value since anticipated events frequently do not occur as expected and the variation could be material.
- Matters of emphasis
Taxpayer and validator responsibilities
- A statement about who was responsible for the preparation and fair presentation of the submitted validation information package
- A statement about who was responsible for the preparation of the validation opinion and validation report, based on the evidence collected, and the objectives of the validation
Validator and validation reviewer sign-off
- A statement that the qualified validation firm, validation team and validation reviewer(s) are qualified and competent to perform validation activities, and meet all requirements specified in the Clean Hydrogen ITC validation criteria, i.e., Sections 1.5 and 3.2 of this Guide, which must include
  - qualified validation firm’s location
  - validation team leader’s signature
  - date of the validation report
- A statement by the validation reviewer(s) of whether they confirm that the validation team requirements have been satisfied and whether they agree with the validation opinion, signed and dated by the validation reviewer(s), which must include
  - qualified validation firm’s location
  - lead validation reviewer’s signature
  - date of the validation report

B.2 Additional Information

The following information is included in the Additional Information section of the validation report:

Name, title, postal address, telephone number and email address of the authorized official and/or designated contact.
Information respecting the qualified validation firm, members of the validation team and validation reviewer(s)
- Name and civic address of the qualified validation firm
- Name, telephone number, email address, and employer (if applicable) of the validation team leader for the validation team that conducted the validation
- Name, telephone number, email address, and employer (if applicable) of the validation reviewer(s)
- Names and professional engineering license/membership numbers of all individuals and firms and the professional associations with whom they are registered
- Proof of appropriate insurance coverage for all individuals (Section 2.3)
- Names and functions of members of the validation team and validation reviewer(s) (i.e., validation team and validation reviewer roles), including justification of how experience and training requirements are met (Section 2.2)
- Description of the qualified validation firm’s complaints mechanism (Section 2.5)
Information respecting the validation
- Description of the objectives and scope of the validation
- Identification of the validation criteria
- Attestation of Independence Form (Appendix A)
- PDF copies of the completed Project KPI Workbook and CH-ITC Workbook included in the validation information package (including a PDF copy of each individual worksheet)
- Details of the validation evidence-gathering activities and their results, including the following:
  - Prior validation information packages
  - The results on
    - assessment of the data and information
    - assessment against the criteria
  - Description of the validation activities undertaken, including a list of specific activities and how they were executed.
  - Detailed assessment of the reasonableness of the expected CI given the assumptions, limitations and methods.
  - Record of the material discrepancies, omissions, and misreporting; and data gaps, identified during the validation, in the data, information or methods used in the preparation of the expected CI Clean Hydrogen ITC validation criteria (Sections 1.5 and 3.2).
  - Identification of
    - unresolved and resolved material qualitative validation findings, including the actions taken to resolve those findings and the evaluation of those actions and decision to accept them
    - unresolved and resolved material quantitative validation findings of omissions, discrepancies and misreporting or misstatements, including the actions taken to resolve those findings and the evaluation of those actions and decision to accept them
  - Assessment of the impact of
    - unresolved qualitative validation findings
    - unresolved quantitative validation findings of omissions, discrepancies and misreporting or misstatements on the expected CI
  - Any other additional information that that validator deems pertinent including results from the following activities
- Optional assessment of the Fuel LCA Model: the validator may evaluate the Fuel LCA Model to determine whether the model calculates an expected CI that reasonably represents the clean hydrogen project. This includes an evaluation of emissions, removal, storage, and calculation methodology (e.g., emission factors) used to create the Fuel LCA Model. If the validator chooses to assess the Fuel LCA Model, any outcomes of that assessment must not impact the validator’s assessment of the clean hydrogen project and therefore has no bearing on its validation opinion. Any outcomes from the validator’s assessment of the Fuel LCA Model will only serve to provide feedback to the intended user on the Fuel LCA Model.

Appendix C: Examples of Opinions in Validation Statements

C.1 Unmodified Opinions

An unmodified opinion can be issued when nothing has come to the attention of the validator that makes them believe there are material misstatements, and that the expected CI and validation information package have been prepared in accordance with the Clean Hydrogen ITC validation criteria, i.e., as set out in Sections 1.5 and 3.2 of this Guide. Names of individuals and businesses used in the following example are fictional, and any resemblance to actual people or actual businesses is purely coincidental.

C.2 Example of an Unmodified Opinion in a Validation Report

Basic Information
Title	Qualified Validation Firm’s Report
Addressee	Minister of Natural Resources
Addressee	580 Booth St Ottawa, ON Canada K1A 0E4
Taxpayer Name	ABC Company
Facility Name	Blackfalds Facility
Expected CI	We have examined the expected CI stated in the validation information package version 1.0 dated March 25, 2024, for ABC Company’s (the taxpayer) Blackfalds facility for the annual operational periods between Jan 1, 2026, to Dec 31, 2045. The validation information package asserts the below expected CI:
	Value (kg CO₂e/kg H₂)		0.76
	Period		Jan 1, 2026 – December 31, 2045
Version of Validation Information Package Used to Prepare the Report	Document Name		Validation Information Package
	Version Number		1.0
	Package Date		March 25, 2024
Previous Version(s) of the Validation Information Package and/or Clean Hydrogen Project Plan	Document Name		N/A
	Version Number		N/A
	Package/Plan Date		N/A
Validation Opinion by the Qualified Validation Firm
Opinion [We/I], the undersigned, hereby attest that to the best of our knowledge and belief and based on our examination of the evidence: The project is recognized as eligible under the Clean Hydrogen ITC according to the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2. The assumptions, limitations, and methods used in modelling and calculating the expected CI, including the process design, are reasonable. The expected CI is properly prepared based on the assumptions, limitations, and methods and is presented in accordance with the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2 (Clean Hydrogen ITC validation criteria). The monitoring plan will enable future verification of the actual CI of the hydrogen produced in each year of the compliance period. The validation information package is properly prepared and is presented in accordance with the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2 (Clean Hydrogen ITC validation criteria). We believe that the validation evidence obtained is sufficient and appropriate to provide a basis for our opinion.
Validation Personnel
The validation personnel listed below are responsible for the preparation of the validation report based on the evidence collected. All individuals who have contributed to the validation have completed the Attestation of Independence form that is appended to this report. Detailed information regarding how each individual meets the experience and training criteria for their role in the validation is provided in the “Additional Information” section.
Name	Role	Relation
Morgan Usman	Team leader	Employee of qualified validation firm
Chris Hang Sung	Process modelling specialist	Subcontractor
Max Jones	Team member	Employee of qualified validation firm
Laurie Minks	Validation Reviewer	Employee of qualified validation firm
Validation Activities
Validation activities were carried out in accordance with Section 3.4 of the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document to assess the following: Recognition of the clean hydrogen project and clean ammonia, if applicable Reasonableness of the project design Expected CI calculation Monitoring plan Reporting In addition to the required evidence-gathering activities listed in Section 3.4 of the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document specific validation activities included: Comparison of operational efficiencies with similar facilities Comparisons of anticipated emission rates specified by the manufacturer to the LCA model for the following equipment: XXX XXX XXX Parametric analysis of CI values based on potential equipment substitutions Uncertainty analysis of CI values based on currently specified measurement devices
Key Validation Matters and Matters of Emphasis
Key Validation Matters Extrapolations for the period 2026-2044 are linear, flat line extrapolations. The following equipment has a lifespan of ten years and will need to be replaced. It is unknown at this point the performance characteristics of the replacement equipment: Electrolyser stack
Matters of Emphasis The forecast relies heavily on the assumption of consistent facility efficiencies over the 2026-2045 period. CI values are likely to be elevated during the facility startup period until optimal facility efficiencies are obtained. This has not been captured in the expected CI value calculation but is considered reasonable given that startup operating conditions are not typically modelled in FEED and that the compliance period is not expected to start until after the startup period is complete. Output and emissions assumed a constant market demand.
Taxpayer and Validator Responsibilities
Taxpayer Responsibilities The taxpayer was responsible for ensuring the following are in accordance with the Clean Hydrogen ITC validation criteria, i.e., Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2: Project conforms to the eligibility requirements of the Clean Hydrogen ITC; Reasonableness of the project design; Preparation of the expected CI value calculation including the assumptions, limitations and methods; Preparation and fair presentation of the validation information package; and Preparation of the monitoring plan to enable calculation and verification of actual CI
Validator Responsibilities Our objectives were the following: Evaluate the reasonableness of the assumptions, limitations, and methods used to estimate the expected CI Respond to other requirements of the clean hydrogen project plan based on the information in the validation information package as described above Issue a validation report that includes the validator’s opinion Actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected and the variation may be material.
Validator and Validation Reviewer Sign-off
Validation Statement The qualified validation firm, validation team and validation reviewer(s) are qualified and competent to perform validation activities, and meet all requirements specified in the Clean Hydrogen ITC validation criteria, i.e., Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2.
Validation Team Leader	Name	Morgan Usman, P.Eng.
	Location	Halifax, NS
	Date	November 26, 2024
	Signature	Morgan Usman
Validation Reviewer Statement I have reviewed and assessed the qualifications and other requirements of the qualified validation firm and the validation team. I have reviewed the validation process, evidence, assumptions, compliance, and CI values, and agree with the conclusions of the validation team.
Lead Validation Reviewer	Name	Laurie Minks, P.Eng.
	Location	Sydney, NS
	Date	November 30, 2024
	Signature	Laurie Minks

Additional Information

The additional information section will likely comprise most of the report, and the content will vary based on the facility type and the need for additional information. Validators are given significant latitude as to the content in this section. The suggested structure is shown in Appendix B.

C.3 Modified Opinions

Modified opinions are given when there is no material misstatements identified in the validation information package but there is the potential for misstatement in the future, or a lack of evidence beyond the control of the taxpayer and appropriate for the state of project development (e.g., the taxpayer intends to sell nitrogen from their air separation unit (ASU) as a co-product, which reduces their expected CI, but does not yet have a contract with an off-taker). A description of the departure and limitation and if any, adjustments that could be made in the validation information package should appear in the validation report. Names of individuals and businesses used in the following example are fictional, and any resemblance to actual people or actual businesses are purely coincidental.

C.4 Example of a Modified Opinion in a Validation Report

Basic Information
Title	Qualified Validation Firm’s Report
Addressee	Minister of Natural Resources
Addressee	580 Booth St Ottawa, ON Canada K1A 0E4
Taxpayer Name	ABC Company
Facility Name	Blackfalds Facility
Expected CI	We have examined the expected CI stated in the validation information package version 1.0 dated March 25, 2024, for ABC Company’s (the taxpayer) Blackfalds facility for the annual operational periods between Jan 1, 2026, to Dec 31, 2045. The validation information package asserts the below expected CI:
	Value (kg CO₂e/kg H₂)		0.76
	Period		Jan 1, 2026 – December 31, 2045
Version of Validation Information Package Used to Prepare the Report	Document Name		Validation Information Package
	Version Number		1.0
	Package Date		March 25, 2024
Previous Version(s) of the Validation Information Package and/or Clean Hydrogen Project Plan	Document Name		N/A
	Version Number		N/A
	Package/Plan Date		N/A
Validation Opinion by the Qualified Validation Firm
Opinion [We/I], the undersigned, hereby attest that to the best of our knowledge and belief and based on our examination of the evidence, except for the effects described below in the Basis of Modified Opinion section of our report: The project is recognized as eligible under the Clean Hydrogen ITC according to the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2. The assumptions, limitations, and methods used in modelling and calculating the expected CI, including the process design, are reasonable. The expected CI is properly prepared based on the assumptions, limitations, and methods and is presented in accordance with the Clean Hydrogen ITC validation criteria, i.e., the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2. The monitoring plan will enable future verification of the actual CI of the hydrogen produced in each year of the compliance period. The validation information package is properly prepared and is presented in accordance with the Clean Hydrogen ITC validation criteria, i.e., the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2.
Basis for Modified Opinion Our opinion is modified because: Nature of concern: We found the design of the clean hydrogen project to be preliminary and operating specifications, not specific equipment, were used to generate the CI value. Potential effect on expected CI value: We believe that this will have an immaterial effect on the CI value. Context: The modification is related to the timing of the validator’s work as the project is at FEED stage and has yet to determine the final equipment to be used for the project, which is appropriate for the current stage of project design. Otherwise, we believe that the validation evidence obtained is sufficient and appropriate to provide a basis for our opinion.
Validation Personnel
The validation personnel listed below are responsible for the preparation of the validation report based on the evidence collected. All individuals who have contributed to the validation have completed the Attestation of Independence form that is appended to this report. Detailed information regarding how each individual meets the experience and training criteria for their role in the validation is provided in the “Additional Information” section.
Name	Role	Relation
Morgan Usman	Team leader	Employee of qualified validation firm
Chris Hang Sung	Process modelling specialist	Subcontractor
Max Jones	Team member	Employee of qualified validation firm
Laurie Minks	Validation reviewer	Employee of qualified validation firm
Validation Activities
Validation activities were carried out in accordance with Section 3.4 of the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document to assess the following: Recognition of the clean hydrogen project and clean ammonia, if applicable Reasonableness of the project design Expected CI calculation Monitoring plan Reporting In addition to the required evidence-gathering activities listed in Section 3.4 of the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document specific validation activities included the following: Comparison of operational efficiencies with similar facilities Comparisons of anticipated emission rates specified by the manufacturer to the LCA model for the following equipment: XXX XXX XXX Parametric analysis of CI values based on potential equipment substitutions Uncertainty analysis of CI values based on currently specified measurement devices
Key Validation Matters and Matters of Emphasis
Key Validation Matters General equipment characteristics, not specific equipment specifications, have been used to quantify CI values. Extrapolations for the period 2026-2044 are linear, flat line extrapolations. Modification of the Opinion: The opinion has been modified due to the lack of details surrounding the process characteristics of key equipment. We believe the generic characteristics provided will yield a CI value that will not materially change; however, the precise CI value cannot be determined now because of a lack of detailed information.
Matters of Emphasis The forecast relies heavily on the assumption of consistent facility efficiencies over the 2026-2045 period. CI values are likely to be elevated during the facility startup period until optimal facility efficiencies are obtained. This has not been captured in the expected CI value calculation but is considered reasonable given that startup operating conditions are not typically modelled in FEED and that the compliance period is not expected to start until after the startup period is complete. Output and emissions assumed a constant market demand.
Taxpayer and Validator Responsibilities
Taxpayer Responsibilities The taxpayer was responsible for ensuring the following are in accordance with the Clean Hydrogen ITC validation criteria, i.e., Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2: Project conforms to the eligibility requirements of the Clean Hydrogen ITC; Reasonableness of the project design; Preparation of the expected CI value calculation including the assumptions, limitations and methods; Preparation and fair presentation of the validation information package; and Preparation of the monitoring plan to enable calculation and verification of actual CI
Validator Responsibilities Our objectives were the following: Evaluate the reasonableness of the assumptions, limitations, and methods used to estimate the expected CI; Respond to other requirements of the clean hydrogen project plan based on the information in the validation information package as described above; and Issue a validation report that includes the validator’s opinion. Actual results are likely to be different from the forecast since anticipated events frequently do not occur as expected and the variation may be material.
Validator and Validation Reviewer Sign-off
Validation Statement The qualified validation firm, validation team and validation reviewer(s) are qualified and competent to perform validation activities, and meet all requirements specified in the Clean Hydrogen ITC validation criteria, i.e., Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document, Sections 1.5 and 3.2.
Validation Team Leader	Name	Morgan Usman, P.Eng.
	Location	Halifax, NS
	Date	November 26, 2024
	Signature	Morgan Usman
Validation Reviewer Statement I have reviewed and assessed the qualifications and other requirements of the qualified validation firm and the validation team. I have reviewed the validation process, evidence, assumptions, compliance, and CI values, and agree with the conclusions of the validation team.
Lead Validation Reviewer	Name	Laurie Minks, P.Eng.
	Location	Sydney, NS
	Date	November 30, 2024
	Signature	Laurie Minks

Additional Information

Appendix D: Minimum Validation Records

The table below represents the minimum required validation records that must be retained by the qualified validation firm. Please refer to Section 3.6.2 for more requirements on record retention.

Administrative	Validation contract
Evidence	Inputs and outputs used to generate the CI value and the date of calculation, and their source Fuel LCA Model file used to calculate the expected CI value Versions of applications and ancillary materials (legislation, guidance documents, and workbooks) used to generate the reported information Copies of key documents from the validation information package (at minimum PFDs, and energy and material balances, and the monitoring plan) Calculations used to provide reported information Modifications made to the validated reported information during the validation, if any (i.e., any changes made to the validation information package based on the feedback from the validator) Notes from the validator’s assessment pertaining to Recognition of Clean Hydrogen Project (Section 3.4.2) Recognition of Clean Ammonia, if applicable (Section 3.4.2.1) Reasonableness of Project Design (Section 3.4.3) Uncertainty in CI calculation (Section 3.4.4.1) Expected CI calculation (Section 3.4.4) and GHG Inventory (i.e., sources, sinks, and reservoirs in the life cycle) Monitoring plan (Section 3.4.5) Reporting (Section 3.4.6) Notes, records and reports completed by the validation reviewer(s) and submitted to the validator All versions of the validation report

Administrative

Validation contract

Evidence

Inputs and outputs used to generate the CI value and the date of calculation, and their source
Fuel LCA Model file used to calculate the expected CI value
Versions of applications and ancillary materials (legislation, guidance documents, and workbooks) used to generate the reported information
Copies of key documents from the validation information package (at minimum PFDs, and energy and material balances, and the monitoring plan)
Calculations used to provide reported information
Modifications made to the validated reported information during the validation, if any (i.e., any changes made to the validation information package based on the feedback from the validator)
Notes from the validator’s assessment pertaining to
- Recognition of Clean Hydrogen Project (Section 3.4.2)
- Recognition of Clean Ammonia, if applicable (Section 3.4.2.1)
- Reasonableness of Project Design (Section 3.4.3)
- Uncertainty in CI calculation (Section 3.4.4.1)
- Expected CI calculation (Section 3.4.4) and GHG Inventory (i.e., sources, sinks, and reservoirs in the life cycle)
- Monitoring plan (Section 3.4.5)
- Reporting (Section 3.4.6)
Notes, records and reports completed by the validation reviewer(s) and submitted to the validator
All versions of the validation report

Appendix E: Uncertainty

E.1 Types of Uncertainties

To calculate uncertainties that reside outside the Fuel LCA Model, the following simplified techniques should be used to aggregate uncertainties to the final value.

There are four main categories of uncertainties:

Parameter
Model
Propagation
Scientific

These four categories of uncertainties can be linked to the data trail.

E.2 Parameter Uncertainty

Parameter uncertainty is the uncertainty associated with the input (activity level) data. At the validation stage, parameter uncertainty is expected to be the largest source of uncertainty as the project will not yet be operating. Input parameter values are instead derived from the process model and project design and operational assumptions, which can include items such as fuel consumption, number of valve joints, electricity consumed, temperatures, and facility uptime.

E.2.1 Measurement Uncertainty

In the situation where the input data is measured, there are a variety of mechanisms that can be used to measure the phenomena, each with its own lower detection limits, resolution, and response rates. The characteristics of the mechanism determine, in part, the uncertainty in the parameter. In many cases, this uncertainty can be quantified and is usually published in the manufacturer’s specifications for the measurement device. It is important to understand that these specifications pertain to random errors and assume a normal distribution. There are situations that introduce additional uncertainty into the measurement device that are more related to operations than to the mechanism. This includes aspects such as exposure to vibration or extreme temperatures, phenomena conditions outside of the mechanism’s capability (e.g., shut down conditions, pulsatile flow, reverse flow). These uncertainties are difficult to quantify but can be seen in the measurement data if the influence is significant. There are also situations where a systematic bias is introduced into the measurement. This commonly occurs through a calibration error, setup error, or an install of inappropriate mechanism given the typical operating conditions (e.g., wrong sized Venturi flowmeter).

Unless there is evidence to suggest otherwise, the validator/verifier should use the manufacturer’s uncertainty as the parameter error. Measurement uncertainty tends to be the smallest of the uncertainties encountered in verification, and that is typically negligible in validation.

E.3 Model Uncertainty

A model is a representation of a real physical system. As with any model, there are often simplifications, assumptions, estimates, and limitations associated with the model. There are four key areas where uncertainty can arise in a model:

Model structure: Model structure uncertainties arise when there are multiple styles of models to choose from (e.g., material balance, energy balance, estimations from samples, etc.).

Model detail: Model detail uncertainties arise when the model oversimplifies a complex system (e.g., the use of the ideal gas law without error correction, biological carbon sequestration equations are typically oversimplified).

Extrapolation: Extrapolation uncertainty arises when the model is applied outside its normal application (e.g., many emission factors assume close to ideal operating conditions – 100% loading).

Model boundaries: Model boundary uncertainty occurs when a model is applied in a different situation (e.g., solar power generation at different latitudes).

Two key models are used to calculate expected and actual CI under the Clean Hydrogen ITC: the process model and the Fuel LCA Model. Model uncertainty associated with the Fuel LCA Model should not be considered in any uncertainty analyses, although any concerns with the Fuel LCA Model methodology should be noted in the “Additional Information” sections of validation or verification reports.

E.4 Scientific Uncertainty

Scientific uncertainty results from our incomplete understanding of the science surrounding the phenomena. This uncertainty is quite common in complex scientific areas such as climatology. Of primary concern is the Global Warming Potential (GWP) used to convert greenhouse gases into CO₂e (carbon dioxide equivalents). General agreement on the GWPs exists, and thus, this scientific uncertainty does not need to be accounted for in the overall estimate of uncertainty.

The Fuel LCA model considers scientific uncertainty; where values are dictated by the Fuel LCA Model or CI Modelling Guidance, the validator/verifier does not need to consider scientific uncertainty in their assessment.

E.5 Propagation Uncertainty

Propagation uncertainty does not introduce new uncertainty but appropriately allocates the disaggregate uncertainties into one final value. Propagation uncertainty arises when multiple parameters with uncertainties are combined, such as when values are added or divided.

There are two primary ways of propagating uncertainties: simplified and Monte Carlo (stochastic). Simplified assumes that the variables are uncorrelated, and that the standard deviation is less than 30% about the mean. Simplified uses three different rules depending on the mathematical function.

E.6 Simplified Uncertainty Equations

Sums and Differences

$q = x + ⋯ + z$

$δq = \sqrt{{(δx)}^{2} + \dots + {(δz)}^{2}}$

Multiply and Divide

$q = \frac{x \times \dots \times z}{u \times \dots \times w}$

$\frac{δq}{q} = \sqrt{{(\frac{δx}{x})}^{2} + \dots {(\frac{δz}{z})}^{2} + \dots {(\frac{δu}{u})}^{2} + \dots {(\frac{δw}{w})}^{2}}$

Power

$q = x^{n}$

$\frac{δq}{| q |} = | n | \frac{δx}{x}$

Appendix F: Data Sampling

The following is a description of various data sampling methods. These methods may be combined with one another.

F.1 Non-Probabilistic Data Sampling

F.1.1 Convenience Sampling

Samples are selected in an aimless, arbitrary manner with little or no planning involved. Convenience (i.e., haphazard) sampling assumes that the population is homogeneous: if the population units are all alike, then any unit may be chosen for the sample. An example of convenience sampling is selecting the last three months of invoices, which were at the top of the file folder. Unfortunately, unless the population is truly homogeneous, selection is subject to the biases of the verifier and whatever information happened to be available at the time of sampling.

F.1.2 Judgement Sampling

With this method, sampling is done based on previous ideas of population composition and behaviour. The verifier with knowledge of the population decides which units in the population should be sampled. In other words, the verifier purposely selects what is considered to be a representative sample. For example, the verifier chooses the months of February, May, August, and November relative to natural gas invoices for a subject that has seasonal variations.

F.1.3 Strategic Sampling

The sample is specifically selected because higher risks have been identified for a specific area (e.g., high risk of control failure, etc.). This technique is typically used when high-level analytics reveal a high or medium risk at a particular period and further details are required. Strategic sampling is commonly used in verification to confirm the detailed data in high-risk areas and verification documentation must connect the risk identified to the sample. For example, the verifier samples the produced hydrogen gas at the outlet of the hydrogen production facility to confirm hydrogen quantity, pressure and purity.

F.2 Probabilistic Data Sampling

F.2.1 Random Sampling

Random sampling is a selection method that ensures that every possible sample of size n has an equal chance of being selected. Consequently, each unit in the sample has the same inclusion probability.

Sampling may be done with or without replacement. Sampling with replacement allows for a unit to be selected more than once. Sampling without replacement means that once a unit has been selected, it cannot be selected again. In verification, most sampling is done without replacement.

Random sampling has several advantages over other probability sampling techniques, including it is simple, the only information that is required is a complete list of the population, and standard formulas exist to determine the sample size, population estimates and variance estimates. For example, the verifier may select 50 raw data points at random, collected using the project’s monitoring system corresponding to water flow rates delivered to the heat and electricity production system.

Verifiers tend to use random sampling when there is no apparent differentiating factors (e.g., risk or magnitude). Random sampling is rarely used in verification.

F.2.2 Proportional Sampling

Proportional sampling uses additional data, such as the contribution analysis, to vary the sampling. For example, assume that GHG sources have the following pattern of fuel consumption:

GHG Source		Fuel Consumption (L)	GHG Emissions (kg CO₂e)	Contribution (%)
Stationary Engine 1a		6,038	13,978.6	89.8
Stationary Engine 2a		198	458.4	2.9
Mobile Fleet	Transport Truck 45	24	55.6	0.4
	Transport Truck 53	58	134.3	0.9
	Forklift	387	895.9	5.8
	Material Handler	21	48.6	0.3
TOTAL		6,726	15,571.4

Proportional sampling would lead the verifier to sample in the proportion of the contribution.

F.2.3 Stratified Sampling

With stratified sampling, the population is divided into homogeneous, mutually exclusive groups called strata, and then samples are selected from each stratum. There are three main reasons for stratification: 1) to make the sampling strategy more efficient; 2) to ensure adequate sample sizes for specific domains of interest (e.g., emissions, product, or fuel type); and 3) to protect against drawing a ”bad” sample. Stratified sampling can be combined with other sampling techniques.

If each stratum is homogeneous, (e.g., the measurements or risk varies little from one unit to another), a precise estimate of any stratum mean can be obtained from a small sample in that stratum. In verification, a homogeneous strata usually constitutes a line-item that has the same risk of misreporting (i.e., inherent and control risks).

Stratification is particularly important in the case of skewed populations (i.e., when the distribution of values of a variable is not symmetric, but leans to the right or the left). For example, land areas for feedstock often have highly skewed populations, a few large establishments and many small locations. In such cases, a large establishment can exert a significant influence on estimates – if they happen to be selected in the sample, they can greatly increase the estimate, and if they are not selected, the estimate will be much lower. In other words, the large establishment can increase the sampling variability; therefore, such large establishments should be placed in a stratum by themselves to ensure that they do not represent other small locations.

Stratification is often used for operational or administrative convenience because it can enable the verifier to distribute work among its personnel or other outsourced verifiers. For example, if data collection is conducted along the LCA which crosses geographical boundaries, then stratification by location may be appropriate, in which case the outsourced verifier can be given their portion of the sample which occurs at a different location.

Stratified sampling usually connects to the risk of misreporting.

Appendix G: Sample Questions for Validators

The validators are encouraged to take the following sets of questions into consideration when validating a clean hydrogen project. This Guide reflects the ITA and the CI Modelling Guidance as they stand at the time of their publishing. The validator is ultimately responsible for assessing conformance with the correct versions of the published criteria.

This list is intended to provide examples of the types of questions that validators are expected to pose during the validation but is not exhaustive. The questions include some of the high-risk items, but validators are expected to ask many more detailed and project-specific questions as part of their validation.

G.1 Questions for Assessment of Clean Hydrogen Project Recognition

Examples of general questions that should be asked when validators are assessing whether the project may be recognized as eligible under the Clean Hydrogen ITC:

Does the project produce hydrogen via an eligible pathway (reforming or partial oxidation of eligible hydrocarbons with carbon dioxide captured using a CCUS process, or water electrolysis)?
If the project uses hydrocarbons as fuel or feed, does the project use eligible hydrocarbons with carbon dioxide captured using a CCUS process?
Does the project have an expected CI of less than 4 kg CO₂e/kg H₂?
If the project captures carbon that will be sequestered in dedicated geological storage, is the jurisdiction of dedicated geological storage a designated jurisdiction?
If the project captures carbon that will be used in the production of concrete, is the process for injecting captured carbon in concrete is a qualified concrete storage process?

G.1.1 Questions for Recognition of Clean Ammonia (if applicable)

A clean hydrogen project may involve production of clean ammonia that uses a feedstock of clean hydrogen produced by the project. Examples of general questions that should be asked when validators are assessing whether the ammonia could be recognized as clean ammonia under the Clean Hydrogen ITC include the following:

If the clean hydrogen project will produce ammonia, has the ability of the clean hydrogen facility to supply all of the ammonia facility’s requirements for hydrogen been adequately demonstrated in the validation information package (Section 5.3.1), including:
- Have references to the design and operating capacities of major pieces of equipment and a detailed justification if any major equipment in the ammonia facility will routinely be run at less than design capacity been provided?
- Are the runtime assumptions for both the hydrogen and ammonia facilities aligned, or is an explanation of the operating philosophy that reasonably accounts for any mismatch provided?
- Does the justification consider net clean hydrogen production capacity (i.e., the total hydrogen production capacity less any hydrogen that is consumed or lost within the hydrogen product system)? This requires clear reference to the design bases and energy and material balances of the hydrogen and ammonia production facilities.
Are the hydrogen and the ammonia production facilities co-located? If not, is the feasibility of transporting hydrogen between the hydrogen and the ammonia production facilities clearly demonstrated in the validation information package (Section 5.3.2)?

G.2 Questions for Assessment of Project Design Reasonableness

The taxpayer’s project design is the basis for the calculation of the expected CI and will be used to generate the inputs into the Fuel LCA Model, including the creation of the activity map and quantification of flows to be entered in the CH-ITC Workbook. Examples of general questions that should be asked when validators are assessing whether the project design is reasonable under Clean Hydrogen ITC:

Are the selection and application (e.g., appropriateness) of the method^{Footnote 23}, assumptions^{Footnote 24}, limitations and data^{Footnote 25} used in designing the process reasonable and how are they affected by complexity, subjectivity, or other risk factors (e.g., taxpayer bias, fraud)?
Based on the submitted project design documents, will the project produce the intended product(s)?
Are there any concerns with the location of the proposed facility (e.g., suitability of the site for industrial uses, availability of required services)?
Does the process connect logically from the inputs to the outputs?
Have the operating conditions considered site specific attributes (e.g., seasonality, geography, geology, logistics)?
Are the operating conditions reasonable given the design of the facility (includes variations in feedstock sources, if applicable)?
Has the facility been designed to survive the anticipated life of 20 years (this excludes consumables, repairs and replacements)?
Are the energy and material balances reasonable? Do the balances for key streams make sense and do they add up for the overall process?
Do the energy and material balances balance in sample (or extensive) confirmatory calculations?
Does the design include equipment that is suitable for the intended application?
Are the equipment and infrastructure sized appropriately to support the process in all its expected operating conditions? Are there references to the design and operating capacities of major pieces of equipment?
Are the KPI values provided for individual components (e.g., electrolyser), systems (e.g., cooling system), and/or the entire process (e.g., CCS facility) reasonable and do they fall within the range of KPIs for industry benchmarks?
Do the KPIs represent the clean hydrogen project (i.e., are the KPIs consistent with the balance of the project design documents)?
Are the process efficiencies reasonable compared to similar technologies?
Are the process parameters within the specifications of the process and equipment?
If the clean hydrogen project involves the production of clean ammonia, is there sufficient evidence that the net clean hydrogen production capacity (i.e., the total hydrogen production capacity less any hydrogen that is consumed or lost within the hydrogen product system) satisfies the needs of the ammonia production facility? This requires clear reference to the design bases and energy and material balances of the hydrogen and ammonia production facilities.
Are the process model and project design appropriate and do they provide enough detail to generate input data for the expected CI calculation? This includes the following:
- Was the process model developed by an appropriately experienced and licensed professional engineer or team of professional engineers?
- Was industry standard process simulation software used to develop the process model?
- Where necessary, was data from pilot plants or operating facilities used to develop or verify key process parameters?
- Are any assumptions used in the model reasonable (i.e., not overly optimistic)?
Is the degree to which the modelling is subject to uncertainty (Section 3.3.3.1.2) reasonable?
Are any calculations and modelling methods applied correctly and are they mathematically accurate?
Do the input and output specifications align with the sources and/or the equipment included in the process (e.g., source water or product purity)?
Has the facility’s electricity load been calculated correctly? Have parasitic losses been addressed appropriately?
Do any agreements for facility inputs/outputs support the stated inputs to the CH-ITC Workbook (e.g., does the bankable quantity of power (i.e., P50) sourced from solar PPAs align with the assumed input of solar power)?
Are any agreements for facility inputs/outputs with the correct entity (e.g., is the taxpayer and/or the partnership named on any contracts for the transport and storage of captured CO₂)?

Furthermore, in determining whether the input data for the CH-ITC Workbook are appropriate, the validator should examine the anticipated operating conditions and account for these variations in the CI modelling. Sample questions may include the following:

Does the equipment operate at different efficiencies depending on the operating load?
Does the fuel and feedstock material vary in composition from source to source?
Are there any major risks to predicted energy or material inputs (e.g., the project plans to procure feedstock or power from a facility that is not yet permitted or built)? How would the identified risk(s) impact the project?
Does the quality of hydrogen vary based on customer requirements or as a result of operational conditions?
Does the need for steam in adjoining processes change by season or other operational factors? If so, is that reflected in the process design?
Can the status of contracts that impact the expected CI (e.g., PPAs) change during the operational period?
Is the assumed on-stream factor reasonable given the nature of the facility?

G.2.1 Reasonableness of Hydrocarbon Reforming or Partial Oxidation Process (if applicable)

Does the project use commercially proven reforming or partial oxidation technology, and if not, has the taxpayer provided sufficient evidence that the technology can be successfully deployed at commercial scale?
Are project KPIs reasonable (e.g., methane conversion rate, CO conversion rate, hydrogen recovery rate from the PSA system or methanator), and do they fall within the range of KPIs for industry benchmarks?

G.2.2 Reasonableness of Electrolysis Process (if applicable)

Does the project use commercially proven electrolysis technology, and if not, has the taxpayer provided sufficient evidence that the technology can be successfully deployed at a commercial scale?
Are project KPIs reasonable (e.g., water consumption, total electricity consumption), and do they fall within the range of KPIs for industry benchmarks?

G.2.3 Reasonableness of CCUS Process (if applicable)

Is the design of the capture system suitable for the quantity and composition of gases considered to be captured in the CI calculations?
If captured CO₂ transportation and storage will be contracted:
- Do the quantities of CO₂ in the agreements/contracts align with the expected quantities to be captured from the facility?
- Do(es) the CCUS contract(s) and/or supporting document(s) provide sufficient detail to enable data monitoring of eligible utilization, transport and storage of CO₂ and its quantities, and does it detail the access and reporting for verification processes?^{Footnote 26}
If the project will sequester captured CO₂, is the storage capacity of the selected site adequate for the planned period of operation?
Are project KPIs reasonable (e.g., overall CO₂ capture rate), and do they fall within the range of KPIs for industry benchmarks?

G.3 Questions for Assessment of Expected CI Calculation

The validator must assess whether the expected CI has been calculated in accordance with the criteria, particularly the CI Modelling Guidance. Examples of general questions that should be asked when validators are assessing the appropriateness (e.g., selection and application) of the methods, significant assumptions and the data used by the taxpayer in making the calculation:

Have the correct temporal (i.e., first 20 years of operation) and physical boundaries (per the CI Modelling Guidance) been identified and used for calculating the expected CI?
When the exported Fuel LCA Model is run, is the expected CI equal to the expected CI stated in the Project KPI workbook?
Was the appropriate modelling approach (Simplified vs. Advanced) selected?
Has the CH-ITC Workbook been populated in accordance with the CI Modelling Guidance? This includes:
- Is the activity map reflective of the process design?
- Are the appropriate worksheets filled out and do they align with the activity map?
- Are all information fields complete, and do they have the appropriate level of detail?
Is the source of all input data for the CH-ITC Workbook clearly indicated?
Was the data sourced from the validation information package (e.g., energy and material balances, PFD, UFD) entered appropriately into the CH-ITC Workbook, and have the assumptions and side calculations been recorded with sufficient detail?
Are the unit processes and the interrelationships between them reflective of the project design, and are they in alignment with the CI Modelling Guidance?
Are flows correctly allocated between the hydrogen production system, other product systems (e.g., clean ammonia production), and unit processes?
Is the contribution of the electricity from a PPA to the expected CI calculated correctly and in alignment with the CI Modelling Guidance?
- Is the power from the PPA considered in proportion to the number of years for which the agreement will be in place during the first 20 years of the project’s operations?
- Is the source of electricity used in the model the same as the source stated in the PPA?
Is the quantity of hydrogen produced by the project reported on a mass of hydrogen basis, and is it adjusted to consider any hydrogen that is consumed in the production process according to the CI Modelling Guidance, if applicable?
Are the cut-off criteria used, and, if so, are they properly used and justified?
Is any captured carbon that is subject to an ineligible use (as defined in s. 127.48[1] of the ITA) considered to be released?
Are the CI calculation and modelling methods, significant assumptions and data appropriate in the context of facility operation and life cycle?
- Have the assumptions and side calculations been sufficiently documented in the CH-ITC Workbook?
Are the expected CI calculation and modelling methods applied correctly and are they mathematically accurate?
Is the calculated expected CI in line with the range of expected CIs for similar projects or processes (if calculated using the same approach)? If not, do any differences indicate unidentified sources of error or uncertainty?
Are the electricity and heat used in the process treated appropriately, particularly if they are exchanged between unit processes or exported?

The validator should also consider the uncertainties associated with the CI modelling. Examples of general questions that should be asked when assessing the expected CI uncertainty:

Are there any aspects of the validation information package that are at a higher risk of misstatement? Are these risks adequately identified and addressed?
Are there any parameters for which a slight change causes a significant change in the CI value (i.e., a non-linear relationship)? Does the natural range for this parameter materially impact the CI value? See sensitivity analysis, Section 3.4.1.
Are there any assumptions (e.g., eligible PPA) in the project design that would cause a quantitative material change to the expected CI value?
Are there any estimates, interpolations or extrapolations used in the project design or to calculate expected CI that:
- do not have a reasonable basis, or
- are overly subjective or complex^{Footnote 27} and introduce a large amount of uncertainty?

G.4 Questions for Assessment of the Monitoring Plan

Validators are required to evaluate whether the monitoring plan is sufficient and will enable future verification of the actual CI of the hydrogen produced in each year of the compliance period. Examples of general questions that should be asked when validators are assessing the monitoring plan include:

Does the monitoring plan make sense given the process and project design? For instance, are proposed measurement devices shown on the P&ID?
Does the monitoring plan enable future actual CI verification (i.e., does it enable calculation of actual CI)? For example:
- Does the monitoring plan clearly define which parameters are measured directly, which are calculated based on measurements, and how any calculations and data processing will be executed?
- Does the monitoring plan clearly identify the data sources required for each input to the CH-ITC Workbook that is needed to calculate the actual CI value?
- Does the monitoring plan identify appropriate measurement points to provide the required data?
- Does the monitoring plan consider measurement point locations (e.g., on-site at hydrogen production site or off-site by a third-party) and provide details concerning their access?
- Is the project designed with instrumentation and controls that will provide sufficient and appropriate measurements (e.g., instrument accuracy, sampling frequency)? Is the data collection and storage clearly defined and appropriate^{Footnote 28}?
- Does the project have an appropriate data management system(s)?^{Footnote 29}
Do any relevant contracts (e.g., PPAs, contracts for transportation and storage of captured CO₂) include appropriate arrangements for data reporting and access for verification? Are these arrangements captured in the monitoring plan?
Are the proposed data collection, data management system(s), and data controls reasonable for collecting and managing the data for calculation and verification of the actual CI value during the compliance period? For instance, will the planned period of data retention align with the timeline for verification?
Have any gaps or control deficiencies in the data trail for material inputs been identified to calculate actual CI value for compliance and verification?

When determining whether the measurements are appropriate, the validator assesses the location and equipment used to measure the data for the CH-ITC Workbook inputs based on the following:

Relevance: the device measures the correct activity level/flow information needed to calculate CI value or to govern facility operation
Accuracy: the deviation between the true and actual response over the anticipated range of measurements
Reliability: the probability that the device performs correctly during the period
Sensitivity: the ratio between output changes to input changes (denotes the smallest change for which a device can respond)
Stability: the ability to maintain a consistent measurement under different circumstances (e.g., vibration, cold, hot, etc.)
Uncertainty: the spread, or statistical dispersion, of the measurement
Integration: the ability of the device to automatic connect with operating and data management systems
Maintenance requirements: the need for calibration and other services to maintain function
Redundancy: availability of spare parts or alternative measurement equipment in the event of a failure
Failure modes: error modes and how they could affect the data

G.5 Questions for Assessment of Reporting

The validator will need to assess all documents in the validation information package to ensure the information has been presented in accordance with the criteria outlined in Sections 1.5 and 3.2. Examples of general questions that should be asked when validators are assessing the validation information package:

Are all required documents included with the submission of the validation information package (Section 3.3.2)?
Are the relevant design drawings properly annotated to show the source of information used to calculate the expected CI (Section 3.3.2.1).
Have all templates (e.g., CH-ITC Workbook, Project KPI Workbook) been completed according to the relevant guidance, including any fields for explaining the source of the information?
Is the presentation of information in the validation information package informative and not misleading?
Are any assumptions adequately disclosed in the validation information package? Is it clear whether the assumptions represent best estimates or hypothetical theoretical models?
When assumptions are made in areas that are material and are subject to a high degree of uncertainty or variability, has the uncertainty or variability been adequately disclosed?
Has the date as of which the expected CI values in the validation information package were calculated been disclosed? The taxpayer should confirm that the assumptions are appropriate as of this date, even though the underlying information may have been accumulated over a period.
Have the criteria relevant to the calculation of expected CI (e.g., Fuel LCA Model version, CH-ITC Workbook) changed since any prior version of the validation information package?
Have any criteria that could impact the eligibility of the project changed since any prior version of the validation information package?

Appendix H: Complete Monitoring Plan and Measurement Requirements

The monitoring plan outlines the detailed plan for collecting, processing, managing, and storing the data required to populate the CH-ITC Workbook for calculation of actual CI, and to complete the verification of actual CI for the Clean Hydrogen ITC.

The validator primarily assesses the monitoring plan during the validation for its completeness, appropriateness and design. The verifier primarily assesses the monitoring plan during verification for its functionality and compliance with the ITC. The validator may review a preliminary version of the monitoring plan, as discussed in Section 3.3.2.4, with the final version to be submitted to NRCan for review as an element of final detailed engineering designs. Key aspects to assess are whether data identified are complete (e.g., all inputs to CH-ITC Workbook have corresponding measurement points), if the measurements are of sufficient accuracy and frequency, if appropriate access and data reporting are contractually agreed for data from third party facilities (e.g., under a PPA), if the start of a data trail is correctly established, if the correct controls are established at key places at the measurement side of the data management system, and if these controls could function appropriately on implementation.

The validator’s assessment should include the effect of any deficiencies in the monitoring plan that impact the ability to provide complete and accurate future reports in future verifications. When a concern over a monitoring plan affects the ability to report in the future, the matter should be disclosed in the validator’s report (Section 3.5), the matter is material, and the validator shall issue the appropriate opinion. Validators use professional judgement in evaluating the monitoring plan, disclosing information, and rendering opinions.

Final design of the complete monitoring plan should include the sections listed below.

H.1 Description of Operations

This section of the monitoring plan should provide a description of the operations to be verified, including a description of the following:

Activities and processes of the operations
Geographical boundaries within which the operations occur
Technologies, facilities and infrastructure that are used to perform the operations.

H.2 Diagram of Operations

This section of the monitoring plan should provide a process flow diagram (PFD)^{Footnote 30} of the operations to be verified, that includes the following:

Material inputs (e.g., feedstocks)
Electricity and energy sources (e.g., electricity, fuel, thermal energy)
Intermediate products and final products of the operations
Mechanical and process equipment that is used to perform the operations; this may include the following:
- Hydrogen production units, such as electrolysers and reformers
- Combustion units such as boilers, furnaces, and engines
- Electricity-driven equipment such as fans, motors, and pumps
- Storage locations such as tanks, underground caverns, and geological reservoirs
Key process control instrumentation, including main sensors and measurement devices, that are used to monitor the operations and collect data required for actual CI calculation and verification
Sampling locations that are used to monitor the operations and collect data required for actual CI calculation and verification
Designation for each element of the flow diagram (e.g., PT-101, FT-203).

H.3 Description of Measurement Points

This section of the monitoring plan provides information on measurement points (i.e., measurement devices and data sources located on-site and off-site). This information should include the following:

Identification of measurement points:
- Measurement point description (e.g., flow meter type, analyzer type, description of grab sampling procedure)
- Measurement point designation (e.g., PT-101, FT-203)
- Measurement point device information, if applicable (e.g., make, model and serial number)
- Measurement point location and the reference document
- Measurement point characteristics, including units of measure, accuracy, lower detection limits, operating pressures and temperatures, measurement ranges, response times
- Measurement point device maintenance information, including the calibration method and frequency
- Frequency with which measurements are provided for the measurement point
Identification of inputs to the CH-ITC Workbook:
- Name of input tab (e.g., Hydrogen from HPS (H1, H2), Feedstock input [FD1])
- Name of input parameter (e.g., H1, FD1, FL1)
- Reference cells in the corresponding tab of the workbook

NOTE: Table H-1 in Appendix Section H.6 provides an example of the required information.

H.4 Description of Data Processing and Inputs to CH-ITC Workbook

This section of the monitoring plan describes the methodologies for processing the collected data and generating inputs to the CH-ITC Workbook to enable the calculation of actual CI. A detailed description of the data processing required to generate each input for the CH-ITC Workbook should be provided, including the following:

Processing methodologies:
- Collecting data points
  - taking direct measurements
  - using data from multiple measurement points to calculate inputs to CH-ITC Workbook
  - using data from measurement point(s) to estimate inputs to CH-ITC Workbook
- Identifying and treating data outliers (e.g., during ramp-up, shutdown)
Equations:
- Calculate flows in mass, volume or energy units of measurement
- Convert units
- Estimate non-measured parameters
- Aggregate data
- Estimate, interpolate or extrapolate data
Any software used to transform the data
Any statistical methods or techniques applied to transform the data

H.5 Description of Data Management System and Controls

This section of the monitoring plan provides a description of the data management system for management of the measured data for calculation of the actual CI. A description of the data management system can include the following items. A simplified data flow diagram may aid in describing the data management system.

Policies and procedures that ensure data quality control, including those that relate to the following:
- Data collection and measurement
- Reporting, including data processing for record-keeping for compliance and verification
- Maintenance, inspection and repair of continuous monitoring systems, process instrumentation for data collection and system control and equipment (process and laboratory), including procedures for deferring their maintenance and inspection
- Contingency plans in the event of a failure of a measurement device or a component of a continuous monitoring system
- Keeping of records, including the logbook of measurement device and laboratory equipment repair, calibration and replacement
- Training and certifications of key personnel responsible for the data management
- Frequency of sampling
- Laboratory procedures and methods of analysis
- Quality control program that is used by laboratories for grab sample analysis
Roles and responsibilities of personnel responsible for the data management system
Data management system design, including the information technology infrastructure and applications used to manage the data
Description of the data controls^{Footnote 31} and control locations, which should include the following:
- Simplified description of the control system; a control matrix may be useful
- Roles and responsibilities of personnel responsible for data controls
- Basis for data controls (i.e., automated or manually controlled); and if automated, documentation of the software used and any certifications
Frequency of control operations
Procedures for:
- Handling missing data
- Handling non-representative data (e.g., data generated during plant shutdowns or emergencies)
- Data back-up
Names of subcontractors or the software that are used to manage the data
Security methods and protocols to ensure data integrity

H.6 Measurement Point Information

Table H-1: Final Monitoring Point Information

Measurement (unit)	Measurement Reference Point (i.e., location on PFD, P&ID, or other source)	Minimum Design Specifications (e.g., accuracy, LDL)	Input(s) to the CH-ITC Workbook	Actual Device							Measurement Frequency
Measurement (unit)		Minimum Design Specifications (e.g., accuracy, LDL)	Input(s) to the CH-ITC Workbook	Type	Make	Model		Accuracy	Pressure/ Temperature Range	Maintenance	Measurement Frequency
Hydrogen production (m3/h)	FT 203 on P&ID #A3600-14-200	Accuracy: 0.10%	H1 (quantity) ‘Hydrogen from HPS (H1,H2)'!D75:D79	Ultrasonic	Emerson	Rosemount 3418	RM-29385-011	0.10%	-50 - 257 ⁰C 103 - 25,855 kPag	Weekly - visual inspection Six month - pipe cleaning	1s
Natural gas consumption (m3/h)	FT 103 on UFD #A400-10-001	Accuracy: 5%	FD1 (quantity) ‘Feedstock input (FD1)'!E91:E95 FL1 (quantity): ‘Fuel input for HP (FL1)’!E85:E89	Mechanical Wheel	Fill-Rite	901CN1.5	TPLE-348	2%	0-725 kPag	Annual inspection	Monthly
Hydrogen concentration (mol%)	GC 569 on P&ID #A3800-10-300	Accuracy: 1% LDL: 0.1%	H1 (purity): ‘Hydrogen from HPS (H1,H2)'!H75:H79	NDIR	ThermoFisher	PrimaPRO Mass Spectrometer	TFP124M-243	0.30%	0-40 ⁰C 50-100 kPag	Monthly automatic calibration	Continuous
Electricity from off-site solar generation at Swift Current solar farm via PPA* (MWh/year)	Verified annual quantities provided under PPA contract signed with company Y and dated on July 15, 2024	Accuracy: 1%	Ea (quantity): ‘Electricity input (Ea)’!D67:D72	* For third-party contracts (such as PPAs), this information may be provided in the contract documents.							Quarterly

Footnotes

Footnote 1

These definitions do not modify or supersede any of the definitions in s. 127.48(1) of the ITA or elsewhere in the ITA. Any paraphrasing within this Guide, of terms that are defined in the ITA, has been done for the purpose of brevity and does not constitute an interpretation of the ITA. Terms that are defined in the ITA are generally in bold when first used in this Guide and excerpts from the ITA are shown in italics.

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Footnote 2

See the following ITA folio for reference: Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length – Canada.ca

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Footnote 3

This is different than the level of confidence found in statistics.

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Footnote 4

Negative assurance provides assurance indirectly by stating that nothing problematic has come to the attention of the validator.

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Footnote 5

Positive assurance provides assurance directly by stating that the CI value is presented fairly, in all material respects, and is prepared in accordance with Clean Hydrogen ITC requirements.

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Footnote 6

The team leader must take an ISO 14064-3:2019 course; however, there is no requirement for the qualified validation firm to be accredited to provide ISO 14064-3:2019 services.

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Footnote 7

For example, performing critical LCA review as defined under ISO 14044.

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Footnote 8

Validation/verification reviewer is based on the role of independent reviewer as described in ISO 14064-3.

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Footnote 9

NRCan’s information sessions are offered at no cost.

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Footnote 10

Significant gifts are gifts that are over 0.1% of the validation fees.

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Footnote 11

Minimum required documentation to be submitted at validation.

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Footnote 12

The taxpayer shall file final detailed engineering designs with the Minister of Natural Resources by the earlier of the day on which hydrogen is first produced by the project and the day that is 60 days after the final detailed engineering designs are prepared (s. 127.48 of the ITA).

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Footnote 13

To be submitted at compliance and verification.

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Footnote 14

A method is a computational tool or process, sometimes referred to as a model, and involves applying assumptions and data and taking into account the relationships between them

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Footnote 15

Assumptions involve judgements on the choice of available information (e.g., crop yield rates, combustion factors, process efficiencies), or judgements about future conditions and events (e.g., operating conditions, implementation or expansion plans, market demand).

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Footnote 16

Data is information that can be obtained through direct observation or from a party external to the taxpayer. Information obtained by applying analytical or interpretive techniques to data is referred to as derived data when such techniques have a well-established theoretical basis and therefore reduce the need for judgement. Otherwise, such information is an assumption.

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Footnote 17

Controls in this context refers to the controls that ensure that the data used for calculating the actual CI value is complete, accurate, valid, and secure.

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Footnote 18

Information Systems Audit and Control Association’s (ISACA) Control Objectives for Information and Related Technology

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Footnote 19

UK Government’s Information Technology Infrastructure Library

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Footnote 20

Capability Maturity Model Integration

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Footnote 21

A tool for building guidelines and general principles for applying and maintaining information security management

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Footnote 22

Threats to independence can occur in cases where there is a risk of self-interest, self-review, advocacy, familiarity, intimidation, or economic implications. For further information and guidance about threats to independence, please refer to Section 2.4 of the Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document.

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Footnote 23

A method is a computational tool or process, sometimes referred to as a model, and involves applying assumptions and data and taking into account the relationships between them

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Footnote 24

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Footnote 25

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Footnote 26

There is overlap with assessment of the monitoring plan.

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Footnote 27

Complexity arises from the following:

Many dependent variables with many or non-linear relationships between them
Inputs that require multiple data sets
Inputs that are based on correlations rather than a cause-and-effect relationship
Data that is difficult to identify, capture, access, or understand

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Footnote 28

Not required for preliminary monitoring plan, but all missing information must be disclosed in validation report

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Footnote 29

Appropriate data management system in this context refers to the data management system that ensures that the data collected and used for calculating the actual CI value is complete, accurate, valid, and secure.

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Footnote 30

A piping and instrumentation diagram (P&ID) is an acceptable alternative to a PFD.

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Footnote 31

Controls in this context refers to the controls that ensure that the data used for calculating the actual CI value is complete, accurate, valid, and secure.

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Page details

Date modified:: 2024-09-04

Clean Hydrogen Investment Tax Credit – Validation and Verification Guidance Document

Contents

List of Figures

List of Tables

DefinitionsFootnote 1

Acronyms and Abbreviations

1 Introduction

1.1 Purpose of this Guidance Document

1.2 Background

1.3 Validation in the Clean Hydrogen ITC

1.3.1 Clean Hydrogen Project Plan

1.4 Verification in the Clean Hydrogen ITC

1.5 Criteria

1.5.1 Criteria Common to Verification and Validation

1.5.2 Fuel LCA Model and Associated Documents

2 Requirements for Qualified Validation Firms

2.1 Qualified Validation Firm Qualifications

2.2 Training and Experience Requirements for Validation Team and Validation Reviewer(s)

2.2.1 Validation Team

2.2.1.1 Validation Team Leader

2.2.1.2 LCA Specialist

2.2.1.3 Process Modelling Specialist

2.2.1.4 CFR Specialist

2.2.2 External to Validation Team

2.2.2.1 Validation Reviewer(s)

2.2.3 Clean Hydrogen ITC Specific Validation Information Sessions

2.2.4 Familiarity with Evidence-Gathering Activities

2.3 Insurance Coverage

2.4 Management of Independence and Arm’s Length Relationship

2.4.1 Arm’s Length Relationship

2.4.2 Threats to Independence

2.4.2.1 Self-Interest

2.4.2.2 Self-Review

2.4.2.3 Advocacy

2.4.2.4 Familiarity

2.4.2.5 Intimidation/Economic Implications

2.4.3 Requirements for Managing Circumstances of Threats to Independence

2.5 Complaints Mechanism

2.6 Maintenance of Records

3 Requirements Relevant to the Validation Process

3.1 Introduction

3.2 Validation Criteria

3.3 Pre-Validation

3.3.1 Validation Contract

3.3.2 Validation Information Package – Documents Required for Validation

3.3.2.1 FEED Study or Equivalent Study

3.3.2.2 Project Carbon Intensity Documents

3.3.2.3 Other Validation Documents

3.3.2.4 Monitoring Plan

3.3.2.4.1 Preliminary Monitoring Plan

3.3.2.5 Supporting Documents Acceptable at Validation

3.3.3 Materiality

3.3.3.1 Quantitative Materiality

3.3.3.1.1 Quantitative Materiality Threshold

3.3.3.1.2 Error vs. Uncertainty

3.3.3.1.3 Aggregation of Quantitative Material Items

3.3.3.1.4 Relative Error

3.3.3.2 Qualitative Materiality

3.3.3.2.1 Inadequate Disclosures

3.4 Validation Execution and Evidence-Gathering Activities

3.4.1 Sensitivity Analysis

3.4.2 Assessment of Clean Hydrogen Project Recognition

3.4.2.1 Recognition of Clean Ammonia (if applicable)

3.4.3 Assessment of Reasonableness of Project Design

3.4.4 Assessment of Expected CI Calculation

3.4.4.1 Uncertainty in CI

3.4.5 Assessment of Monitoring Plan

3.4.6 Assessment of Reporting

3.5 Validation Report

3.5.1 Validation Statement

3.5.2 Validation Opinion

3.5.2.1 Unmodified Opinion

3.5.2.2 Modified Opinion

3.5.2.3 Adverse Opinion

3.5.2.4 Denial

3.5.2.5 Disclosures

3.5.2.5.1 Key Matters

3.5.2.5.2 Matters of Emphasis

3.5.3 Additional Information

3.6 Validation Review and Record-Keeping

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