Federal Government Launches $750-Million Emissions Reduction Fund for the Canadian Oil and Gas Industry

November 02, 2020

Written By Thomas McInerney, Sharon Singh, Parker Mckibbon and Kenryo Mizutani

On October 29, 2020, the federal government announced the launch of a $750-million Emissions Reduction Fund to reduce methane and GHG emissions. Administered through Natural Resources Canada, the Fund provides up to $675 million to eligible onshore oil and gas companies (Onshore Program) and up to $75 million to eligible offshore oil and gas companies (Offshore Program). The Fund aims to reduce methane emissions from the Canadian oil and gas industry by providing project financing for adoption of clean technologies.

The Onshore Program opened its first cycle of applications on October 29, 2020. The Offshore Program is expected to commence its application cycle sometime in November 2020. In this blog, we provide an update summarizing the background and the key features of the Fund.

Background

The Fund's launch is part of Canada's international commitment to achieve net-zero greenhouse gas (GHG) emissions by 2050 and exceed Canada's national targets under the Paris Agreement by 2030. The aim of the Fund is to increase the international competitiveness of the Canadian oil and gas sector, while also making Canada a key player in the international clean technology market.

Features of the Emissions Reduction Fund

According to the federal government, the Fund aims to: lower the cost of emissions reduction, maintain jobs, encourage research, development and demonstration (RD&D) in clean technologies, accelerate the transition to a low-carbon economy, attract investment, and increase global competitiveness. The Fund targets methane reduction in both onshore and offshore oil and gas projects.

Onshore Program

The federal government allocated $675 million to the Onshore Program. Any upstream and midstream oil and gas companies with projects that reduce or eliminate routine venting of methane from conventional, tight, and shale oil and gas operations are eligible to apply. Eligible oil and gas companies can apply for financing between $100,000 and $2 million, covering up to 75 percent of the total project costs. However, these projects are subject to a maximum level of total contributions from federal, provincial, territorial and municipal governments (stacking limit) of 90 percent of the total project cost, per company.

The Fund will provide financing for capital investments and RD&D aimed at reducing methane emissions. Successful applicants will receive a loan payable five years after the date of project completion, which may be used for multiple projects.

The Onshore Program has three rounds of application cycles. The first cycle opened on October 29, 2020, and is currently accepting applications until November 30, 2020. The assessment will take place in December 2020, and the federal government will initiate contribution agreements with successful applicants in early 2021. The second cycle is expected to open in January 2021, and an optional third cycle is expected later in 2021 if the Fund is not fully allocated. All financing is expected to be allocated by March 31, 2022.

Eligible oil and gas companies can apply on the Onshore Website.

Offshore Program

The Offshore Program has a total budget of $75 million, and targets methane emissions reductions through capital investments and RD&D in oil and gas projects in Newfoundland and Labrador.

The Offshore Program is comprised of:

1. the $42-million Offshore Deployment Program that supports capital projects designed to reduce offshore GHG emissions or improve the environmental performance of offshore spill monitoring, detection, and response activities; and
2. the $33-million Offshore RD&D Program that supports RD&D projects that advance de-carbonization in Newfoundland and Labrador's offshore oil and gas industry.

The Offshore Program will start accepting applications in November 2020.

Key Takeaways

This program presents a unique opportunity for offshore and onshore oil and gas companies with projects aimed at reducing methane emissions. Bennett Jones has extensive experience in energy development, major capital projects, and climate change. If you have questions regarding applications to the Fund or preparation for low carbon futures, please contact a member of our Climate Change practice.