Emissions Reduction Fund—Natural Resources Canada

Opening Statement before the Standing Committee on Natural Resources

Emissions Reduction Fund—Natural Resources Canada

(Report 4—2021 Reports of the Commissioner of the Environment and Sustainable Development)

31 January 2022

Jerry V. DeMarco
Commissioner of the Environment and Sustainable Development

Thank you Mr. Chair. We are happy to appear before your committee this afternoon to present the results of our report on the Emissions Reduction Fund. I would like to acknowledge that this hearing is taking place virtually on the traditional unceded territory of the Algonquin Anishnaabeg People. Joining me today are James McKenzie, the principal who was responsible for the audit, and Sylvie Marchand, the director who led the audit and the team.

Greenhouse gases emitted by human activities are causing climate change around the world. Under the Paris Agreement, Canada committed to reducing its annual greenhouse gas emissions by 40% to 45% below 2005 levels by 2030. Canada has also committed to reaching net‑zero greenhouse gas emissions by 2050. Meeting these targets will require deep and real reductions in greenhouse gas emissions below the levels recorded for previous years.

In November 2020, the government launched the Onshore Program of the Emissions Reduction Fund, which was part of Canada’s COVID‑19 Economic Response Plan. The government saw the $675 million program as a way to help struggling companies in the energy sector deal with lower oil prices during the pandemic.

The audit focused on whether Natural Resources Canada designed and implemented the Onshore Program to achieve value for money and to ensure that the anticipated reductions of greenhouse gas emissions after 2023 would be credible and sustainable.

Overall, we found that the department did not design the program to ensure value for the money spent or credible and sustainable reductions of greenhouse gas emissions in the oil and gas sector.

When designing the program, the department did not apply greenhouse gas accounting principles or the concept of additionality—that is, that emission reductions should not be attributed to the program if they would have happened regardless, by complying with regulations. More than half of the total reductions targeted by the program had already been accounted for under the federal methane regulations. The department therefore misstated what the program could achieve.

The department indicated that one of the rationales for the program was to help maintain jobs in the oil and gas sector. However, we found that the department did not list job retention as an eligibility condition or an assessment criterion for funding decisions.

We found that the department assessed companies’ financial viability and added risk controls and monitoring for all companies. For example, the final contribution agreements included procedures to mitigate the risk of default and to help ensure that projects would be completed.

We also found that the department’s expectations for the 40 projects it had funded in the program’s first intake period were overestimated. For 27 funded projects, companies had indicated in their submissions that projects would increase oil or gas production. However, the department did not factor in the emissions from increased production into its estimations. Had they been accounted for, they would have lessened or even outweighed the emission reductions expected from these projects.

Lastly, the department did not fully assess value for money on the basis of the cost per tonne of reduced greenhouse gas emissions or the number of jobs maintained.

To help Canada achieve its national targets for reducing greenhouse gas emissions, Natural Resources Canada should make sure that its policies, programs, and measures are based on reliable estimates of the expected emission reductions.

We made 6 recommendations as a result of this audit. The department agreed with 4 and partially agreed with 2.

Mr. Chair, this concludes my opening remarks. We would be pleased to answer any questions the committee may have. Thank you.