Decarbonization Incentive Program: what you need to know

About the Output-Based Pricing System (OBPS)

The Output-Based Pricing System Regulations (OBPS Regulations) made under the Greenhouse Gas Pollution Pricing Act (GGPPA) establish the Output-Based Pricing System (OBPS).

The objective of the OBPS is to retain a price on carbon pollution that creates an incentive for emissions-intensive and trade-exposed facilities to reduce their emissions per unit of output, while mitigating the risks of negative effects on competitiveness caused by carbon pricing and carbon leakage, that is, the risk of industrial facilities moving from one jurisdiction to another to avoid paying a price on carbon pollution.

The OBPS sets an emissions limit for each facility subject to the OBPS (covered facilities). Facilities that emit less than their emissions limit earn surplus credits they can remit, sell, or hold for later use. Facilities that emit more than their annual emissions limit must provide compensation for the excess emissions.

By issuing surplus credits to facilities that reduce their emissions below their limit, the OBPS creates an ongoing financial incentive for facilities to reduce their emissions intensity.

For more information about the OBPS, please visit the Output-Based Pricing System page.

What happens to the proceeds collected under the OBPS

The Government of Canada has committed to return proceeds collected from the OBPS to jurisdictions of origin. Jurisdictions that have voluntarily adopted the federal OBPS can opt for a direct transfer of proceeds collected. Proceeds collected in other backstop jurisdictions (current or past) will be returned through the two program streams of the OBPS Proceeds Fund: the Decarbonization Incentive Program (DIP) and the Future Electricity Fund (FEF). Please see the Output-Based Pricing System Proceeds Fund for more information.

What happens to the proceeds when a province or territory implements a system that replaces the OBPS

The Government of Canada is committed to returning the proceeds collected from the OBPS to the jurisdiction of origin. If a province or territory implements its own carbon pollution pricing system and transitions from the OBPS to a provincial carbon pollution pricing system, DIP would continue to support any projects that have been approved for implementation in those jurisdictions. ECCC also intends to continue to offer programming in the jurisdictions where the OBPS is no longer in effect until all proceeds have been returned. Currently there are proceeds available for DIP project funding in Manitoba, Ontario, and New Brunswick.

How the Decarbonization Incentive Program (DIP) works

DIP is a merit-based program funded by proceeds collected from the Output-Based Pricing System (OBPS). DIP’s objectives are to incentivize long-term decarbonization of Canada’s industrial sectors and support Canada’s GHG emissions reduction goals. The program will support single or multi-year projects to accelerate the deployment of commercially available and proven low-carbon technologies and processes that will further reduce GHG emissions. Delivered by Environment and Climate Change Canada (ECCC), the program will be open to most facilities (with the exception of electricity generation facilities) covered by the OBPS.

Where the program is available

DIP is available in jurisdictions where the federal OBPS is currently in effect or has been applied in the past, and where programming has been established as the method by which OBPS proceeds would be returned. Currently, this includes Manitoba, Ontario (OBPS was in effect until December 31, 2021), and New Brunswick (OBPS was in effect until December 31, 2020). Please consult the program webpage for an up-to-date list of eligible provinces.

As of July 2023, DIP will no longer apply in Saskatchewan. The Government of Canada will ensure that all unallocated OBPS proceeds under the program are effectively returned to the province of Saskatchewan in support of decarbonization initiatives.

Who is eligible to apply for DIP

To be considered for funding under the program, applicants must:

• be legal entities incorporated or registered in Canada
• operate or have a controlling ownership stake in an eligible facility covered under the federal OBPS, located in one of the eligible provinces
• demonstrate they have the authority over the facility or asset to undertake the project

What is new about the second intake of DIP (DIP 2.0 intake)

Under the second intake, the program will allow all (private and public sector) eligible applicants to apply for a cost-share of up to 40% where previously the private sector was capped at up to 30%. In jurisdictions where funding is available, eligible applicants may apply for up to $25 million of project funding as part of the second DIP intake. Previously, applicants were able to apply for up to $10 million of project funding in the first DIP intake. These changes will be available to all eligible DIP applicants from Manitoba, Ontario and New Brunswick. Additionally, the DIP will no longer receive applications on a continuous intake basis. Applicants may submit during the intake period from August 8, 2023 from 9:00 am (ET), to October 6, 2023 at 5:00 pm (ET).

Where projects must take place

Projects must take place at an eligible facility that is or has been covered by the federal OBPS and that is also located in one of the provinces where DIP is delivered.

Currently, this includes New Brunswick, Ontario and Manitoba. For more information on eligible jurisdictions, please visit the Output-Based Pricing System Proceeds Fund.

Which facilities are considered eligible under DIP

Eligible facilities are those that are located within an eligible province and

• are or were a covered facility under Part 2 of the Greenhouse Gas Pollution Pricing Act, and
• do not generate electricity as their primary activity

Facilities that have opted into the federal OBPS voluntarily are considered eligible.

Facilities that generate electricity for own-use

Facilities that generate electricity for own-use – i.e., to support other facility activities – in whole or in part, are eligible to apply if they meet other program eligibility criteria. For example, industrial facilities (such as a facility with an integrated cogeneration unit) or institutional facilities (such as universities or hospitals with campus power plants) that generate electricity and use it to support their own on-site activities would be considered eligible.

Facilities that generate electricity for sale

Facilities that generate electricity for sale as their primary activity, regardless of the nature of the sale or client, and that do not use the electricity to support other activities under their own control, are not eligible for DIP. This includes utility electricity generation facilities or any other facilities that are primarily engaged in the generation of electric power for sale (i.e., those with a primary NAICS code of 22111) as well as standalone district energy system facilities that sell both electricity and heat or cooling services (i.e., those with a primary NAICS code of 22133). Facilities that sell a portion of on-site electricity generation to the grid (e.g., are net producers of electricity) would still be considered eligible as long as this is not the facility’s primary activity per the federal OBPS regulations.

How funds are allocated and how much money is available

The Government of Canada has committed to returning proceeds collected from the OBPS to jurisdictions of origin. DIP is one way in which proceeds will be returned. The available funding for the program is dependent on the amount of proceeds collected from OBPS regulated facilities within an eligible jurisdiction for a given compliance period.

DIP is only available in the provinces where the federal OBPS is in effect or has  applied in the past, and where programming has been established as the method to return OBPS proceeds. Currently, this includes New Brunswick, Ontario, and Manitoba,. For more information on eligible jurisdictions and their estimated proceeds allocations, please visit the Output-Based Pricing System Proceeds Fund.

Minimum and maximum amount of funding that can be requested for each project

Applicants to DIP should request between $500,000 and $25 million for each project, while respecting the cost-share limits described in Section 4.1.

Applicants may only access funds available in the province where their facilities are located. Please note that ECCC can only approve up to $25 million of funding per  fiscal year cycle (from April 1 of calendar year to March 31 of the following calendar year) per recipient regardless of the number of projects submitted or which intake they were submitted under.  Please visit the Output-Based Pricing System Proceeds Fund page for information on the estimated amount of funding available in each eligible province.

Cost-sharing for eligible projects

Under the DIP 2.0 intake, all eligible applicant types (private for-profit organizations, universities, hospitals, public sector bodies or boards and not-for-profit organizations) may request funding from the program for up to 40% of total eligible expenditures.

Number of applications per applicant

There is no limit to the number of applications that an applicant can submit; however, an applicant can only submit one project per application and it has to correspond to a single facility. Applicants who own or operate multiple facilities and wish to request funding for multiple projects would need to submit a separate application for each. Please note that the program can only approve up to $25 million of funding each Government of Canada fiscal year (from April 1 of calendar year to March 31 of the following calendar year) per recipient regardless of the number projects the applicant has submitted or which intake they were submitted under.  A recipient is a single facility that is or has been a covered facility under the OBPS.

Number of projects per application

While only one project can be submitted per application, multiple activity types may be approved under the same project provided they take place at the same facility.  These activities together are referred to as a "project" and will be evaluated together. A project is defined as a set of activities for which funding is being requested in an application.  This definition is descriptive, not prescriptive, and applicants may group unrelated activities at a single facility together into a single project if they prefer to do so. 

Utilizing a consultant to submit an application

Covered facilities may work with a consultant to submit a DIP project. While utilization of a consultant is permitted to support a DIP application, the project must occur at a covered facility that was or is subject to Part 2 of the Greenhouse Gas Pollution Pricing Act.

Combining DIP funding with funding from other federal, provincial/territorial and municipal programs

DIP funding may be combined with other funding from federal, provincial/territorial and municipal government up to a maximum of 75% of total project expenditures. When considering other funding sources, applicants are encouraged to determine whether stacking government funding sources is permissible under other programs.

Different programs set maximum thresholds for stacking, and ECCC would advise applicants to be mindful of these limits when applying for funding. ECCC will verify if the amount received from other sources are permissible under DIP and ensure that the cost-share maximum for DIP is respected.

Combining DIP funding with Low Carbon Economy Fund - Challenge

Stacking funding with the Low Carbon Economy Fund - Challenge, is not permitted. Applicants can apply to both programs, but an individual project will not receive funding from both the Decarbonization Incentive Program and the Challenge stream of funding.

Key differences between DIP and Low Carbon Economy Fund (LCEF) Challenge program

DIP programming is limited to facilities that are or have been regulated under the federal OBPS and are in one of the provinces where DIP is delivered. The LCEF Challenge program has a wider range of potential applicants and is open to applicants in all provinces and territories. The LCEF Challenge program also differs from DIP in the minimum funding requirements, stacking and cost-share percentages.

Please refer to the DIP Applicant Guide for more information on the Decarbonization Incentive Program second intake and the LCEF - Challenge website for more information on Challenge.

Other opportunities  

If a project is not selected for funding under DIP, other opportunities may exist. More information can be found from a variety of sources, including:

• Provincial and territorial programs funded by the Low Carbon Economy Fund : Provinces and territories that have announced programs funded in part by the LCEF Leadership Fund are listed in the “News releases” section of this website. Interested parties are encouraged to consult this page frequently as new announcements are added regularly. Provincial and territorial climate change websites may also have information about their programs.
• The Clean Growth Hub: The Clean Growth Hub is a concierge service for proponents looking for federal assistance at all stages of the innovation spectrum. Their website includes a comprehensive list of federal funding programs.
• Innovation Canada: Innovation Canada operates a helpful platform that assists proponents in finding solutions to a variety of funding and capacity-related needs.
• Natural Resources Canada: Natural Resources Canada maintains a directory of energy efficiency and alternative energy programs in Canada.
• The Our Environment portal: This ECCC page connects you to hundreds of online resources that can help you take action to fight climate change and protect the environment, including many funding programs. Select the type of organization for which funding is needed from the “Audience category” and select “Apply filter” to view other options offered by the Government of Canada.
• Net-Zero Challenge: The Net-Zero Challenge encourages businesses to develop and implement credible and effective plans to transition their facilities and operations to net-zero emissions by 2050.

Withdrawing an application after it has been submitted

Applicants under DIP have the opportunity to withdraw an application once submitted. If applicants wish to withdraw an application, they may contact program officials via email at fonds-stfr.obps-fund@ec.gc.ca.

Applications that are withdrawn may be edited and resubmitted. However, resubmissions will not be possible once the intake has closed on October 6th, 2023 at 5:00 pm (ET).

Amending an application after it has been submitted

It is the responsibility of the applicant to provide comprehensive, clear, and complete information when submitting their application (postal code, site address, NAICS code, etc.). Applicants will have the ability to review any section of the application throughout the process prior to submitting.

Essential information should be provided in response to questions in the Application Form or contained in the workbooks as required. If you identify incorrect information after submitting your application, please contact program officials at fonds-stfr.obps-fund@ec.gc.ca so that it can be addressed.

How long it will take for an application to be processed

After submitting your DIP application, you will receive an email notification advising you that your application has been received. ECCC will make every effort to notify applicants of the application results within 120 business days of the close of the second intake (DIP 2.0 intake). The applicant will be informed of any potential delays.

Process for unsuccessful applications

DIP does not have an appeal process for unsuccessful applications.   

How funds are disbursed  to successful applicants

Project approval itself is not a guarantee of federal funding. While successful applicants may begin incurring eligible expenditures after notification of approval-in-principle, they assume the responsibility for any project expenditures incurred prior to signing an agreement with the Government of Canada. After a funding agreement is signed,  semi-annual claims (at minimum) may be submitted to request reimbursement toward eligible expenditures. These should include receipts, invoices and any other relevant documentation for ECCC review. Following review and approval of the claim and accompanying progress report, ECCC will provide payment via direct deposit.

When successful applicants can start their project

Applicants should plan to start the project no earlier than April 1, 2024. Only eligible expenditures incurred following notification of approval-in-principal would be eligible for reimbursement. Please note that expenditures incurred before notification of approval-in-principle are at the applicant’s sole risk and expense, including  any expenditures related to contracts signed prior to this date. Additionally, project eligibility may be at risk if expenses have been incurred before notification of approval-in-principle. See Section 3.5 of the Applicant Guide for more information on project eligibility.

When successful applicants can start incurring eligible project expenditures

Only eligible expenditures incurred following notification of approval-in-principal would be eligible for reimbursement. Please note that such expenditures cannot be reimbursed until after the funding agreement is signed by the successful applicant and the Government of Canada. More information about the claim reimbursement process will be provided to successful applicants prior to the first deadline for submission.

Work that can be conducted prior to the signing of a funding agreement

It is expected that applicants may have undertaken some work to plan out the project, even to support project information provided in the application form. This early conceptual planning to scope the project, develop cost estimates, identify risks etc. can be completed prior to the signing of the funding agreement. Such activities would not render the project ineligible; however, costs incurred for these activities are not reimbursable by the Government of Canada. If you are undertaking studies, tests, or investigations (e.g., feasibility studies) such that the decision to proceed with the project is dependent on the outcomes, these must be completed before the application is submitted.

Any activities undertaken that indicate the project is already underway (e.g., purchase of key capital assets, commencement of construction etc.) will impact the eligibility of the project and result in withdrawal of funding for the project as a whole. Applicants are strongly encouraged not to sign contracts related to their project’s implementation until receiving notification of approval-in-principle.

Obligations to the Government of Canada after a project is completed

Successful applicants will be required to submit final documentation upon the conclusion of their project. This includes a final report and an attestation that their project has been completed, and that funds have been spent on eligible expenditures.

A performance report may also be required post-completion. Aswell, successful applicants may be selected for an audit, which could occur after project completion. The applicant will also be required to preserve and maintain all assets acquired throughout the project, and not to cede, rent or sell them for five (5) years following project completion. All recipient obligations will be described in the funding agreement.

Engaging or consulting Indigenous Peoples about a project

The duty to consult Indigenous Peoples is an obligation that rests with the Government of Canada and is triggered only if ECCC has identified that the proposed project might adversely impact constitutionally protected Indigenous and treaty rights.

To ensure that those affected are properly notified, consulted and where required, accommodated, applicants will generally be notified of the duty to consult prior to any approval-in-principle, though some exceptions may apply to more complex situations. These rights include, but are not limited to, the right to hunt, fish and practice traditional activities and ceremonies.

In cases where the duty to consult is triggered by a project proposed under DIP, ECCC may rely on assistance from the applicant in carrying out procedural elements of this obligation. For example, giving notice of their projects, holding meetings, gathering and sharing information, developing measures to mitigate potential impacts on Indigenous and treaty rights and interests of Indigenous Peoples. Project-related consultation activities resulting from the Government of Canada’s legal duty to consult are considered eligible expenditures under this program.

Contact us

Questions about DIP can be sent via email to fonds-stfr.obps-fund@ec.gc.ca. Please include your name, contact information, and the organization you are representing.