Draft guidance for best-in-class GHG emissions performance by oil and gas projects

Official title: Draft guidance for the submission of information demonstrating best-in-class GHG emissions performance by oil and gas projects undergoing a federal impact assessment

Executive summary

On April 6, 2022, the Minister of Environment and Climate Change announced that new oil and gas projects that are subject to a federal impact assessment under the Impact Assessment Act (IAA) should have best-in-class greenhouse gas (GHG) emissions performance throughout their lifetime. While there can be many aspects to the determination of high-performing oil and gas projects, this guidance document focuses only on GHG emissions performance. For the purposes of this guide, best-in-class is the lowest level of GHG emissions intensity of oil and gas projects globally that are conducting the same activity as the proposed project: exploration, offshore production, onshore production, pipelines, oil refineries and heavy oil upgraders, natural gas processing, and liquefied natural gas (LNG) projects.

The International Energy Agency's Net-Zero Emissions by 2050 Scenario sees continued oil and gas use globally, but with demand declining significantly in the coming decades. In this context, demonstrating best-in-class emissions performance will help minimize Canadian GHG emissions while supporting the competitiveness of Canada's oil and gas industry, positioning it as a reliable energy producer in a low-carbon world.

This draft guidance outlines the information proponents of oil and gas projects undergoing a federal impact assessment should provide to demonstrate best-in-class GHG emissions performance. It also provides guidance to the Impact Assessment Agency of Canada, a review panel or an integrated review panel about assessing oil and gas projects against best-in-class considerations.

The approach is a refinement of the Strategic Assessment of Climate Change (SACC) and the Draft Technical Guide Related to the Strategic Assessment of Climate Change: Guidance on Quantification of Net GHG Emissions, Impact on Carbon Sinks, Mitigation Measures, Net-Zero Plan and Upstream GHG Assessment. It tailors the SACC's Best Available Technologies/Best Environmental Practices (BAT/BEP) Determination process to oil and gas projects, with a particular focus on advanced and emerging technologies and net-zero planning considerations.

The draft guidance outlines how, through the Impact Statement, a project proponent should:

• Identify the relevant best-in-class emissions performance by reference to the best emissions performance of leading projects globally (including in Canada) within the same activity as the proposed project. For the purpose of comparison, this includes the following activities:
  • exploration;
  • offshore oil or natural gas production;
  • onshore oil or natural gas production;
  • pipelines;
  • oil refineries, including heavy oil upgraders;
  • natural gas processing; and
  • LNG.
• Either:
  • demonstrate how and when (if needed, accounting for the timeline to implement key technologies) the project will achieve that best-in-class emissions performance; or
  • explain what the emissions intensity of the project will be and what circumstances or factors prevent it from achieving best-in-class emissions performance.
• Describe (through the BAT/BEP Determination process and the net-zero plan) how they will strive to ensure that the project will remain best-in-class over its lifetime.
• Demonstrate how the project is consistent with the overall economic transition to a low carbon-economy and how the project will remain competitive across a global low-carbon transition and net-zero scenario.

The guidance does not specify which technologies or practices should be used. Nor does it prescribe emissions or emissions intensity thresholds or targets.

Environment and Climate Change Canada (ECCC) welcomes comments on this draft guidance until December 3, 2022. ECCC expects to publish a final version of the guidance in early 2023.

Introduction and context

Introduction

This guidance document has been developed based on the direction provided by the Minister of Environment and Climate Change on April 6, 2022 that oil and gas projects subject to a federal Impact Assessment under the Impact Assessment Act (IAA) should have best-in-class emissions performance.

While the oil and gas sector has been successful in reducing the emissions intensity of its products, it continues to be Canada's fastest growing and top-emitting sector, accounting for approximately 179 Mt or 27% of the country's total greenhouse gas (GHG) emissions in 2020.^{Footnote 1}  Addressing emissions from the oil and gas sector is critical to the achievement of Canada's climate goals and international commitments, and vital to the sustainability and competitiveness of Canada's energy industry in a low-carbon world. As we move toward a global net-zero economy, it will also be important for Canada to become a supplier of choice for other non-emitting oil and gas products, such as in petrochemicals, waxes, lubricants and clean hydrogen.

Best-in-class is the lowest level of GHG emissions intensity of oil and gas projects globally that are conducting the same activity as the proposed project; namely, exploration, offshore production, onshore production, pipelines, oil refineries including heavy oil upgraders, natural gas processing, and liquefied natural gas (LNG) projects. For example, a proposed oil sands mining project would be compared with the emissions intensity of other onshore oil production projects both in Canada and internationally. Likewise, an offshore oil project would be compared with the emissions intensity of other offshore oil projects.

If emissions performance at the project’s outset cannot be best-in-class, proponents should describe what steps will be taken and when they will lead to best-in-class emissions performance.

This guidance builds on the analysis required by the Strategic Assessment of Climate Change (SACC), published in 2020. The SACC describes the climate change-related information that project proponents need to provide during the federal Impact Assessment process. It also requires proponents of projects with a lifetime beyond 2050 to provide a credible plan to achieve net-zero emissions by 2050.

This guidance is part of a suite of Government of Canada measures to reduce oil and gas sector emissions and to support the goal of net-zero emissions by 2050. These include:

• developing regulations to reduce oil and gas sector methane emissions by at least 75% below 2012 levels by 2030;^{Footnote 2}
• capping oil and gas sector emissions at current levels and reducing them at the pace and scale needed to get to net-zero by 2050;
• developing a common global standard to determine the emissions intensity of hydrogen production in collaboration with provinces, territories, businesses and governments globally;
• the Clean Fuel Regulations, which set increasingly stringent requirements on fuel producers and importers to reduce the lifecycle emissions intensity of gasoline and diesel; and
• providing various supports through programs to reduce the costs of significant decarbonisation investments within the oil and gas sector.

Objective and application

This guidance is intended to help proponents of designated oil and gas projects that are subject to a federal Impact Assessment under the IAA to demonstrate best-in-class GHG emissions performance. This guidance will also help the Impact Assessment Agency of Canada (IAAC or the Agency), a review panel or an integrated review panel in the assessment of designated oil and gas projects.

This guidance applies to oil and gas projects that are subject to a federal Impact Assessment under the IAA, as set out in the Physical Activities Regulations, including:

• exploration;
• offshore production;
• onshore production;
• pipelines; and
• processing facilities, including oil refineries, heavy oil upgraders, natural gas processing and LNG.

In addition, this guidance may be considered in the assessment of projects under the Canadian Environmental Assessment Act, 2012 (CEAA, 2012), and may also be adapted for projects on federal lands and outside Canada under the IAA, projects regulated by federal life cycle regulators, and regional assessments.

Overview

This guidance is a refinement of the SACC and the Draft Technical Guide Related to the Strategic Assessment of Climate Change: Guidance on Quantification of Net GHG Emissions, Impact on Carbon Sinks, Mitigation Measures, Net-Zero Plan and Upstream GHG Assessment^{Footnote 3}  (the Draft Technical Guide). It tailors the SACC's Best Available Technologies/Best Environmental Practices (BAT/BEP) Determination process and net-zero plan considerations, and adds specific information requirements for oil and gas projects.

Best-in-class is the lowest level of GHG emissions intensity performance of leading projects globally within the same activity as the project undergoing a federal impact assessment. Core principles^{Footnote 4}  in demonstrating best-in-class GHG emissions performance include:

• Prioritizing the reduction of direct GHG emissions and acquired energy GHG emissions by focusing on reducing energy and resource consumption at the source.
• Continuous improvement over the project lifetime as new technologies that are technically and economically feasible become available.
• As a last option for hard-to-eliminate GHG emission sources, considering the use of offset measures.

The basic approach outlined in this guidance is that project proponents should:

• identify the global best-in-class GHG emissions performance of projects within the same project activity;
• explain how and when the proposed project will meet the best-in-class emissions performance identified;
• describe any offset measures that will be used to achieve best-in-class emissions performance; and
• if the project will not achieve the identified best-in-class emissions performance, explain why not.

The guidance does not specify which technologies or practices should be used, nor does it prescribe emissions or emissions intensity performance thresholds/targets.

Consistent with the SACC, the best-in-class guidance and the plan to achieve net-zero emissions apply to the net GHG emissions associated with the project (refer to section 2 of the Draft Technical Guide). As outlined in section 3.2.2 of the SACC, some project proponents may be required to complete an upstream GHG emissions assessment. Even if such an assessment is completed, the best-in-class guidance does not apply to these upstream GHG emissions.

Guidance

Introduction

The SACC and the Draft Technical Guide outline a number of information requirements for proponents of all projects undergoing a federal Impact Assessment, including to:

• provide information regarding GHG mitigation measures that eliminate, reduce, control or offset the adverse effects of a project through the BAT/BEP determination process; and
• if the project will continue beyond 2050, submit a credible net-zero plan that will describe how it will achieve net-zero emissions by 2050.

This best-in-class guidance provides additional considerations that complement the SACC and the Draft Technical Guide. It outlines the information proponents should provide to demonstrate how and when the project will achieve best-in-class emissions performance – or alternatively, to explain why it will not be possible to achieve best-in-class emissions performance. These information requirements include:

• preparing the Impact Statement on the basis of the best-in-class principles outlined; and
• specific information requirements in the project comparison component of the BAT/BEP Determination process (step 5 in section 3.2 of the Draft Technical Guide), in which proponents identify and compare their project against the global best-in-class emissions performance of projects in the same project activity.

As a proponent-led process, the onus is on the proponent to provide the information outlined in this guidance.

Principles

Focus on emissions

• Consistent with the SACC, the project proponent should demonstrate how GHG emissions will be minimized over the project lifetime by reducing energy and resource consumption at the source, and prioritizing early emissions reductions as long as this is not at the expense of overall emission reductions.
  • Offset measures should only be considered as a last option once relevant technologies and practices are eliminated based on technical or economic considerations.
  • For projects that use equipment provided by a third-party that may be outside the care and control of the proponent but nonetheless occur within the defined scope of the project (e.g., vehicles or equipment used by contractors), proponents should describe how the best-in-class principles will be applied in these arrangements where feasible.

Continuous improvement

• If emissions performance at the project's outset cannot be best-in-class, proponents should describe what steps will be taken and when they will lead to best-in-class emissions performance, including the implementation of advanced and emerging technologies.
• Proponents should also describe how the project's emissions performance will continue to improve over time.
  • This description should include the steps to implement technically and economically feasible advanced and emerging technologies as they become available.
  • Proponents should identify the timing and circumstances under which periodic reviews would be undertaken, including a reporting program in which the proponent demonstrates progress in implementing their net-zero by 2050 plan (refer to step 5 in section 3.2 of the Draft Technical Guide for further details).
  • Projects should not rely on technologies that lock in capital stock for a period that is incompatible with net-zero by 2050.
• Where relevant, proponents should also identify opportunities for emissions reductions through collaboration across the sector (e.g., through partnerships among operators in a specific jurisdiction targeting opportunities for further emissions reductions).

Factoring in assumptions in demonstrating best-in-class

Proponents will inevitably need to make some assumptions based on the latest publicly available information when preparing the Impact Statement and in demonstrating best-in-class emissions performance. These assumptions could include, for example:

• the projected policy and socio-economic environment;
• the availability of infrastructure in the future (e.g., clean electricity); or
• projections on when the project will be able to adopt certain technologies that cannot be implemented at the project's outset, either because of the time needed to implement the technology (e.g., CCS/CCUS) or because the technology is not yet commercially available.

Proponents should provide clear descriptions of the assumptions they have made. This should include:

• a qualitative discussion of any assumptions (e.g., uncertainties associated with the lack of data or information on potential advanced and emerging technologies);
• providing supporting citations of these assumptions; and
• describing what will be done to reduce or mitigate the uncertainties or the sensitivity of the results to these assumptions, where relevant.

Proponents should review and update their net-zero plan over the project's lifetime through periodic updates that includes information about whether and how the project continues to achieve best-in-class emissions performance. This will allow the proponent to update the assumptions, integrate new knowledge, and account for technological developments.

Comparison with leading projects globally

Step 5 of the BAT/BEP Determination Process outlined in detail in the Draft Technical Guide involves comparing the proposed project with similar projects in Canada and internationally.^{Footnote 5} Best-in-class analysis entails an increased focus on this comparison, in which oil and gas project proponents must:

• Identify the global best-in-class emissions performance^{Footnote 6} based on a project's net GHG emissions of projects that are within the same project activity as the project undergoing a federal impact assessment.
  • Proponents should describe why the projects identified were suitable for comparison, outlining any project-specific considerations taken into account.
  • Proponents should describe any offset measures (including CCS/CCUS) used by the projects under comparison.
• Either:
  • Explain how the project will achieve the identified best in class emissions performance and how it will continue to do so over time as best-in-class evolves. Although the final comparison is based on net GHG emissions, proponents should first demonstrate how the project's direct GHG emissions and acquired energy GHG emissions compare with the projects under comparison;
  • or
  • Explain why the project cannot achieve best-in-class emissions performance at the project's outset and provide the timeline for achieving best-in-class emissions performance. This could include the timeline to implement large-scale technologies such as CCS/CCUS or the expected date when critical infrastructure such as access to clean electricity will likely be available.
• If best-in-class emissions performance can only be achieved in part through the use of offset measures, provide an offset plan that includes a description of the proposed offset measures that will be pursued, including the anticipated quantity of GHG emissions to be offset, the timeline for the impacts of the offsets, and the level of confidence about those estimates.
• If a project cannot or will not achieve best-in-class emissions performance, the proponent should provide an explanation about why it will not. 

Ability to incorporate new technologies and/or practices at a later date

While a project may be considered best-in-class at the time of the impact assessment, as emission reduction technologies evolve, the project may cease to be best-in-class. Proponents should make clear through the BAT/BEP Determination process and the net-zero plan how they will strive to ensure that the project will remain best-in-class over its lifetime (continuous emissions improvement).

Proponents should provide information in the Impact Statement on how the project design will be sufficiently flexible to incorporate new technologies and practices over the project's lifetime, including during periods of project maintenance or facility upgrades. In cases where proponents cannot provide information on integration opportunities, an explanation as to why not should be provided.

Some examples of integration opportunities could include:

• Designing the footprint of a facility to accommodate new equipment or energy sources if electrifying at a later stage.
• Compatibility of equipment (boilers, turbines, etc.) with cleaner fuels or higher blends of clean fuels such as hydrogen.
• The ability to integrate CCS/CCUS.
• An LNG facility that could be fully electrified or retrofitted to be such in the near future.
• LNG transport and storage facilities that could be compatible with a transition to hydrogen.

Proponents can refer to technical and economic feasibility considerations, and should identify and discuss the assumptions made in considering advanced and emerging technologies.

Consistency with the transition to a low-carbon economy

Building on section 5.1.3 of the SACC on the Impact of the project on federal emissions reduction efforts and on global GHG emissions, and on the information typically required through the Tailored Impact Statement Guidelines, proponents must provide the following information in their Impact Statement:

• An explanation of how the project may impact Canada's efforts to reduce GHG emissions and achieve net-zero emissions by 2050, if applicable (e.g., by replacing higher-emitting activities).  
• A description of how the project could impact global GHG emissions, if applicable.
  • Should the project not proceed in Canada, the Impact Statement could include an explanation with appropriate justification of, for example, the energy security risk if the project is not approved, among other considerations.
  • If the project may displace emissions internationally, the Impact Statement could describe and provide appropriate justification on how the project is likely to result in global emissions reductions (e.g. enables the displacement of high-emitting energy abroad with lower-emitting energy produced in Canada).
  • Project proponents could provide a more detailed explanation, including an appropriate justification and modelling (if available), of how the project could impact global GHG emissions.

In the transition to a low-carbon economy, proponents should avoid supporting activities and assets that could be at risk of becoming stranded from declining demand for the project's products. However, there is likely to be a need for products that come from traditionally emissions-intensive sources, including non-combustion products such as asphalt. Proponents can describe how the project enables producing such products.

In providing the information required in this section, and consistent with the SACC, proponents should, where applicable, identify supportive government actions that would enable the project to achieve best-in-class emissions, achieve net-zero emissions by 2050, and ensure that it is consistent with the transition to a low-carbon economy. For instance, proponents could outline how they may need enabling government support to access a grid intertie to use Canada's low-carbon electricity grid, or government actions to support small modular reactor deployment.

Review by the Agency, a review panel or an integrated review panel

As outlined in Section 6 of the SACC, Climate Change in the Impact Assessment Phase, the Agency, a review panel or an integrated review panel, with the support of expert federal authorities, will review, comment on and complement, as needed, the GHG and climate change-related information provided by project proponents in their Impact Statements.

Section 63 of the IAA details the factors that inform federal decision-making in the Impact Assessment of projects. When a proponent outlines how its project will meet the best-in-class emissions performance – or if not, why not – decision-makers will consider this information among the factors referred to in section 63. This would include the determination of the extent to which the effects of the designated project hinder or contribute to the Government of Canada's ability to meet its environmental obligations and its commitments in respect of climate change. Section 7 of the SACC, Climate Change in Decision-Making and Conditions, outlines how climate change information is factored into decision-making and conditions.

Next steps

ECCC welcomes comments on this draft guidance until December 3, 2022. Comments are to be submitted by email to: escc-sacc@ec.gc.ca

Following publication of this draft guidance and a review of the comments received, the final guidance is expected to be published in early 2023.