Q&A | DeMarco dissects Net Zero Accelerator fund's flaws

Environment Commissioner Jerry DeMarco says the government’s Net Zero Accelerator Initiative is not attracting the largest emitters, and the “vast majority” of the projects have “no written commitment to reduce a precise amount” of greenhouse gas emissions. DeMarco appeared before the Senate Energy Committee last week to discuss his spring audit of the program, which was created to disperse billions of public dollars to subsidize businesses' adoption of green technologies. The audit found that the government “did not track the Net Zero Accelerator’s overall value for money in reducing greenhouse gas emissions.” In the report, DeMarco took a crack at calculating the value for money of the program himself, and came up with a figure of $523 per tonne of reduced greenhouse gas emissions. That is significantly higher than the government’s own estimate of the social costs imposed by climate change—$294 per tonne—and the government’s price on carbon emissions via the federal fuel charge, which is currently set at $80 per tonne. He also found that it took participating companies an average of 407 hours to complete the paperwork required to apply for funding under the program. The Hill Times’ Peter Mazereeuw spoke to DeMarco about his findings, and the report released last spring. Listen to that episode of The Hill Times’ Hot Room podcast for the full interview. The following interview has been edited for length, style, and clarity. Can you give us the broad strokes of what the Net Zero Accelerator program is, and what it’s supposed to do? “We did an audit of the Net Zero Accelerator initiative earlier this year, and reported to Parliament on that. The program is essentially about helping heavy industry reduce greenhouse gas emissions in a way that helps Canada meet its 2030 target of 40 to 45 per cent reduction in greenhouse gas emissions compared to 2005, and also helps Canada on a pathway to hitting net zero by 2050. Essentially, it's a large fund that is dispersed under three different pillars to incentivize heavy industry in decarbonizing their operations.” This program has been allocated $8-billion by the government to be spent over a number of years, but you mentioned in your audit that the vast majority of that $8-billion has already been spent. “Most of it—nearly all of it—has already been committed to. It'll get disbursed in tranches. But you're right that, essentially, the key decisions on where this money is going have been made for the most part. There's just a small amount left that has not been committed to.” That $7.5-billion or so that's already been committed, it was committed to just 17 projects, right? “So 17 are the ones that already have an actual contribution agreement: signed, sealed, and partially delivered. So there are some others that there's a commitment, but they haven't yet reached an assigned contribution agreement. So we were only able to audit the ones that obviously had a full agreement. There are 17 of those, and we were disappointed to find that only five of those contribution agreements—which are essentially a type of contract … the government saying ‘we will give you this money, and we expect this in return’—actually had a commitment to reduce a precise amount of greenhouse gas emissions. So that was one problem, is that the vast majority of these projects have no written commitment to reduce a precise amount of emissions. That was one of the key findings in our audit … was certainly one that was of greatest concern.” I guess the idea is this is supposed to be a big bang for the buck … instead of funding a bunch of little projects. What kinds of projects are we funding here? “So ideally, in terms of bang for the buck and economies of scale, they would be attracting the big emitters because they're obviously the ones that are high emitters now, so that means they have the most ability to reduce their emissions and contribute to Canada's overall target. What we found is that the fund was not attracting the largest emitters for the most part. And that means that it was unlikely that they would get very many emissions reductions out of this fund because they aren't getting those big-ticket items coming into the in through the application process. So targeting large emitters and getting a big bang for the buck—as you call it—was the idea, but of those 55 large emitters that release at least one megaton of carbon dioxide a year, they only had two that had signed a contribution agreement by the time that we did our audit.” So most of these 17 projects, even though they're getting lots of money, these still aren't big emitters in the grander scheme of things? “The majority of them are not amongst the 55 largest emitters in Canada. Two of them are, but the others aren't. And then you can figure out that, well, if you aren't attracting the large emitters, then your biggest source of emissions reduction is missing from the calculation, and that that makes it a more costly program, because you're not using the money to get at the industries that can give you much larger emission reductions because of the scale of their operations.” What kind of operations are we talking about? “The two most prominent ones are in the steel manufacturing area. So the steel plant in Sault Ste. Marie, Ont., and the steel plant in Hamilton. Those are actually the two that are supposed to deliver almost all of the 6.2 megatons that are set out in the in the five contribution agreements that do include commitments to reduce emissions. Almost all of those are from those two projects in steel manufacturing, but there are other areas like aviation and so on that have received grants as well.” So 17 projects were funded, and you said 12 of them did not have to agree to use that money to reduce a precise amount of emissions. What did they have to agree to to get that money? “The contribution agreements vary. We were hoping—because the Net Zero Accelerator actually brands itself as and I'm using their words—‘we invite forward looking Canadian companies to contribute to Canada's global leadership efforts to meet its ambitious target of reducing greenhouse gas emissions by 40 to 45 per cent by 2030 and achieve net zero by 2050.' That's how they describe the fund themselves. We expected, in terms of bang for the buck, that we would see like quid pro quo. If the government's giving this money, then we would see a commitment to emissions reductions, but we didn't see that in 12 of the 17. It's understandable for some of them, because some of them are targeting more towards helping the 2050 net-zero target. And the investments in emerging technologies that might help by 2050, they're too hard to quantify now. Some of those might not work out at all if the technology doesn't bear fruit, and some of them may, but it's too far from now to determine how much of an abatement and emissions they will result in. “It's understandable that some of them didn't have precise amounts if they were funding long term technological change. That is not quantifiable now in terms of precise amount of emissions. But having said all of that, only five of the 17 having precise amounts. That was troubling, and essentially almost all of those emissions reductions being wrapped up in just two of the 17—the two steel plants that I mentioned earlier—it means that the vast majority of the contribution agreements are contributing very little to the 2030 target of a 40 per cent reduction in greenhouse gas emissions.” So this is the government giving away billions of dollars to businesses that are saying, ‘we'll take this money, and we'll spend it on something that we hope maybe will reduce emissions eventually’? “Well, I don't know if I would generalize it that far, but I would say that in terms of what they have committed to, which we calculated to be 6.2 megatons of carbon dioxide equivalent reductions, that's not a lot for an $8-billion fund. So that is partly the reason why several committees of the House and the Senate have asked us and the department to come in and talk about this issue because from a value for money point of view, it's concerning for sure.” The number you came up with in your audit was about $523 per tonne of emissions removed. How can we put that in context? Is $523 per tonne a good price? “Well, it's hard to put into context across everything relating to putting a price on carbon. If we just looked at the five that did have precise emissions reductions, then it's 143 per ton. But $523 is problematic because it's quite high. How would one compare that to some other benchmark? Well, probably the best comparator—and there's no perfect comparator—would probably be the federal government's social cost of carbon calculation, and that was updated this year. And what that attempts to do is to, from an economics point of view, internalize a lot of previously externalized costs to society and to those that are affected by greenhouse gas emissions. So that updated calculation is in the sort of $250, $260 per tonne range right now for carbon dioxide, and then there's a different number for methane and another and another number for nitrous oxide. “So if you're going to compare, that would probably be the best benchmark. But I should express this one caveat, that is that number changed quite dramatically this year when they updated the social cost of carbon to align with the essentially with the U.S. Environmental Protection Agency's own calculations. But it's still probably conservative, because it is very hard to model future extreme weather events, ocean acidification and other cumulative effects and so on from climate change. So it could even be that the updated number—even though it's quite a bit higher than the previous one—is still a conservative estimate, and that the social cost of carbon, if you could truly internalize all economic negative externalities, would be even higher than the $250 or $260 that they've come up with this year.” The department did not track the Net Zero Accelerator's overall value for money in reducing greenhouse gas emissions. Is that something that a department would normally do? “So value for money comes up quite often when a new climate mitigation program is launched or proposed. Sometimes it's in the regulatory impact statement. Sometimes it's in the materials associated with the program. For example, the oil and gas methane regulations—another very important part of Canada's emission reduction effort—that one had a cost per tonne of $71 per tonne of carbon dioxide equivalent. Reducing methane from landfills is very affordable. That one's only $5 per ton. So you see these low-hanging fruit ones that we're very happy to see progress being made on. But for these hard-to-abate industries like steel or aviation and so on, you can't expect a cost per tonne as low as it would be for methane, or some things where it's much easier to do to to abate the emissions. “It's not all comparing apples with apples. I mean, it's all carbon dioxide or carbon dioxide equivalent emissions. But no one would expect that the cost of switching a furnace for making steel will be in the same range as switching from heating oil to a heat pump in a house, for example, there'll be very different costs associated with them. Because Canada is trying to get to net zero, it needs to figure out ways of reducing emissions in every sector, even where it's going to be more expensive, like in heavy industry, or perhaps less expensive, for example, home heating or transportation.” Your report found it took the companies that did participate in this project an average of 407 hours to complete their applications. What were they being made to do? “That's the source of another of our recommendations in this is that if you're having trouble attracting the clients that you want—in this case, large emitters—they're not coming to the table. Having a process that is so cumbersome and lengthy is probably not helping the cause. So we do make a recommendation that the department make the review process more effective and efficient, but without compromising due diligence. We don't want them just to be writing blank cheques in the need for speed, for example. But there are ways of certainly making something more effective without making it so lengthy.” What are some of the best, easiest, most cost effective ways to remove greenhouse gasses from the atmosphere or from production? “So in terms of removing from the atmosphere, it's not economic yet for what's called direct air capture, which is to actually try to use a physical process to remove carbon dioxide from the atmosphere. The main removal sources now are natural sources—so trees, plants, plankton in the ocean, and so on. They bring in, they can take carbon dioxide out of the atmosphere and store it in biomass. In terms of what we need to work on the most—which is preventing greenhouse gasses from ever getting up there, as opposed to trying to figure out how to get them out of the atmosphere once they're up there. So prevention is the key. And then in terms of that there are, there's a need now on the pathway to net zero to look at all the sectors that need to reduce their emissions. “In Canada, the need to tackle emissions from oil and gas production and from transportation—just those two sectors account for more than half of our emissions, and there's an urgent need for there to be reductions in emissions from those two sectors. Because what's happened to date is they drown out a lot of the progress that's made on some of the lower hanging fruit—such as electric vehicles or changing coal plants to sources like renewables. Until Canada really gets a handle on those oil and gas emissions, it'll be very difficult to meet the 2030 target, let alone the 2050 net-zero target.” The Hill Times

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