Appearance before the Standing Committee on Environment and Sustainable Development (ENVI) by the ADM of Innovation, Science and Industry - December 4, 2024

Table of contents

• Strategic Innovation Fund and the Net Zero Accelerator initiative
• Net Zero Accelerator Committee on Environment and Sustainable Development CESD/Office of the Auditor General of Canada OAG report
• Strategic Innovation Fund: Northvolt project
• Supporting Canada's automotive industry: Zero Emission Vehicles and Electric Vehicle battery investments
• CESD report 4: Strategic Innovation Fund's Net Zero Accelerator Fund initiative summary
• Appendix A: Letter to ENVI: May 21
• Appendix B: Letter to ENVI: June 8
• Appendix C: Letter to ENVI: September 26

Strategic Innovation Fund and the Net Zero accelerator initiative

Key messages:

• The Government of Canada is working to reduce greenhouse gas emissions by 40 to 45% by 2030 and achieve net-zero by 2050
• The Strategic Innovation Fund's $8 billion Net Zero Accelerator initiative is advancing Canada's climate goals by decarbonizing heavy emitters, supporting industrial transformation, and promoting clean technology development and the battery ecosystem
• The Net Zero Accelerator supports projects that will contribute to a low carbon economy, all while securing good, well-paying jobs, and helping businesses move towards a net zero future
• The NZA is playing a role in shaping Canada's future economy for decades to come and supporting a path towards a net zero economy by 2050

Supplementary messages:

• The Strategic Innovation Fund (SIF) is a key tool for the Government of Canada to both support innovative research and development (R&D) projects and to attract and secure large, transformation projects
• Since the launch of the SIF Net Zero Accelerator (NZA) in 2021, SIF has committed close to $5 billion across 23 projects. Companies have committed to create or maintain 36,067 jobs and create 14,570 co-op positions. They also have research and development commitments totaling $4.5 billion (as of May 10, 2024)
• Through SIF, the government has supported the development of promising technologies such as small modular reactors, nuclear fusion, carbon capture and sequestration, next generation aircraft, and many more. These innovative projects will help grow and transform the Canadian economy
• In addition, SIF has supported flagship electric vehicle battery projects that will help transform the Canadian auto sector and critical mineral projects that will bring more of Canada's resources online
• SIF has also invested in projects to support reduction of greenhouse gas (GHG) emissions in our steel and aluminum industries and to make the world's largest future potash mine more sustainable

Background:

The Strategic Innovation Fund's (SIF) Net Zero Accelerator (NZA) initiative has three overarching priorities:

• Decarbonizing large emitting sectors
• Accelerating industrial transformation
• Advancing clean technology development and Canada's battery ecosystem

Budget 2021 provided $5 billion for SIF's NZA initiative, in addition to the $3 billion previously announced in Canada's Strengthened Climate Plan and funded through the 2020 Fall Economic Statement. This funding enables the government to provide up to $8 billion to secure good, well-paying jobs, and support projects with meaningful emission reductions that will give Canadian industries a competitive edge in a decarbonized global economy.

To help support the government's ambitious climate goals, SIF's NZA initiative will spur Canada's shift to innovative net-zero technologies and attract the large-scale investments needed to meet its goal of net-zero emissions by 2050.

The NZA contributes to Canada's 2030 climate goals and the reduction of GHG emissions by supporting heavy emitting industries by investing in large-scale decarbonization projects. For example:

• The NZA provided funding to support new production processes from Algoma Steel's Electric-Arc Furnace and Arcelor Mittal Dofasco's phase-out of coal-fired steelmaking in Hamilton, Ontario. Together these investments are expected to cut GHG emissions by more than 6 million metric tonnes per year by 2030 and make both companies more competitive in the low-carbon economy

Net Zero Accelerator Committee on Environment and Sustainable Development CESD/Office of the Auditor General of Canada OAG report

Key messages:

• The Strategic Innovation Fund's $8 billion Net Zero Accelerator initiative has made important contributions to Canada's climate goals by decarbonizing heavy emitters and reducing greenhouse gas emissions
• It has also supported the industrial transformation of our traditional industries and has promoted clean technology development and the battery ecosystem
• The Office of the Auditor General (OAG) report's assessment of value for money also narrowly focuses on short-term carbon reductions by 2030, overlooking the value of well-paying jobs for Canadians, and investments in groundbreaking transformational technology
• The department has ensured that Net Zero Accelerator administration processes align with international standards, support sound investment decisions, and incorporate the advice of greenhouse gas experts

Supplementary messages:

• The Government of Canada is actively working to reduce greenhouse gas (GHG) emissions by 40 to 45% by 2030 and achieve net zero by 2050
• The government is committed to using appropriate due diligence to ensure Net Zero Accelerator funding is securing good, well-paying jobs, meaningful emission reductions, and a competitive edge for Canadian industries in a decarbonized global economy
• The results achieved with the Strategic Innovation Fund and the NZA are contributing to shaping Canada's future economy for many decades, fostering clean growth, sustainable jobs, opportunities for students as well as small and medium-sized enterprises and raising the country's performance in research and development (R&D) and productivity
• The NZA contributes to Canada's 2030 climate goals and the reduction of greenhouse gas emissions by supporting heavy emitting industries by investing in large-scale decarbonization projects
• The NZA is funding projects that will achieve GHG emission reductions in the short term as well as investing in other projects that will establish a revitalized Canadian manufacturing base and enable the transition to a net-zero economy before 2050
• By establishing robust interdepartmental governance, including independent experts, the government has taken a horizontal approach, identifying investments that are contributing to our climate goals, while seizing innovation and economic opportunities
• Innovation, Science and Economic Development Canada (ISED) has adapted the NZA initiative along the way, using lessons learned to improve its processes and applicants' experiences

Background:

On April 30, 2024, the Commissioner of Environment and Sustainable Development, tabled in Parliament five Office of the Auditor General (OAG) environmental reports. One of these reports was an audit conducted by OAG to determine whether the Strategic Innovation Fund managed its NZA initiative to decarbonize manufacturing industries in accordance with Canada's climate goals and with due regard for value for money for Canadians.

The audit concluded that SIF did not effectively manage the NZA in accordance with Canada's 2030 climate goals or with due regard for the value for money for Canadians. ISED partially agrees with three of the recommendations and agrees with the other four.

The Departmental position is that the report's findings rest on a selective and partial view of the NZA's mandate, with a strong focus on the 2030 climate goal to reduce GHG emissions by 40%, which represents only half of the allocated funding to SIF, largely ignoring other stated objectives of the program, including investing in transformational technologies needed to reach net zero by 2050 and support for Canada's clean tech and battery sectors.

Furthermore, ISED disagrees that long processing times and assessments represent a design flaw in light of the complexities of many SIF NZA projects, and external factors which determine the rate in which project proponents claim eligible expenses.

The NZA has three overarching priorities:

1. Decarbonizing large emitting sectors
2. Accelerating industrial transformation
3. Advancing clean technology development and Canada's battery ecosystem

The NZA initiative accelerates activities to reduce greenhouse gas emissions, unlocks investments from companies by supporting projects that may not have otherwise been implemented, and promotes sustainable growth and stability for the Canadian economy.

While many of the projects funded through the NZA initiative are not expected to deliver direct short-term GHG reductions and therefore do not explicitly contribute to the NZA's GHG emission reductions target, these projects are necessary to enable long-term reductions and establish pathways to further decarbonize the economy and reach net zero by 2050.

The NZA contributes to Canada's 2030 climate goals and the reduction of GHG emissions by supporting heavy emitting industries by investing in large-scale decarbonization projects:

• For example, the NZA provided funding to support new production processes from Algoma Steel's Electric-Arc Furnace and Arcelor Mittal Dofasco's phase-out of coal-fired steelmaking in Hamilton, Ontario
• Together these investments are expected to cut GHG emissions by more than 6 million metric tonnes per year by 2030 and make both companies more competitive in the low-carbon economy

Strategic Innovation Fund: Northvolt project

Key messages:

• The Government of Canada is committed to supporting Northvolt to build a new end-to-end electric vehicle (EV) battery facility in Quebec
• Northvolt's parent company, Northvolt AB, filed for bankruptcy protection. Northvolt North America is not part of the filing and continues its operations
• The company has indicated it remains committed to the success of its project in Canada
• Northvolt's project will help position Canada as a global leader in the production of electric vehicle batteries and support the development of a sustainable domestic battery sector
• To date no support, in any form, has been disbursed to the company by the Government of Canada

Supplementary messages:

On Northvolt financial situation impact on its project in Canada:

• Northvolt AB is taking steps to streamline its global operations to reduce costs
• As part of its strategic review, the company is focusing resources on battery cell manufacturing capacity and on its three projects in Sweden, Germany and Canada
• As part of the filing for bankruptcy protection, the company indicated that the Canadian project would be delayed. The company has not specified any changes to its project scope in Canada. (As the federal government has not made any disbursement to Northvolt, ISED is not expected to be involved in proceedings related to the financial restructuring)
• The government will continue to monitor the situation closely to determine the impacts on the Canadian entity and its project
• As long as Northvolt has plans to build a factory in Quebec, the Government of Canada will continue to work with the company to find a path forward that works for all parties

Background:

On September 28, 2023, Prime Minister Trudeau and Minister Champagne announced a Strategic Innovation Fund investment of up to $1.34 billion dollars to Northvolt Batteries North America Inc. to help build a new end-to-end electric vehicle (EV) battery facility on land that spans Saint-Basile-le-Grand and McMasterville, Quebec.

Canada also announced its commitment to provide production support to Northvolt to mirror the incentives under the U.S. Inflation Reduction Act's (IRA) Advanced Manufacturing Production Credit, with the total amount of support depending on the level of production at the Canadian facility.

Government production incentives will apply only to the batteries that Northvolt produces and sells from its Canadian facility, in line with the conditions in previous agreements with other battery plants. They will be up to C$4.6 billion, of which one-third is to be paid by the Quebec government. This is commensurate with the US$35 per kWh for battery cells produced and sold, offered via the Advanced Manufacturing Production Credit (AMPC) in the U.S. Inflation Reduction Act (IRA). Canadian production incentives would be adjusted if any changes occur to the IRA.

On September 9, 2024, Northvolt announced it was taking initial steps to streamline its global operations to slow cash outflows. The company stated it would focus resources on battery cell manufacturing capacity whilst reducing costs in other areas of its business, namely halting a battery materials project in Borlänge, Sweden.

Until as recently as mid-November 2024, the company has had operational and quality issues impacting its production ramp up, with the company consistently missing internal weekly production targets. With the cancellation of a major contract with BMW earlier in 2024, the company has been producing cells mostly for truck maker Scania, as well as Audi and Porsche (all subsidiaries of major Northvolt shareholder Volkswagen Group).

On September 23, 2024, Northvolt announced that it will be laying off 20% of its workforce, including 1,600 employees across its three plants in Sweden.

Supporting Canada's automative industry: Zero Emission Vehicles and Electric Vehicle battery investments

Key messages:

• The Government of Canada is committed to the automotive industry's transition to electrification, while creating and maintaining jobs, promoting economic growth and enabling a shift towards a net-zero economy
• Federal and provincial government collaboration with industry has attracted over $40 billion in announced investments since 2020 to transition to electric vehicle (EV) production and to establish a battery supply chain
• These investments are expected to generate thousands of jobs and long-term growth in the automotive industry
• Recognizing Canada's efforts to develop an end-to-end battery ecosystem, in 2024 BloombergNEF reported that Canada has the strongest EV battery supply chain potential in the world

Supplementary messages:

• Canada has everything it needs to lead in the global zero-emission vehicle ecosystem: strength in automotive manufacturing, access to markets, talent, green energy, and critical minerals
• The Government of Canada has attracted electric vehicle and battery manufacturing investments through a number of initiatives, including the Strategic Innovation Fund, Special Contribution Agreements tied to production, and the Clean Technology Manufacturing and EV Supply Chain investment tax credits (ITCs)
• Plans relating to announced projects may be subject to change, which could include production delays
• Responsible risk-taking is an inherent part of supporting innovation in a competitive global economy

Background:

The Canadian automotive sector supports nearly 550,000 direct and indirect jobs, contributed $18 billion in 2023 to Canada's gross domestic product, and is one of the country's largest export industries. The sector is anchored by the presence of five automotive manufacturers:

1. Stellantis
2. Ford
3. GM
4. Toyota
5. Honda

The Government of Canada supports Canada's transition to electrified transportation. In 2022, Canada released its 2030 Emissions Reduction Plan, followed by Budgets 2022, 2023 and 2024, which proposed competitive measures to create jobs while fighting climate change.

Budget 2024 announced the Electric Vehicle Supply Chain investment tax credit (ITC) on the cost of buildings for businesses that invest in three supply chain segments:

1. EV assembly
2. Battery production
3. Cathode active material production.

This complements the Clean Technology Manufacturing ITC, which covers 30 percent of costs in new machinery and equipment used to manufacture or process clean technologies and extract, process or recycle critical minerals.

In light of the global transition to zero-emission vehicles (ZEVs), Canada has stepped up to compete for key investments to produce EVs, as well as batteries and battery components. The government has recently attracted large anchor investments in ZEV manufacturing as well as battery material processing, all of which stand to increase the supply of ZEVs and further encourage the industry's transition. Some of these investments include:

• Honda: $15 billion to create Canada's first comprehensive electric vehicle supply chain in Ontario, including EV, battery, and battery material manufacturing
• NextStar Energy (Stellantis/LGES): $5 billion for an EV battery manufacturing plant in Windsor, Ontario
• PowerCo: $7 billion for a cell manufacturing plant in St. Thomas, Ontario
• Northvolt: $7 billion to establish a battery manufacturing facility in Saint-Basile-le-Grand and McMasterville, Quebec
• Stellantis: $3.6 billion for EV manufacturing at its Windsor and Brampton assembly plants
• General Motors (GM): $1 billion for production of Brightdrop EV600 and EV400, electric light commercial vehicles, in Ingersoll, Ontario
• GM/POSCO: $600 million to produce cathode active materials in Bécancour, Quebec

While these investments establish the foundation for long-term growth, the automotive industry is facing short-term challenges due to several factors including the significant cost and time needed to transition to EV production, compounded by a slowdown in the growth of EV demand, which has resulted in companies globally revisiting their investments in EV and battery production. Consequently, as it is the case in other jurisdictions, timelines and manufacturing plans for some of the announced investments in Canada may be adjusted to ensure assembly plants are prepared for long-term success.

In August 2024, the Government of Canada announced a series of measures to protect Canadian workers and key economic sectors from unfair Chinese trade practices.

In addition to supporting these initiatives, the government is investing in public charging infrastructure, supporting consumer purchases and encouraging manufacturers to adopt clean technologies.

CESD report 4: Strategic Innovation Fund's Net Zero Accelerator Fund initiative summary

The Commissioner of the Environment and Sustainable Development's (CESD's) audit report "Report 4-Strategic Innovation Fund's Net Zero Accelerator Initiative – Innovation, Science and Economic Development Canada" was published on April 30.

Summary of CESD Conclusions

• The audit concluded that ISED did not effectively manage the initiative to decarbonize manufacturing industries in accordance with Canada's climate goals or with due regard for value for money for Canadians. Specifically, it found:
  • That ISED had difficulty attracting applications from large emitters. Of 55 emitters that emitted at least 1 megatonne of carbon dioxide equivalent in 2021 in Canada, only 15 applied to the NZA, and 2 signed a contribution agreement
  • That the lack of a horizontal industrial decarbonization policy needs to be addressed (by ISED and the Government)
  • That ISED had problems with the quality and reliability of some of its estimated greenhouse gas emission reductions for individual projects. ISED's calculations of anticipated greenhouse gas reductions for projects funded by the initiative did not always follow international standards, affecting the credibility of the department's calculations
  • That ISED did not apply sufficient requirements in the contribution agreements for equity, diversity, and inclusion to ensure that applicants would deliver concrete actions within a well-defined time frame (applicant requirements for equity, diversity, and inclusion were missing concrete metrics and deadlines)
  • That sometimes due diligence steps within the NZA initiative were not followed before funding approval
• The report noted that the department did not track the NZA's overall value for money in reducing greenhouse gas emissions. The CESD calculated that the cost to taxpayers for each tonne of greenhouse gas emissions reductions was $143 for the five NZA projects with precise emissions reductions or $523 once all NZA projects are considered
• It also stated that processes are lengthy and complex, with it taking an average of 407 hours for a company to complete an NZA application, and an average of 20 months for a company to complete the full process before signing the contribution agreement
• The report noted that there were $0.4 billion in uncommitted funds left to be allocated of the initial $8 billion in the Strategic Innovation Fund's Net Zero Accelerator initiative

Summary of CESD Recommendations

The CESD proposed 7 recommendations in the audit report:

• To ensure the timely decarbonizing of manufacturing industries, ISED, in collaboration with appropriate departments and agencies, should develop and implement a strategic horizontal approach detailing steps to reach Canada's climate goals. This approach should be coherent and comprehensive and target a limited number of key industries (large emitters) as a priority and then be extended to other industries at a later stage. As well, the department should ensure that the investment framework of the NZA aligns with this horizontal approach
• To make the NZA review process more effective and efficient, ISED should:
  1. analyze its internal review process for applications to optimize and streamline it without compromising the need for an appropriate level of due diligence, including for estimates of GHG emission reductions
  2. provide better engagement with the applicants by keeping them better informed of the status of their applications
• To make the NZA application process more efficient and effective, ISED should analyze how to better encourage large emitters to apply to the initiative, including assessing whether the design of the program is responding to their needs
• To ensure that the NZA's greenhouse gas reduction estimates are credible and add value for Canadian taxpayers, ISED should:
  1. improve the precision and consistency of the estimates of emission reductions by tracking and counting only those emissions that have a net reduction effect on the overall GHG inventory of Canada
  2. review its methodology to avoid overstating emission reductions, in accordance with international best practices
  3. set a new internal target of emission reductions for the Net Zero Accelerator
• To improve the quality of its estimated GHG emission reductions per project, ISED should be consistent in how it assesses projects and ensure that projects provide all the data needed for assessment and that project estimates follow international GHG accounting standards
• To ensure that ISED's reporting of GHG reduction commitments is accurate, the department should follow due diligence and complete the assessment for all projects before agreements are signed
• To ensure that the companies funded under the NZA deliver on diversity, equity, and inclusion for Canadians, ISED should, in future CAs, create:
  1. concrete EDI metrics
  2. targets with minimums to be achieved, along with concrete deadlines for minimum implementation by the end of the term period

Appendix A: Letter to ENVI: May 21

Natalie Jeanneault
Clerk of the Committee
Standing Committee on Environment and Sustainable Development
131 Queen Street, 6th Floor House of Commons
Ottawa, Ontario K1A 0A6
envi@parl.gc.ca

Dear Natalie Jeanneault:

Please accept the attached documentation from Innovation, Science and Economic Development Canada (ISED), in response to the motion adopted on May 7, 2024, by the Standing Committee on the Environment and Sustainable Development (ENVI), in which the Committee ordered the production of (i) the government's complete tracker tool used to measure the Net Zero Accelerator's progress and results; (ii) all internal Net Zero Accelerator targets set by the government, including the government's Net Zero Accelerator emission reduction target; and (iii) all complete contribution agreements signed, to date, for the Net Zero Accelerator, within two weeks of the motion being adopted.

Please be assured that in responding to the Committee's motion, ISED has aimed to maximize transparency. In this regard, please note that disclosure of sensitive business information without prior consent of the third party, including commitments found in signed CAs, would put the Government in violation of its contractual obligations and could prejudice partnered companies' competitive positions. Protecting confidential business information is important, demonstrates that Canada is a trustworthy business partner, and is critical in Canada's efforts to retain and attract investment. As members of the Committee would know, it has been standard practice over many years at the federal level for such highly sensitive commercial information to be safeguarded. ISED and its predecessor departments have always acted to protect confidential business information obtained during the negotiation of CAs, in line with legal obligations.

To contribute constructively to the Committee's discussion of the Commissioner of the Environment and Sustainable Development's (CESD) report, I would also like to share a few additional points to further understanding of the Net Zero Accelerator's (NZA) mandate, design, and associated performance measurement tools.

THE NZA'S MANDATE EXTENDS WELL BEYOND IMMEDIATE GREENHOUSE GAS (GHG) REDUCTIONS TO 2030, AND THESE ELEMENTS OF THE PROGRAM MUST BE TAKEN INTO ACCOUNT IN ANY ASSESSMENT.

The NZA, launched in 2020 with $8 billion in funding, is designed to balance near-term emissions reductions with long-term industrial transformation to net zero.

It supports Canada's strengthened climate plan, which has as its goal to reduce GHG emissions by 40% to 45% by 2030 and achieve net zero by 2050. The NZA has three overarching priorities to contribute to these twin goals:

• Pillar (1): decarbonizing large-emitting sectors.
• Pillar (2): accelerating industrial transformation; and
• Pillar (3): advancing clean technology development and Canada's

battery ecosystem.

In delivering the NZA, ISED has respected core investment principles, including building a balanced portfolio across all three pillars and collaborating with funding partners from both the public and private sectors to maximize the impact of federal investment.

While the audit focused mostly on the NZA actions under Pillar 1―i.e., investments to help large emitters decarbonize by 2030―the NZA mandate is, as noted, broader. Of the total program funding, $4 billion is dedicated to encouraging investments by large emitters to deliver direct emissions reductions by 2030, with the other $4 billion to supporting technological advancements to revitalize the Canadian manufacturing base and pave the way to a net-zero economy by 2050. A large number of program applications and signed Contribution Agreements fall under pillars 2 and 3. A full assessment of the NZA must look at the program in light of the totality of its design and operations.

The mandate of the NZA recognizes the importance of developing clean technologies and supporting the transformation of businesses and industrial sectors as part of the path to Canada's 2050 net-zero goals. Investments in Canada's battery ecosystem, for example, will play a critical role in the transformation of the auto sector. Investment in technologies to support the adoption of sustainable aviation fuel, together with R&D to develop hybrid electric and hydrogen aircraft, will be similarly critical for the aerospace sector.

Transportation accounted for 22% of Canada's GHG emissions in 2021, second only to oil and gas. That such investments will not yield immediate large-scale GHG reductions is to be expected. In the case of the aerospace investments, for example, they are by their nature innovation- and R&D-intensive, aiming to perfect technologies that may not yet even exist, but which will be critical for Canada's future green aviation industry.

The NZA is also reviewing and supporting transformative projects in the construction and building materials sector. This includes projects focused on producing low-carbon concrete and developing and manufacturing advanced materials designed to capture and significantly reduce GHG emissions. A notable example is the NZA's investment in Svante, which is developing technology and expanding its manufacturing facility to build equipment essential for carbon capture and storage. Investments such as this one have the potential to enhance the carbon capture and storage capacities needed by hard-to-abate sectors such as cement, steel, and oil and gas, significantly contributing to Canada's trajectory toward net-zero emissions by 2050.

REDACTED

A CONSERVATIVE, INDUSTRY-STANDARD ASSESSMENT SHOWS AN ESTIMATED

11 MEGATONNES (MT) IN GHG REDUCTIONS FROM SIGNED PROJECTS; REDACTED

The NZA is committed to delivering strong value for money by driving substantial GHG reductions and generating significant economic benefits for Canadians.

According to the Office of the Auditor General, Environment and Climate Change Canada (ECCC)―through its national economic environmental modelling conducted for the 2030 Emission Reduction Plan―estimates the NZA will reduce GHG emissions by 19–20 MT by 2030. REDACTED

As will be discussed later, the NZA follows a robust assessment process to arrive at GHG reduction estimates for projects. This process employs recognized international standards for GHG accounting and draws input from multiple federal and

private-sector experts. As a general rule, the assessment process errs on the side of conservatism where the applicable GHG standards allow for judgments to be made about expected emissions reductions. For projects signed to date, across all pillars, estimates developed through this process show expected emissions reductions of roughly 11.2 MT.

The breakdown of expected reductions is as follows:

• Projects under pillar 1, including Algoma Steel's Electric-Arc Furnace and Arcelor Mittal Dofasco's phase out of coal-fired steelmaking, are expected to bring a total of 7.2 MT in reductions.
• REDACTED

Beyond the signed projects, REDACTED We therefore anticipate further reductions as we allocate remaining NZA funding.

At this time, for other signed projects under Pillar 2 and Pillar 3, the GHG reductions are indirect, upstream or downstream, and therefore cannot be quantified (for example, the investment is into components or technologies that themselves are integrated into cleaner manufacturing processes or are in research and development initiatives). While all of these projects were evaluated for their potential to contribute to a net-zero economy using a qualitative assessment, their primary purpose―aligned with the NZA's design, as discussed earlier―is to support our 2050 goals. Therefore, the CAs do not include GHG reduction commitments in the immediate term.

What is more, where the NZA has been able to assess meaningful GHG reductions as the result of a project, the CAs include language that imposes consequences if minimum reduction thresholds are not met. In other words, companies have to repay part of the contribution in line with the severity of the shortfall. The thresholds at which these consequences kick in are noted in the chart at Annex A. As you will note, the minimum level of accepted GHG emissions reduction is set lower than what the conservative modelling predicts for each project. This is because the consequences for a breach can be severe, and firms can face challenges in the marketplace―for example, to secure other financing for their project―if there is too much uncertainty. That said, ISED stands by the assessment estimates as robust and indicative of the expected reductions for each project.

BEYOND SUPPORTING THE PATH TO NET ZERO, THE NZA HAS SECURED SUBSTANTIAL ECONOMIC BENEFITS FOR CANADA – MORE THAN 36,000 JOBS AND $4.5 BILLION IN R&D.

Beyond the environmental benefits, all NZA investments are also fostering substantial economic activity. Since the launch of the NZA, companies have committed to create or maintain 36,067 jobs and create 14,570 co-op positions. They have also made research and development commitments totalling $4.5 billion. All values are as of May 13, 2024. NZA investments in groundbreaking transformational technology will not only help Canadian businesses and industrial sectors to achieve the country's net-zero goals out to 2050, they are also creating well-paying jobs for Canadians today.

NZA OBLIGATIONS ARE CLOSELY TRACKED, AND REPAYMENT IS LINKED TO PERFORMANCE.

To ensure compliance with contractual obligations and performance standards, monitoring and tracking of GHG reductions is conducted through progress reports and the Annual Performance Benefits Report. This report collects the data that allows the program to provide the public with an overview of its performance. (See Annex A for more information on the progress of the NZA initiatives.

GHG METHODOLOGY IS RIGOROUS, FOLLOWING TWO INTERNATIONAL STANDARDS AND RELYING ON EXTENSIVE REVIEW AND INPUT FROM GOVERNMENT AND PRIVATE-SECTOR EXPERTS.

ISED is committed to providing accurate and consistent GHG reduction estimates and adhering to international standards and best practices. Recognizing the importance of continuous improvement, the Department will implement changes as international standards evolve and new methodologies emerge. We commit to ensuring that our GHG assessments remain robust, transparent, and contribute effectively to Canada's climate goals.

The NZA adheres to two well-known international GHG accounting standards, namely ISO 14064 (part 2) and the GHG Protocol for Project Accounting. ISED collaborates closely with ECCC in its work. Each NZA project undergoes a full GHG assessment during due diligence, applying these standards, with negotiated reduction targets included in CAs where appropriate. These efforts are supported by a working group of federal experts and external consultant engineers, certified in GHG project-based accounting, to inform sound investment decisions. Applying these standards requires a degree of judgment and the ability to make informed assumptions in response to sometimes incomplete information; these judgments are not made outside of the standards but are consistent with them. The working group has made a concerted effort to address methodological issues as they become apparent, and it ensures a consensus on estimates is reached on every project. Importantly, the working group selects the more conservative estimate when choices arise.

All projects from large emitters have undergone a consistent quantitative assessment.

Meanwhile, a qualitativeassessment process was developed for projects under pillars 2 and 3 where GHG reductions were indirect or downstream, as explained earlier. After being refined, this qualitative assessment has since been applied to all NZA projects on a forward-looking basis

See Annex B for further details on our GHG methodology and measurement.

MULTIPLE LARGE EMITTERS ARE IN DUE DILIGENCE FOR AN NZA INVESTMENT.

ISED has engaged extensively with large emitters to promote potential NZA support for their decarbonization projects.

Predecessor programs to the NZA administered by ISED were largely focused on the manufacturing sector in areas such as automotive, aerospace, and life sciences. In contrast, both the Strategic Innovation Fund and NZA are sector agnostic, open to all industries across Canada. Recognizing that many of the largest emitters are in sectors traditionally outside of ISED programming, the NZA made a concerted effort to outreach to large emitters, in sectors such as electricity generation and oil and gas. Of particular note, ISED launched its Call to Action (CTA) for Large Emitters in March 2022 in an explicit effort to attract applicants to the NZA from the most emissions-intensive firms in the country. This included, in May and June 2022, holding four workshops with roughly 40 industry representatives to encourage industry to come together around high-impact and transformational projects that could help to decarbonize entire value chains and address systemic barriers. As a result of the CTA, the NZA received applications from 39 companies, 16 of which were among Canada's 55 identified largest emitters.

In contrast to many of the investments in NZA pillars 2 and 3, projects involving the large-scale decarbonization of existing brownfield facilities are generally much more complex to secure. These are not R&D projects to advance a future technology; they are typically large capital projects to enable an existing business to dramatically cut its emissions in the short term, while remaining financially viable in an existing competitive market.

As a consequence, a firm's decision-making generally rests on multiple factors well beyond NZA financial support. Barriers to a final investment decision can include high upfront costs coupled with low project maturity, risks associated with adopting new and still developing technologies in an evolving competitive market, fluctuating costs for materials and labour, and long-term policy and regulatory certainty considerations.

Beyond the REDACTED Pillar 1 deals already executed, REDACTED. ISED continues to engage industry to address barriers, and the ongoing interest and quality of projects in the pipeline show progress is being made, and that the NZA's projected overall impact remains quite strong.

PROJECT REVIEW TIMELINES ARE APPROPRIATE FOR THE SCALE OF INVESTMENTS, AND THE NZA IS OFTEN ONE OF THE EARLIEST INVESTORS AT THE TABLE.

ISED recognizes the need to operate at the speed of business, and the Department is committed to efficiency and streamlining of procedures, while maintaining the high standard of due diligence required for projects with the technical complexity, risks and costs that are funded under the NZA.

Given that the average NZA contribution per project exceeds $200 million and has ranged as high as $700 million, validating project details is essential to ensuring value for the taxpayer's money. This process involves intergovernmental reviews; detailed evaluations of a company's financial and management capabilities; liaison with other potential investors (including government partners), as the NZA is typically only one among other players in the capital stack; and ensuring strategic alignment with the overarching priorities of the NZA.

There has been an unfortunate suggestion that it takes an extremely long time for companies to initiate and complete their application form. This is a gross mischaracterization of the NZA intake process: the process is iterative, with companies typically having multiple engagements with the Department before their application is deemed complete. The program's insistence on solid due diligence is no different than what would be expected of an investment bank or any other large financial institution, when it is preparing to make a possible investment into the hundreds of millions of dollars, often as one investor among a broader syndicate of other players.

In ISED's experience, the NZA is often one of the first potential investors or pioneers in the technological space being considered for a project, sending an important market signal to others. At the same time, being first to the table generally means that the NZA is not the rate-limiting step determining whether a project proceeds. As the CESD's own audit indicates, of the projects announced under the CTA, more than half had not yet completed their feasibility studies.

The time between the signalling of interest by the NZA program and the final execution of a CA can be indeed lengthy, but in the case of large and complex GHG reduction projects, such delays have never to our knowledge been on account of the program's pace. Companies typically have other hurdles to overcome on such large projects before they are in a position to finalize an agreement with the NZA. This includes lining up other investors; working through regulatory, legal and tax considerations; finalizing front-end engineering and design work; and/or working through internal decision-making within the company, oftentimes involving a global board of directors examining similar projects in other jurisdictions and wanting to see a full picture of all options before deciding.

See Annex C for more information on our due diligence and monitoring processes.

CONCLUSION

I trust this letter and the attached materials meet the Committee's satisfaction. Please rest assured that ISED is committed to continuing to enhance program delivery and working with partners to help Canada meet its climate goals. ISED believes that the NZA plays a pivotal role in driving Canada's transition to a net-zero economy, supporting both immediate and long-term emissions reduction goals, and that the program has been well managed, with robust and well-documented processes and results.

With my best regards,

Simon Kennedy
Deputy Minister of Innovation, Science and Economic Development

Appendix B: Letter to ENVI: June 8

Natalie Jeanneault
Clerk of the Committee
Standing Committee on Environment and Sustainable Development
131 Queen Street, 6th Floor
House of Commons
Ottawa, Ontario K1A 0A6
envi@parl.gc.ca

Dear Natalie Jeanneault:

On behalf of Innovation, Science, and Economic Development Canada (ISED), I would like to acknowledge the Standing Committee on the Environment and Sustainable Development's motion of June 4, 2024, whereby the Committee ordered the production at least three days prior to June 11 of: (i) complete and unredacted signed contribution agreements and (ii) fully unredacted term sheets, to date, for the Net Zero Accelerator, to be viewed by the Committee and their staff in-camera. We also note the Committee's order for the government's "fully unredacted and unrestricted tracker tool" used to measure the Net Zero Accelerator's progress and results, also to be viewed by the Committee and their staff.

Allow me to begin by assuring Committee members of both our desire and intention to comply with the request for these documents. As noted in the Department's earlier submission to the Committee, we believe that ISED has exercised rigorous and appropriate diligence in the execution of projects under the NZA and that the documents requested will underline this fact. At the same time, as our staff have noted in discussions with you, the specific framing of the Committee's order puts the Department in a difficult bind, and we would respectfully ask for the Committee's consideration of the constraints that ISED faces and of our proposed alternative approach to satisfying the demand for documents, discussed further below.

As a practical matter, it will not be possible to ready all of the material in both Official Languages within the very short timelines demanded. Each NZA contract comprises―at a minimum ― of 80 pages, with a good deal of the text made up of legal language. ISED will not be able to produce what amounts to thousands of pages of technical, contractual language in French and English in the space of a few days. We have begun translation of the documents and believe we can have a number of them ready by the June 15 deadline, but it will be physically impossible to have all the material ready at once. We would propose that material be provided sequentially instead as it is ready.

Secondly and equally challenging, while ISED understands its duty to respond to Committee requests, as noted in our earlier letter, the Department also has binding legal obligations it must consider to the various third parties with which it has signed contribution agreements. These parties provided to the Department their confidential and private business information for the purposes of executing the contracts. Some of this information could be damaging to their legitimate business interests if not properly protected. This information was provided on the express understanding that it would be kept confidential and that its release would be only in accordance with the law. I want to underline that there is nothing novel about ISED's practice in this regard: It is in keeping with the practice of federal departments and agencies when handling sensitive information, whether commercial business information or the private information of individuals. Indeed, ISED has always provided similar assurances under predecessor programs to the SIF-NZA, which were administered by previous governments of all stripes going back many decades.

We are obligated by contract to consult with these third parties prior to any release of their confidential business information and, in limited circumstances, to make redactions to protect their legitimate business interests. To do otherwise would not only violate our obligations, it would do potentially irreparable harm to Canada's reputation as an honest and trustworthy actor in its dealings with third parties. Our ability to enter into good faith due diligence processes with third parties and ultimately contractual relationships depends upon our ability to provide assurances that confidential third-party information will be treated confidentially. The future ability of the Department to pursue the policy interests of any elected government would be impaired if it could not provide such assurances.

REDACTED.

We are already undertaking the consultations that would be needed to support such an approach, in the hope that the Committee will find our proposal satisfactory.

REDACTED―would enable ISED to reconcile our strongly shared commitment to transparency with our legal obligations, help to maintain Canada's reputation as a trustworthy business partner, and enable the Department to share the requested documentation with the Committee relatively quickly, in a sequential fashion.

I hope the Committee finds the above information helpful and our proposal satisfactory. I would like to assure Committee members that the June 4 motion is a top priority for us. The Department is undertaking the necessary consultations and preparation of the documents with a view to providing all materials to the Committee as quickly as possible.

Respectfully,

Simon Kennedy
Deputy Minister of Innovation, Science and Economic Development

Appendix C: Letter to ENVI: September 26

Natalie Jeanneault
Clerk of the Committee
Standing Committee on Environment and Sustainable Development
131 Queen Street, 6th Floor
House of Commons
Ottawa, Ontario K1A 0A6
envi@parl.gc.ca

Dear Natalie Jeanneault:

Please find attached Innovation, Science, and Economic Development Canada's (ISED) response to the Standing Committee on Environment and Sustainable Development's motion of June 4, 2024, whereby the Committee ordered the production of (i) complete and unredacted signed contribution agreements and (ii) fully unredacted term sheets, to date, for the Net Zero Accelerator, to be viewed by the Committee and their staff in camera. We also note the Committee's order for the government's fully unredacted and unrestricted tracker tool used to measure the Net Zero Accelerator's progress and results, also to be viewed by the Committee and their staff.

Please be assured that ISED continues to aim for maximum transparency. As noted in our letter of May 21, ISED is obligated by federal law to consult with the relevant third parties prior to any release of their confidential business information and, in limited circumstances, to make redactions to protect their legitimate business interests. To do otherwise would not only violate our legal obligations but could potentially cause irreparable harm to Canada's reputation as an honest and trustworthy actor in its dealings with third parties. Consequently, based on the consent of the third parties ISED applied minimal redactions to information in the contribution agreements and term sheets.

ISED is also obligated to ensure that information that is subject to Cabinet confidence is protected. The principle of Cabinet confidence is essential to the functioning of our democratic government. We have applied minimal redactions to the tracker document in order to ensure that these confidences are protected.

Although some redactions have been applied to the documents requested by the Committee to protect the most sensitive information, the documents still contain commercially sensitive information and, as such, should only be discussed during the in-camera session. Protecting the confidentiality of this information is vital to ensuring that Canada can continue to be effective in supporting its economy and protecting its business relationships. I would be happy to answer any questions about ISED's document submission during the in-camera portion of my appearance.

I hope the Committee finds the attached documentation helpful. I look forward to answering any and all questions Committee members may have about the documents and the Net Zero Accelerator initiative.

Please accept my best wishes.

Sincerely,

Francis Bilodeau
Acting Deputy Minister of Innovation, Science and Economic Development