On Monday, the Trudeau government introduced draft regulations aimed at regulating emissions from Canada’s oil and gas sector, targeting a significant cut of 35% from levels recorded in 2019 by the end of the decade. This initiative hopes to alter the long-standing dynamics between Ottawa and the Prairie provinces, addressing greenhouse gas emissions without directly limiting production growth.
The government’s plan revolves around implementing a cap-and-trade system, which was initially promised during the Liberal Party’s 2021 election campaign. Essentially, Ottawa will set specific emissions quotas for the sector, and companies will receive free allowances, gradually tapering over time, motivating them to adopt cleaner operations. Importantly, even though the cap doesn’t impose restrictions on oil output right away, it serves to incentivize companies to reduce emissions through innovations.
Environment Minister Steven Guilbeault affirmed the necessity of this cap, stating, “The oil and gas industry is Canada’s largest source of greenhouse gas emissions, and this policy challenges the sector to do its fair share in combating climate change.” This might seem like heavy lifting, but with the oil and gas sector accounting for over 400,000 jobs, the government asserts there are opportunities for reinvestment using the sector's record profits to advance clean technology.
Canada plays its part as the world’s fourth-largest oil and fifth-largest natural gas producer, and the government suggests as global demand evolves, the market will favor fuels extracted with the least environmental impact. They believe the cap-and-trade system could help maintain the competitiveness of Canada’s oil and gas sector whilst simultaneously aiming for significant emissions reductions.
This draft follows extensive consultations with various stakeholders, including industry representatives, Indigenous communities, and provincial leaders. While some companies have pledged to lower emissions through practices like carbon capture and reductions of methane leaks, others, particularly those located within oil-producing provinces, fear the cap could impede economic growth and jeopardize jobs.
The proposed regulations are part of Canada’s broader climate strategy, coupled with financial support for green technologies funded via federal initiatives, including the Canada Growth Fund and new tax credits. Continued consultations will proceed as the final regulations are expected to come forth by 2025.
Critics, such as environmental advocates and industry insiders, echo differing sentiments. Many experts view certain provisions of the draft as potentially opening loopholes, allowing companies to pay for offsets rather than directly addressing their emissions. Aly Hyder Ali from Environmental Defence cautioned against these flexible arrangements, labeling them as loopholes: “This doesn't necessarily translate to actual reduction of pollution from their operations, right? This just asks them to pay for it.”
Indeed, as part of the regulations, oil and gas producers would enjoy some degree of flexibility, allowed to meet 20% of their emissions reduction target through purchases of offsets or by contributing to decarbonization funds. Ali pointed out, “The issue with this setup is companies won’t be required to reduce pollution until 2032.” This delay could undermine beating targets set for 2050, he argues.
The regulations intend to gradually implement the emissions cap starting from 2026 over four years, with the first compliance period identified as 2030 to 2032. Once it begins, operators must use their allowances or purchase extra allowances if emissions exceed targets.
Out of the total emissions, only large producers generating above 365,000 barrels of oil equivalent annually would initially need compliance. All operating companies, regardless of size, would need to register and report their emissions. If these draft regulations achieve approval, Canada would set the precedent as the first nation to establish binding emission regulations for its oil and gas sector.
The recent announcement stirred tensions, particularly just after Alberta’s United Conservative Party adopted measures to scrap provincial emissions reduction targets. Alberta Premier Danielle Smith expressed her discontent, claiming the cap could radically lower production levels and undermine provincial jurisdiction. “I’m pissed— I’m absolutely angry,” she said during a press conference.
With Canada indicating carbon emissions are underscored as a major threat to life on Earth, the Alberta government views carbon, conversely, as fundamental. Premier Smith’s government, alongside oil lobbyists, has initiated campaigns leveraging fear about economic catastrophes stemming from the emissions cap, predicting widespread job losses and price surges for everyday goods.
While no firm evidence underpins claims surrounding economic devastation due to the cap, reports suggest climate change is already imposing substantial tolls on the Canadian economy. The Canadian Climate Institute estimated potential annual GDP losses of around $35 billion by 2030 due to climate change if swift actions aren't undertaken.
Advocates for the regulations, like Ecojustice’s Interim Climate Director Fraser Thomson, endorse the tight emissions limits. They argue this move is pivotal, saying securing climate stability is only plausible via strong emissions targets underpinned by rigid laws.
Contrarily, industry representatives, such as the Canadian Association of Petroleum Producers (CAPP) President Lisa Baiton, dismissed the proposals as overly complex, warning about potential negative economic impacts without any guarantees of emissions reductions. She articulated the need for simpler frameworks instead and indicated apprehension about the intricacies of the regulations.
Critics asserted they expected such pushback, citing the oil and gas sector’s historical resistance to acknowledging climate change. “What these regulations really do is solidify or codify the commitments oil and gas companies have already made,” suggested one environmental insider. The hopeful takeaway is if these regulations strengthen and align with existing expectations for emissions reductions across the economy, they could facilitate necessary change.
Despite pushback, proponents of the cap stress the job opportunities tied to cleaner energy technologies are bonafide. Experts believe implementation could lead to job creation, something they often see whenever regulatory pressures ignite industry innovation. According to estimates, the draft could trigger additional costs of approximately $3.3 billion on the oil sector. Still, they anticipate net benefits are set to surpass $400 million, excluding significant benefits derived from lowered air pollution and job impacts emanated from carbon capture technology investments.
