Canada sets cap on emissions from oil and gas sector [UPDATE]

Canada introduced December 7 a draft framework to cap greenhouse gas emissions from the oil and gas sector in 2030 at 35-38% below 2019 levels, while providing compliance flexibilities to emit up to a level 20-23% below 2019 levels.

Last year, Ottawa said the cap would be set at 42%, but industry balked at that, suggesting such limits could not be reached by 2030.

The framework, announced by environment minister Steven Guilbeault at COP28 in Dubai and energy minister Jonathan Wilkinson in Ottawa, is proposed as a cap on pollution, not production. Alberta and other oil and gas provinces have promised constitutional challenges to any federal moves to limit oil and gas production.

“All sectors of our economy need to reduce their emissions, and that includes oil and gas companies,” Guilbeault said. “The government of Canada’s plan to cap and reduce emissions from Canada’s largest emitting sector is ambitious, but practical.”

The cap, which the government refers to as a “greenhouse gas pollution cap”, is designed to ensure GHG emissions from the oil and gas sector decline while providing flexibilities to respond to global oil and gas demand.

Despite the wording, a joint statement from Alberta Premier Danielle Smith and environment minister Rebecca Schulz said the proposed framework amounts to a “de facto production cap” and is an “intentional attack” by the federal government on Alberta’s economy.

“Alberta owns our resources, and under the Constitution we have the exclusive jurisdiction to develop and manage them,” the joint statement said. “With their pronouncement singling out the oil and gas sector alone for punitive federal treatment, Prime Minister Justin Trudeau and his eco-extremist Minister of the Environment and Climate Change Steven Guilbeault are risking hundreds of billions of dollars of investments in Alberta’s and Canada’s economies and core social programs, are devaluing the retirement investments of millions of Canadians, and are threatening the jobs of hundreds of thousands of Albertans.”

Over the next few months, the statement said, Smith’s cabinet and caucus will develop “a constitutional shield” against “this and other recent attacks on our province by what is fast becoming one of the most damaging federal administrations in Canadian history.”

Lisa Baiton, CEO of the Canadian Association of Petroleum Producers (CAPP), which represents 80% of Canadian oil and gas production, said the cap could result in “significant curtailments”, making it effectively a cap on production.

“At a time when the country’s citizens are experiencing a substantial affordability crisis, coincident with record budget deficits, the federal government risks curtailing the energy Canadians rely on, along with jobs and government revenues the energy sector contributes to Canada,” Baiton said. “An emissions cap on the upstream oil and natural gas industry is unnecessary, given the longstanding carbon policies which already have Canada well on its way to meet or exceed emission targets. The added complexity of yet another layer of carbon policy is potentially detrimental to established carbon markets that fund clean energy projects.”

Ottawa’s cap would regulate upstream oil and gas facilities, including offshore facilities, and would also apply to liquefied natural gas facilities, the government said. Together, these subsectors represent the majority of emissions from the oil and gas sector, with the upstream alone accounting for 85% of all emissions in 2021.

Facilities will be able to buy a limited number of carbon offset credits or contribute to a decarbonisation fund which would hold them accountable for a limited volume of emissions above the cap.

“These compliance flexibility options will both help reduce emissions – offsets will result in reductions in other sectors, and proceeds from the decarbonization fund will be reinvested to support emissions reductions within the oil and gas sector,” the government said.

Ottawa is continuing to discuss the draft framework with stakeholders, including industry and indigenous groups. Comments related to the framework should be submitted by February 5, 2024.

The government plans to implement the cap-and-trade system through regulations that it would make under the Canadian Environmental Protection Act, 1999. It expects to publish draft regulations by mid-2024.