Canada Advances Landmark Oil & Gas Emissions Cap

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The Canadian federal government on Thursday unveiled its long-awaited framework for capping greenhouse gas (GHG) emissions from the oil and gas sector, although industry groups warned that it could limit production and investment as well.

The plan would cap Canadian oil and gas emissions in 2030 at 35%-38% below 2019 levels. Up to a third of the required cuts could come from alternative options such as the purchase of offset credits. The framework is a precursor to Ottawa’s draft rules, which are expected to land sometime in 2024.

Historically, compromise policies win few friends, and initial reactions to Canada’s emissions cap framework adhered to that trend. Oil and gas industry representatives said the measure will chase away investment, while officials in oil production powerhouse Alberta assailed it as an affront to its sovereignty and citizens.

Environmentalists, meanwhile, characterized the proposal as too feeble and suggest more stringent measures are needed to achieve Canada’s goal of achieving net-zero emissions by 2050.

Canada’s oil and gas industry was responsible for 28% of the country’s GHG emissions in 2021, followed by the transportation sector at 22%.

Lead Balloon

Lisa Baiton, CEO of the Canadian Association of Petroleum Producers (Capp), said in a statement that the required emissions cuts are “unnecessary, given the longstanding carbon policies which already have Canada well on its way to meet or exceed emission targets,” and could lead to “significant curtailments,” making it “effectively a cap on production.”

“The government’s own data shows that Canadian conventional producers have achieved meaningful absolute reductions in both methane and Scope 1 CO2 equivalent emissions — absent a legislated cap — through investments in clean technologies and other innovations,” said Baiton. “In addition, Canada’s largest oil sands companies have committed to reaching net-zero emissions by 2050 and have put into place a credible plan to achieve that goal with interim targets.”

Baiton acknowledged that the government’s draft framework offered some compliance flexibility, including the allowance to use carbon offsets for some of required cuts, but added that the “trajectory and target” of the plan was “problematic” for the oil and gas industry, “as technology pathways will be challenging by 2030.”

The Pathways Alliance, a coalition of the six largest oil sands producers, has proposed a massive C$16.5 billion (US$12 billion) carbon capture and storage (CCS) project, although CCS tech is still viewed by many as too cost-prohibitive to deploy on a large scale.

The Canadian Association of Energy Contractors criticized the government’s proposed emissions cap for being another “regulatory stick” that was less preferable than the incentive-based approach taken by the US Inflation Reduction Act.

Mark Scholz, the organization’s CEO, said the cap could make it difficult to attract capital to Canada’s oil and gas industry, including its decarbonization efforts.

“The world will continue its decarbonization journey, but will demand more pragmatic and affordable policies,” he said in a statement. “The federal government’s emissions cap … means higher energy costs and fewer jobs for Canadian energy workers.”

Meanwhile, Alberta Premier Danielle Smith and Environment and Protected Areas Minister Rebecca Schulz said in a statement that the federal framework “amounts to an intentional attack … on the economy of Alberta and the financial well-being of millions of Albertans and Canadians,” as well as a snub to the province’s jurisdictional powers.

They added that the plan “ironically” undercuts global emissions reduction initiatives by “effectively de-incentivizing capital investment by the oil and gas sector in the emissions-reducing technologies and fuels the world needs Alberta to develop and share,” and hinted that they would be exploring their legal options to push back against the federal requirements.

Better Than Nothing

Reactions by environmental activists to Canada’s proposed emissions cap was generally more nuanced, although they were also left wanting more.

Environmental Defence Canada called the plan “an important milestone for the federal government’s climate plan,” but said it needed to be strengthened to “at least” align with Canada’s overall emissions target of a 40%-45% reduction below 2005 levels by 2030.

“The framework’s current 2030 target does not actually force the oil and gas industry to do its proportionate share to reduce emissions,” said Aly Hyder Ali, the group’s oil and gas program manager. “This is deeply unfair to other industries that have already made impressive emissions reductions, while oil and gas companies have just kept polluting.”

The Pembina Institute was more sanguine about the proposal, calling it “an important step toward meaningful reductions in emissions from the oil and gas sector.”

“While the proposed level of the cap is less than the estimate provided in the federal government’s 2030 Emissions Reduction Plan, it is a real reduction from Canada’s highest-emitting sector,” said Janetta McKenzie, acting director of the organization’s oil and gas program.

She went on to describe the plan as “extremely realistic” and “completely doable” due to two factors: the industry-led Pathways Alliance and the Canadian government’s draft methane regulations announced earlier this week at the COP28 summit in Dubai.

Source : Energy Intelligence