Canada introduces draft regulations for emissions cap

The Canadian government on November 4 introduced draft regulations that will impose a cap on greenhouse gas (GHG) emissions from the oil and gas sector aimed at reducing emissions by 35% from 2019 levels by 2030-2032.

The draft regulations include the creation of a cap-and-trade system that would recognise the emissions reduction performance of “better-performing” companies while incentivising those with higher emissions to make their production processes cleaner. It would apply to all upstream oil and gas activities in Canada, including onshore and offshore production, oil sands production and upgrading, natural gas production and processing and the production of liquefied natural gas (LNG).

Emissions allowances would be “freely” allocated to facilities covered by the cap-and-trade system. At the end of each year, each facility would remit to the government one allowance for each tonne of carbon emissions, with the number of allowances allocated declining over time to correspond to the declining emissions cap.

The system would be phased in between 2026 and 2029, with 2030 set as the first compliance year.

“Every sector of the economy in Canada should be doing its fair share when it comes to limiting our country’s greenhouse gas pollution, and that includes the oil and gas sector,” federal Environment and Climate Change Minister Steven Guilbeault said. “We are asking oil and gas companies who have made record profits in recent years to reinvest some of that money into technology that will reduce pollution in the oil and gas sector and create jobs for Canadian workers and businesses.”

The proposed regulations, the government said, will limit emissions, not production, and were informed by “extensive engagement” with industry, indigenous groups, provinces and territories and other stakeholders.

“The proposed regulations are carefully designed around what is technically achievable within the sector, while allowing continued production growth,” the government said in a news release. “Many oil and gas producers share our commitment to a strong, low-carbon economy, and some have already committed to significant methane emissions reductions and the implementation of carbon capture technology to reduce greenhouse gases.”

The draft regulations will be open to input until January 8, 2025, after which final regulations will be developed.

Despite Ottawa’s insistence that its cap is on emissions, the Alberta government, in a statement issued soon after the draft regulations were published, reiterated its objections to the proposed “federal oil and gas production cap.”

“This production cap will hurt families, hurt businesses and hurt Canada’s economy,” Alberta Premier Danielle Smith said in a joint statement with her environment minister, Rebecca Schulz, and Brian Jean, the province’s energy minister. “We will defend our province, our country and our Constitutional rights.”

Section 92A of the Canadian Constitution gives the provinces exclusive jurisdiction over non-renewable resources, the joint statement notes, “yet this cap will require a one million barrel(s) a day production cut by 2030.”

Alberta is “actively exploring the use of every legal option” to ensure the cap is scrapped, including a constitutional challenge and the use of the Alberta Sovereignty within a United Canada Act, which gives the province a democratic framework for defending the federal-provincial division of powers.

“We will not stand idly by while the federal government sacrifices our prosperity, our constitution and our quality of life for its extreme agenda,” the joint statement said.

Krystle Wittevrongel, director of research at the Montreal Economic Institute (MEI), said capping emissions from the energy industry will cost Canadian workers “dearly” and would have only a “negligible” impact on the environment.

The proposed cap will have no effect on global oil demand, she said, noting that every barrel not produced in Canada will be replaced by a barrel produced elsewhere in the world.

“This announcement has much more to do with Steven Guilbeault’s bias against the energy industry than effective environmental policy,” she said.