Federal draft rules require oil and gas sector to cut emissions 35% below 2019 levels

The federal government unveiled draft regulations Monday that will impose a greenhouse gas cap on the oil and gas sector that limits emissions to 35 per cent below 2019 levels.

Canada's oil and gas sector, which is responsible for nearly a third of Canada's greenhouse gas emissions, will have four years to phase in that reduction.

The federal government said the cap targets emissions only; it said it expects the oil and gas sector will still be able to increase production by 16 per cent above 2019 levels by 2030-32 through "technically feasible" methods for reducing emissions.

"This system will reward lower polluting facilities and incentivize higher-polluting facilities to do better and reduce their emissions," Environment and Climate Change Minister Steven Guilbeault said Monday.

"This system will guarantee that whatever happens with production, greenhouse gas emissions will go down."

Government officials said Monday that the phrase "technically feasible" means using greenhouse gas reduction tools and technologies already in use. The regulations will be published on Nov. 9 and will be open for consultation until Jan. 8; the final regulations are expected to be published in the spring of 2025.

Monday's announcement which follows the release last December of a regulatory framework for limiting emissions reaffirms that Ottawa will enforce a hard cap on oil and gas emissions through a cap-and-trade system. Such a system allocates a limited number of emissions permitswhich, over time, decline until the sector achieves net-zero emissions.

Oil and gas facilities that cut their emissions faster can sell their excess permits through a trading system to other companies. According to the proposed regulations, the sector will need to reduce its emissions in 2030 by 35 per cent below 2019 levels before eventually reaching net zero by 2050.

The program also allows producers to meet 20 per cent of their required emissions reductions by purchasing offsets, or by combining offsets with contributions to a de-carbonization fund tobe used to help oil and gas producers cut emissions.

Premierclaims new rules will hurt families

In a news release issued Monday, the federal government noted that oil and gas companies have seen a "tenfold" increase in profits from $6.6 billion in 2019 to $66.6 billion in 2022. It adds that companies aren't spending enough money to reduce their carbon footprints.

"Profits have still remained strong with consecutive record years, and capital expenditures have been targeting new production rather than decarbonization," the news release says. "The draft regulation will encourage the sector to redirect these record profits into decarbonization."

Alberta Premier Danielle Smith reacted swiftly to the announcement Monday in a joint statement with her Minister of Energy and Minerals Brian Jean and Environment Minister Rebecca Schulz.

"This production cap will hurt families, hurt businesses and hurt Canada's economy. We will defend our province, our country and our constitutional rights," they said in the statement. "Make no mistake, this cap violates Canada's Constitution."

In a press conference, Smith claimed the emissions cap would require her province to cut oil production by one million barrels a day by 2030, leading "Alberta and our country into economic and societal decline."

Smith said Prime Minister Justin Trudeau is sitting too low in the polls to roll out an emissions cap and"he needs to call an election now to seek a mandate to do this, not only to our province but to the country."

Smith said her government would "explore every legal option" to fight the cap,"including a constitutional challenge and the use of Alberta Sovereignty Within a United Canada Act."

The federal Conservatives said in a statement that the emission cap will "kill Canadian jobs, raise the cost of energy and send billions of dollars to dictators overseas."

Federal officials said Monday that, according to their modelling, the oil and gas sector was expected to grow by 17 per cent between 2019 and 2030-32 only one per cent more than it's expected to grow with the emissions cap in place. Officials also said that over that same period, economic growth will only be reduced by 0.1 per cent by the emissions cap.

In a statement, the Pembina Institute welcomed the announcement and said those claimingthe emissions cap will hurt the economy are assuming industry will not look to innovation to cut emissions.

"This is misleading for Canadians," the statement said. "The oil and gas sector has options available to it to futureproof its operations and continue to make an important contribution to Canada's future economy but to do so, it must invest in long-promised corporate emissions reduction projects without delay."

As regulations for the federal government's oil and gas emissions cap approach the finish line, Canada's environment minister is warning the NDP and the Bloc Qubcois that triggering an early election could dash hopes of curbing emissions from Canada's biggest polluters.

The Liberal government is not expected to implement the final regulations until the late spring of 2025, and an election is not due until later next year. But all three opposition parties have enough votes to send Canadians to the polls early.

The New Democrats have been less clear about when they would topple the government, but they've suggested it won't be soon. The Bloc Qubcois has said it is working to push for an early election with the Conservatives, who have called the proposed cap "another attack" on Canada's oilpatch.

In an interview with CBC News before Monday's announcement, Guilbeault urged the NDP and the Bloc to consider what's at stake.

"If they decide to support the Conservative Party of Canada into sending us into an election sooner than the date of October 2025, then they will have to explain to Canadians ... why they prevented us from putting in place one of the most important pieces of regulation to ensure that the oil and gas sector does its fair share when it comes to fighting pollution in Canada," he said.

The oil and gas sector is Canada's biggest greenhouse gas emitter, accounting for about a third of the country's emissions.

WATCH | A look at the oil and gas emissions cap:

Canada introduces emissions cap for oil and gas industry

11 months ago

Duration 2:07

The federal government has revealed how it will set an upper limit on greenhouse gas emissions through a cap-and-trade system for the country's biggest emitter, the oil and gas industry.

The cap would apply to upstream emissions from oil and gas development in Canada. The regulations would affect natural gas producers, conventional and offshore oil producers, the oilsands, LNG facilities and natural gas processors. Refinery emissions are exempt because they fall under clean fuel regulations.

The government said in its news release that this approach puts "a limit on pollution, not production," and builds in some flexibility to achieve emissions cuts by purchasing emission offset credits or contributing to funds to help pay for further emissions reductions.

A pollution or production cap?

The Pathways Alliance, a consortium of Canada's largest oilsands companies, has said that existing climate policy measures are "incenting the right behaviours" and called the proposed emissions cap "unnecessary."

"The proposed emissions cap will likely have the unintended effect of making oil and gas operators involuntarily choose to shut in Canadian production rather than decarbonize it for global and domestic markets," the alliance said.

But Guilbeault said the industry is exaggerating its concerns.

"I can't think of a piece of regulation that has been published, whether during my tenure as environment minister or in my 30 years working in the sector, where industry did not say, 'Oh my God, this is the end of the world as we know it,'" he told CBC News.

The draft regulations arrived after the Alberta government launched a $7-million advertising campaign against them. Branded "scrap the cap," the ad campaign involves television, online video, print and social media ads. A truck with an electronic billboard for the campaign has been circling the streets around Parliament Hill.

"We're telling the federal government to forget this reckless and extreme idea and get behind Alberta's leadership by investing in real solutions that cut emissions and do not cut Canada's prosperity," PremierSmith said in October.

The Alberta government has said the cap would result in a significant production cut, echoing what some in the oilpatch have said. The province also released its economic impact report, which showed the negative effect of the emissions cap on GDP.

Guilbeault said Ottawa would be willing to negotiate an equivalency agreement with the province if it wantsto develop made-in-Alberta regulations to drive down emissions from the oil and gas sector on the path to net-zero by 2050.

"Yes, if Alberta or any of the other provinces wanted to do their own systemthat would be equivalent to the federal system, they would have the ability to do it," he said.

British Columbia has already committed to implementing its own provincial oil and gas emissions cap backstop, but that's if a future federal government does not move ahead with a national cap-and-trade system for oil and gas emissions.