Ottawa to release draft rules to cap greenhouse gas emissions from energy sector to 35% below 2019 levels

The federal government has released draft regulations to cap greenhouse gas emissions from Canada’s oil and gas sector to 35 per cent below 2019 levels.
The proposed new rules are at the lowest end of a policy framework the federal Liberal government released in December. That plan outlined a cut of between 35 and 38 per cent, which was itself a softer target than many had expected. It drew the ire of environmental groups, which said the cap should be tougher, and the oil and gas sector, which is roundly opposed to any such policy at all.
The new rules will be executed via a cap-and-trade system. Facilities covered by the system will be allocated emissions allowances, and at the end of each year will need to remit to the government one allowance for each tonne of carbon pollution it has emitted. Over time, the government will give out fewer allowances corresponding to the declining emissions cap.
If an operator doesn’t have enough allowances to cover their emissions, they will be able to buy allowances from other operators that have invested in pollution reduction. Operators can also contribute to a decarbonization program or use offset credits to cover a small portion of their emissions.
The proposed regulations would use data reported by operators for 2026 to set the first cap level. The system would be phased-in from 2026 through 2029. While all operators would have to register and report under the program, only those producing more than 365,000 barrels of oil a year will have to to remit allowances to cover their emissions.
Alberta’s United Conservative Premier Danielle Smith has argued a production cut would be necessary to meet targets imposed by an emissions cap. But federal Energy Minster Jonathan Wilkinson disputed that in an interview ahead of the regulations’ release, saying that the proposed rules reflect what is technically feasible between now and 2030.
“If you are wanting to go beyond what is technically feasible, what you’re saying is you are going to deliberately shut in production, and we are not prepared to do that,” Mr. Wilkinson said.
A higher cut wouldn’t make sense from an economic perspective, he said, because global demand for fossil fuels would simply be met by other countries, therefore undercutting any potential climate benefit.
“We are going as far as we can within our constitutional authorities, but also within the reasonable grounds in terms of the economy.”’
In a technical briefing Monday, senior federal officials also pointed to government modelling which projects that oil and gas production will grow by 16 per cent from 2019 levels in the 2030 to 2032 period – only slightly below the approximately 17 per cent growth that it projects would occur in the absence of a cap.
Profits in the oil and gas sector have soared in recent years, but much of that has been returned to shareholders rather than invested in emissions-reduction activities.
Mr. Wilkinson said while there has been some progress on climate initiatives in the sector, he would like to see more movement, faster.
That includes the Pathway Alliance carbon capture project in Alberta’s oil sands – a $16.5-billion plan that would include a 400-kilometre-long pipeline to transport carbon captured at oil sands facilities to an underground hub near Cold Lake, Alta., reducing emissions by 22 megatonnes a year.
It is spearheaded by the Pathways Alliance, which has pledged to bring greenhouse gas emissions created during oil-sands production to net zero by 2050. The group’s six members – Cenovus Energy Inc. Suncor Energy Inc., Imperial, CNRL, MEG Energy Corp. and ConocoPhillips Canada – collectively represent approximately 95 per cent of oil-sands production.
Pathways members have reached out to pipe manufacturers, setting the stage for movement on the project, and C-suite leaders have voiced optimism they will soon reach an agreement with a federal financing body on terms to fund the plan.
Mr. Wilkinson said formulating an “economically reasonable” emissions cap is important for the long-term competitiveness of the sector.
“We need to ensure we are moving as the world is moving if we want to continue to supply and to increase our share of sales into a market that’s going to value low carbon,” he said.
“The oil and gas sector at this point in time is one of the only sectors in the economy where emissions continue to go up. It’s now 31 per cent of emissions in Canada. You can’t simply tell me if you, if you truly believe in climate change, that that you are going to allow that to continue.”
The Alberta government and the oil and gas industry insist an emissions ceiling will inhibit investment and growth in the oil and gas sector. They point to various reports that have reached similar conclusions. Those include an analysis by Deloitte, which was commissioned by the province, and a report by S&P Global Commodity Insights, paid for by the Canadian Association of Petroleum Producers, an oil lobby.
The provincial government in February released a formal response to the proposed federal cap, saying it was “not realistic or effective, will not achieve its grandiose emissions targets and will not be tolerated in Alberta,” and recently started a public campaign opposing the cap.
Senior federal officials said Monday that the emissions cap has been designed to complement a suite of existing measures, including carbon pricing, investment tax credits and the forthcoming methane regulations.