Ottawa, Canada – December 8, 2023
In a significant move aimed at addressing the rising emissions from the oil and gas sector, the Liberal government unveiled its comprehensive framework to cap emissions, emphasizing a commitment to reaching net-zero emissions in the sector by 2050. The proposed framework, which incorporates a national cap-and-trade system, is designed to limit emissions while allowing for a 12% increase in production above 2019 levels.
Environment Minister Steve Guilbeault emphasized the urgency of addressing emissions from the oil and gas sector, stating, “Oil and gas is the largest emitting sector in Canada. And unlike almost every other sector of our economy, pollution from the oil and gas sector is still going up.”
The framework sets ambitious targets, proposing to cap 2030 emissions at 35 to 38 percent below 2019 levels. This aligns with the government’s broader goal of achieving “net-zero emissions by 2050.” The oil and gas sector currently accounts for 28% of Canada’s total emissions.
The proposed cap-and-trade system will impact various sub-sectors, including liquefied natural gas producers, conventional and offshore oil producers, oil sands producers, and natural gas processors. Notably, refineries are exempt from the framework, as they fall under separate clean fuel regulations.
Under the framework, oil and gas facilities will receive allowances based on their carbon emissions, with allowances decreasing over time. Facilities must either reduce emissions or purchase allowances from others to comply with the proposed regulations.
The government anticipates that the cap-and-trade system will lead to emissions reductions of approximately 20 to 23 percent below 2019 levels. This allows for a 12% increase in production, striking a balance between environmental goals and economic considerations.
To achieve the targeted 35 to 38 percent reduction below 2019 levels, the sector has the option to use offset credits or contribute to a decarbonization fund dedicated to future greenhouse gas emissions reductions. The framework is designed to complement other emissions-reduction policies, including methane regulations and carbon pricing.
While the proposed targets are less aggressive than the initial goal of a 42 percent reduction by 2030, the government insists that these targets are technically achievable and take into account recent legal considerations. The decision to set less ambitious targets aims to avoid potential legal and constitutional conflicts with provinces.
The announcement sparked reactions from provincial leaders, with Alberta Premier Danielle Smith calling it an “intentional attack” on Alberta’s economy. Saskatchewan Premier Scott Moe expressed concerns about increased regulations on the oil and gas sector, stating it would burden the industry with more red tape.
Environmentalists provided mixed reactions, with some praising the framework as a responsible step, while others, including NDP environment critic Laurel Collins, criticized it for being too lenient and influenced by industry lobbyists.
The government has opened the framework for public input, with draft regulations expected to be published in mid-2024. The proposed measures aim to strike a balance between environmental stewardship and economic growth, fostering a transition toward a more sustainable future for Canada’s energy sector.