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

Alberta has vowed it will fight new federal draft regulations released Monday that will cap greenhouse gas emissions from Canada’s oil and gas sector to 35 per cent below 2019 levels.
The much-anticipated proposed rules are at the lowest end of a range outlined in a policy framework the federal government released in December. That plan outlined a cut of between 35 per cent 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.
Reaction to the draft rules Monday further underscores the deep chasm between the fossil fuel sector and the federal government. Industry and the Alberta government say a cap will spell doom for the oil and gas sector, but Ottawa maintains firm targets are necessary to spur action on emissions reduction.
The new rules would be executed via a cap-and-trade system. Facilities covered by the cap would be allocated a number of emissions “allowances,” and at the end of each year, they would have to remit to the government one allowance for each tonne of carbon pollution. Over time, the government would give out fewer allowances corresponding to the declining emissions cap.
If an operator doesn’t have enough allowances to cover their emissions, they would be able to buy unused allowances from other operators that have invested in pollution reduction. Operators could also contribute to a decarbonization program or use offset credits to cover a small portion of their emissions.
Only operators producing more than 365,000 barrels of oil a year would have to remit allowances to cover their emissions. The proposed regulations would be phased in through 2029.
Alberta Premier Danielle Smith slammed the cap, telling media Monday that it’s impossible for the sector to meet the 35-per-cent reduction target without a production cut. But federal Energy Minister Jonathan Wilkinson disputed that, saying in an interview that the proposed rules reflect what is technically feasible between now and 2030.
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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 undermining 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.”
Jeff Lawson, chief sustainability officer of Calgary-based oil giant Cenovus Energy Inc., called the plan a “punitive policy” that would lead to reduced oil and gas production in Canada.
“It is not good enough to look at what might be technically achievable. It is important to understand whether the target is economically achievable without putting Canadian businesses at a competitive disadvantage to the rest of the world,” he said in a statement.
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 he would like to see more, faster movement on those efforts.
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 Oil Ltd., Canadian Natural Resources Ltd., MEG Energy Corp. and ConocoPhillips Canada – collectively represent approximately 95 per cent of oil sands production.
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 you are going to allow that to continue.”
Ms. Smith said that a cap will restrict cross-border energy trade and harm Canada’s economic and security interests.
She said it pointed to a “deranged vendetta against Alberta” by federal Environment Minister Steven Guilbeault. Accusing him of trying to dodge the province’s constitutional right to control non-renewable resources, Ms. Smith vowed to take the federal government to court over the cap.
“Strong climate action requires a strong economy. The cap will leave us neither,” she said.
“Technology takes time. You cannot snap your fingers and say it has to be done by 2026, you cannot snap your fingers and say it has to be done even by 2030 or 2035. The only way to achieve these unrealistic targets is to shut in our production. I know it. They know it. We’re calling them out on it.”
Janetta McKenzie, manager of the oil and gas program at the Pembina Institute, an environmental think-tank, said the proposed cap balances short- to medium-term emissions reductions in the sector and giving industry enough of a runway to begin making the investments needed to comply with regulations.
“This is a good start,” Ms. McKenzie said in an interview. “A lot of the big decarbonization projects will take a bit of time to get off the ground, and this draft regulation really makes space for that.”
The Calgary Chamber of Commerce, Canadian Association of Petroleum Producers, Business Council of Alberta and climate-policy organization Clean Prosperity all said Monday they oppose the draft rules, while various environmental groups welcomed it as a climate win.
The federal Conservative Party said in an e-mailed statement that the cap would “kill Canadian jobs, raise the cost of energy and send billions of dollars to dictators overseas.” The NDP meanwhile accused the Liberals of delaying the policy until their government’s 11th hour and tabling a watered-down policy that caved to the industry.
With a report from Marieke Walsh