The federal government is proposing to use an industry-specific cap-and-trade system, or a modified carbon pricing system, to cap emissions from the oil and gas sector and reduce them by almost 40 percent by the end of this decade.
The two options are contained in a discussion paper which Environment Minister Stephen Guilbeau will publish on Monday. It’s the first look Canadians are getting at how the Liberals expect to implement the cap on oil and gas emissions promised in last year’s election.
The oil and gas industry accounts for more than a quarter of Canada’s total emissions — 179 million tonnes in 2020, or about what an average car would emit driving around the equator more than 17 million times.
“We simply cannot ignore the fact that the oil and gas sector is the largest source of emissions in Canada,” Guilbeau said in April during a House of Commons committee hearing on the proposed cap on oil and gas emissions.
What Guilbeault didn’t say then, and what the discussion paper doesn’t say now, is what the cap on specific emissions would be. It is supposed to start at “current levels” — which, according to the data available when that pledge was made, would mean 2019 levels, or 203.5 million tonnes.
Key documents and government sources suggest the 2030 cap will be very close to the 110 million tonnes proposed in the new national emissions reduction plan in March. This is a 46% decrease from 2019 levels and 32% from 2005 levels.
Canada aims to reduce emissions across all sectors by 40 to 45 percent from 2005 levels by 2030.
The oil and gas sector has not had emissions this low since 1992. Over the past three decades, as gas, conventional oil and oil sands production soared, emissions from the sector rose 83 percent. Canada’s total emissions were about 23 percent higher over the same time period.
The minister aims to have a final plan in place by 2023
Input on cap management options will be accepted until Sept. 21, with Guilbeault aiming to unveil the final plan in early 2023.
The first proposed option involves a new cap-and-trade system in the oil and gas sector in isolation. The total permitted emissions will be divided into individual quotas, which will be allocated to specific companies mainly through an auction.
Companies that do not buy enough allowances to cover their emissions will have to buy allowance credits from other oil and gas companies that have bought more than they need.
Funds raised from the auction will be recycled into programs that help the sector reduce emissions.
The second option would change the industrial carbon price already applied to the oil and gas sector, possibly by raising the price itself if necessary, but with the aim of ensuring that emissions from the oil and gas industry itself are reduced by limiting the trading of carbon credits to the sector.
Currently, companies can reduce the carbon price they pay by buying credits from others who produce less than their emissions limit. The modified plan would only allow them to buy credits from other oil and gas companies, not from other industries.
Most of Canada’s oil and gas producers are already reducing emissions due to other regulations and a desire to become a cleaner, more competitive option for global customers.
This has been the Conservative Party’s position on industry for years – using cleaner Canadian fossil fuels to displace dirtier ones produced elsewhere.
The industry has a lot of catching up to do, especially in oil, where Canada’s heavier oils require more energy to get out of the ground than in places like Saudi Arabia. Although oil sands emissions per barrel of oil, known as emissions intensity, have fallen by about 30 percent since 1990, they are still higher than many global competitors.
The Oil Sands Pathway Alliance, with six of the largest oil sands companies on board, aims to reduce emissions to zero by 2050, primarily through carbon capture and storage projects that capture greenhouse gases before they enter the atmosphere , and then store them back underground.
The alliance, whose member companies account for 95 percent of oil sands production, released a plan this spring aimed at cutting 22 million tons of emissions from 2019 levels by 2030.
Company executives said they were not opposed to the cap, but insisted it must be realistic and based on consultation with industry about what is feasible. Anything more than that is likely to lead to production cuts and job losses, they say.
But the Alliance and the government remain far apart on some fundamental issues, such as setting current emissions levels in reality. The latest national inventory report says emissions from oil sands production and processing were 83 million tonnes in 2019, but the Alliance puts the figure at 68 million.
A government official, speaking on background as he was not authorized to speak publicly, said that if the emissions cap for the oil and gas sector went higher than the emissions reduction plan, it would force other industries to cut more of their share or Canada will not meet its 2030 targets.
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