Emissions cap could lead to drop in oil and gas production, industry warns

CALGARY — Canada's oil and gas industry is warning that Ottawa's emissions cap framework could result in significant production curtailments by companies and higher energy prices for consumers.

The plan to have the oil and gas sector cut its emissions by more than a third of 2019 levels by 2030 is meant to "set a limit on pollution, not production," the federal government said in a news release announcing the framework Thursday.

But the Canadian Association of Petroleum Producers (CAPP), the country's largest fossil fuel industry group, said the plan is a de facto production cap. While the industry is working to reduce its emissions, CAPP said the speed and scope of progress that the government is asking for is too ambitious.

"At a time when the country’s citizens are experiencing a substantial affordability crisis, coincident with record budget deficits, the federal government risks curtailing the energy Canadians rely on, along with jobs and government revenues the energy sector contributes to Canada," the organization said in a news release.

The federal government's long-promised emissions cap has been fought tooth-and-nail by this country's fossil fuel sector since it was first proposed by the Liberals in the 2021 election.

The draft framework unveiled Thursday requires a smaller cut to emissions than was initially estimated in the government's emissions reduction plan last year, and Environment Minister Steven Guilbeault said it was developed after extensive consultation with industry and other stakeholders to make sure it is achievable.

But industry leaders on Thursday said hitting the federal government's targets is not possible — at least not without significantly reducing this country's oil and gas production.

Brian Schmidt, president and CEO of Tamarack Valley Energy Ltd., said his company has spent tens of millions of dollars in the last few years on reducing methane emissions intensity from its operations.

But he said that his company has oil and gas wells covering a wide geographic area of Alberta, and there is no single-technology magic bullet that can decarbonize its extraction processes as rapidly as Ottawa is demanding.

"It's very difficult, because of the spread-out nature of our business, to apply any sort of mitigative measure like carbon capture. We'll be left with no other option but to shut in (production)," Schmidt said.

The emissions cap would take the form of a cap-and-trade system, giving companies some leeway if they can't achieve the 35 to 38 per cent reduction targets. Emitters will be able to buy offset credits or contribute to a decarbonization fund that would lower that requirement to cutting just 20 to 23 per cent.

Oil and gas production accounts for more than one-quarter of Canada's emissions and Guilbeault says capping their emissions is critical to meeting Canada's climate targets.

But oil and gas companies feel it's unfair to single out their sector, especially since Canada already has layers of carbon policy — in particular, a carbon-pricing system — which are designed to bring emissions down over time.

Many companies have already announced their own ambitious emissions-reduction plans, without a legislated cap in place. However, they have been criticized by environmentalists for not moving fast enough.

The Pathways Alliance, for example, a consortium of Canada's largest oilsands companies, says it has spent $1.8 billion since 2021 on decarbonization efforts. It has proposed spending $16.5 billion to build a massive carbon capture and storage network in northern Alberta.

Though it has not yet made a final investment decision that would see that project move ahead, Pathways has said the project could help its member companies achieve 32 per cent emissions reduction below 2019 levels by 2030.

In a statement Thursday, Pathways Alliance president Kendall Dilling said the organization is still evaluating the emissions cap framework to determine how it may impact oilsands operations.

While Dilling said the group remains committed to building its large-scale carbon capture project, he added that imposing an emissions cap with additional regulatory complexity "does nothing to advance the certainty necessary for the planned multi-billion-dollar decarbonization projects to proceed."

Heather Exner-Pirot, special adviser to the Business Council of Canada, said it makes no sense for the government to impose another level of regulatory burden on companies that already have a credible decarbonization plan in place.

"Part of the problem is that 2030 is an arbitrary target," Exner-Pirot said

"It may cost, you know, 20 per cent more to hit a 2030 target versus a 2031 target. Why impose an arbitrary date if they could hit the same emissions target but for hundreds of millions less if it was just one or two years later?"

But Janetta McKenzie, acting director of oil and gas for clean energy think-tank the Pembina Institute, pointed out the targets laid out by the government Thursday are not that far off from the Pathways Alliance's own stated targets.

She added that existing technologies like carbon capture and storage and methane abatement will go a long way to helping the industry get there by 2030, and it's not wrong for the government to want to give them a push.

"Given the technology solutions that the industry has, this is a realistic target on a realistic timeline," McKenzie said.

"It's not a business-as-usual target — it will require that industry take action and make investments to achieve this target. But that's the purpose of it, to prompt investment in emissions reduction and finally begin to bend the curve on Canada's highest emitting sector."

The emissions cap framework comes as Canada's oil and gas sector plans to boost its output to meet growing global demand for energy. A recent report by Deloitte Canada said Canadian oil production is expected to hit an all-time high within the next two years, as the coming startup of the Trans Mountain pipeline increases the industry's export capacity.

But Schmidt, of Tamarack Valley, said an emissions cap is likely to scare off oil and gas investors and cause Canadian companies to direct their profits into their shareholders' pockets instead of job creation.

"My worry is what does this mean for investment, because you know, you get paid for growth," Schmidt said.

"If you can't grow and you're shrinking instead, that makes things pretty tough."

— With files from Mia Rabson in Ottawa

This report by The Canadian Press was first published Dec. 7, 2023.