The PBO’s new emissions cap report is already a political football

An analysis from the Parliamentary Budget Officer (PBO) has concluded the proposed oil and gas emissions cap could lead to production cuts.

The claim appears to support industry objections to the Liberal government proposal but comes with a significant caveat. Even with a cap, the overall amount of oil produced in Canada would still rise, just not as high as it would have without it.

In a report published Wednesday, the PBO analyzed industry production forecasts and found that with no government limits, oil and gas emissions are on track to surpass 160 million tonnes per year as early as 2030. The cap would limit emissions to 160 MT, 23 per cent less than 2023 levels. To reach the levels demanded by the cap’s target, the PBO says a 4.9 per cent reduction in conventional oil, oil sands and gas production could occur. 

That drop, however, does not mean overall production would trend down.

“To be clear, the PBO does not say that overall production will be cut as a result of this regulation – but that it will simply grow less than it otherwise would have,” said Janetta McKenzie, director of the Pembina Institute’s oil and gas program, in a statement. 

With a cap on oil and gas pollution, the PBO still projects oil and gas production will grow by 11 per cent from current levels by the end of the decade. 

McKenzie noted that the oil and gas industry has publicly committed to net-zero emissions by 2050, and governments have worked with the sector to guide the transition. Billions of taxpayer dollars have been tabled to help companies cut carbon pollution, using technology like carbon capture. But the PBO’s analysis assumes the industry will not take advantage of government incentives. 

“Instead, it assumes that companies choose to not produce as much oil and gas instead of investing in technology that would cut emissions in the future,” she said.

The Pathways Alliance, whose member companies represent 95 per cent of oilsands production, have publicly committed to net-zero but are planning to spend over $50 billion to boost oil and gas production. At the same time, those companies have put off investing $16 billion in a carbon capture and storage project to lower emissions. 

Among the PBO’s findings were that an oil and gas emissions cap could reduce the country’s GDP by $20 billion, and result in more than 40,000 jobs lost. But a cost-benefit analysis could clarify that economic picture. For example, Navius Research estimates that clean energy’s contribution to GDP could leap more than $25 billion and support 639,000 jobs by 2030 — offsetting the loss in the fossil fuel sector. 

Nonetheless, the PBO suggesting the oil and gas emissions cap could lead to production cuts was the cue for right-wing politicians and the fossil fuel industry to pounce. Alberta Premier Danielle Smith said Wednesday the PBO has now shown “beyond a doubt that this cap will hurt Canadians.” 

Lisa Baiton, CEO of the Canadian Association for Petroleum Producers said, “a cap on production is a cap on prosperity,” and “it is time to scrap the cap.”

The Conservative Party seized on the report and immediately attempted to tie it to Mark Carney, the new Liberal leader and prime minister-designate. The “Carney-Trudeau Liberals have attacked Canadian oil and gas workers, pushing a radical anti-energy agenda,” a Conservative Party statement reads.

“As Justin Trudeau’s economic advisor, Carney has played a central role in destructive Liberal policies, including the carbon tax and this job-killing energy cap — policies that have driven up costs and weakened Canada’s economy. Now, as Canada faces new U.S. tariffs that threaten to inflict even more economic damage, Carney is doubling down on his ‘keep it in the ground’ agenda.”

Carney has avoided directly addressing the proposed cap on oil and gas emissions. In his climate plan, he does not mention the cap, but instead proposes a range of measures to cut emissions, including improving the industrial carbon price, introducing carbon tariffs, strengthening oil and gas methane reduction regulations, cutting red tape for clean energy projects, and financial reforms to encourage better transparency around climate risks. 

Carney’s office did not return a request for comment. 

But in an interview with the CBC last year, Carney was clearly supportive of restricting oil and gas emissions. In the interview, he acknowledged that extracting and transporting oil and gas is responsible for more than a quarter of Canada’s emissions — a staggering sum that doesn’t include burning oil and gas to power vehicles and heat homes — and as long as emissions accumulate in the atmosphere, people will continue to experience punishing extreme weather from wildfires to storms. 

“We can’t meet our ultimate objective, which is to get to net zero emissions… unless we have not just a cap on emissions, but those emissions are brought effectively to zero,” he said. “That’s the climate physics. You don’t need to be a meteorologist, you don’t need to be a climate scientist, it’s the simple math of it.”

Political attacks ramp up

The attempt to link the oil and gas pollution cap to Carney comes as the Conservative and Liberal parties are neck and neck in the polls. According to a Leger poll published Wednesday, the parties are tied at 37 per cent of the vote — reflecting a six point drop for the Conservatives, and a seven point improvement for the Liberals since last week.

Previously, Poilievre had built a commanding lead by misrepresenting the carbon price, effectively driving a wedge into the Liberal Party and its agreement with the NDP, by turning Trudeau’s signature climate policy into a political liability. That lead collapsed as U.S. President Donald Trump took office and launched a trade war on Canada, but Poilievre’s axe the tax campaign successfully poisoned a policy that put more money into most Canadians pockets than it took. 

Carbon pricing became so politically unpopular that long-time endorsers of it, like Carney, have committed to abandoning the policy. As previously reported by Canada’s National Observer, the political success Poilievre found by weaponizing climate policies appears to be a tempting well to return to when slumping in the polls.

The oil and gas emissions cap was first promised by Trudeau in 2021, and four years later is still working its way through a bureaucratic labyrinth. But over the past few years, the policy has been in the cross-hairs of the oil and gas industry and its political allies, who have characterized the policy as federal overreach into provincial jurisdiction and an “ideological crusade against Canadian energy.” 

In 2023, when the cap was undergoing intense rounds of consultation, the oil and gas industry averaged more than two lobbying meetings per work day. Collectively, the Pathways Alliance, the Canadian Association for Petroleum Producers and Canada’s six largest oilsands companies recorded over 500 meetings, Canada’s National Observer found by searching the federal lobbyists registry. The onslaught of catalogued lobbying exceeds 1,000 meetings when the search is expanded to include 30 companies and industry groups.

The challenge at hand is immense. Oil and gas companies in Canada are planning to spend over $600 billion over the next decade to increase their oil and gas supplies, increasing the risk to the climate and economy, experts say. 

McKenzie said there will be a role for oil and gas in Canada’s future economy, but it should be leaner and cleaner, “geared to the needs of a market where demand for oil and gas as fuel is in decline,” and a greater share is used “as a feedstock for low-carbon petrochemicals and other materials.”

“The government has to prepare the sector for this, by taking steps now to reduce the oil and gas industry’s emissions, so that it can keep offering jobs and prosperity to Canada in the long term,” she said.

In its report, the PBO said its analysis is not an economic or climate policy recommendation. 

“Our assessment of the potential economic impact of the oil and gas emissions cap does not account for the benefits of reducing Canada’s GHG emissions,” the report said. “That is not to say that these benefits should be dismissed, rather they could be considered in a cost-benefit analysis of the proposed oil and gas emissions cap regulations, which is beyond the scope of our report and PBO’s mandate.”

John Woodside / Local Journalism Initiative / Canada’s National Observer