The Canadian government has released a discussion paper that proposes a range of options of how to establish an emissions cap on the country’s oil and gas sector.
At COP26, the country’s PM Justin Trudeau announced its commitment to reduce emissions in the oil and gas sector by 40-45% below 2021 levels by 2005 as part of the its Emissions Reduction Plan (ERP).
The ERP sets an overall emissions reduction target of 40% below 2005 levels by 2030 and net zero emissions by 2050, with additional targets and plans for the country’s heavy-emitting sectors.
The oil and gas sector is Canada’s largest greenhouse gas (GHG) emitter, making up 27% of the country’s total GHG emissions in 2020. This is solely emissions from the production of oil and gas, and does not take into account the emissions from the use of this oil and gas in other sectors downstream.
Methane made up only 20% of the sector’s overall GHG emissions in 2020, with carbon dioxide accounting for the majority of emissions.
Steven Guilbeault, the country’s minister of environment and climate change, said that “establishing a cap on oil and gas emissions is one of the key commitments of our government’s Emissions Reduction Plan”.
How Canada plans to reduce oil and gas emissions
The discussion paper puts forth two main mechanisms to reduce emissions in the oil and gas sector: a cap-and-trade system and modifying the carbon pricing benchmark.
Option one would include a new national cap-and-trade system that would establish a total quota of GHG emissions allowed over a specific period. Emitters included in the cap would be issued emission permits through auctions, with the price determined in line with supply and demand within the emissions trading market. One permit would be equal to one tonne of emissions, and they would not be recognised by any other system.
The second option would be to build on the existing federal carbon pricing framework to lay out specific criteria for the oil and gas sector.
The Canadian government has put a price on carbon pollution since 2019, with the federal government setting a minimum national price and leaving it to the provinces and territories to adopt the minimum price or establish their own.
However, the carbon price has been met with opposition in the country. Alberta, Canada’s largest oil and gas producing province accounting for three-quarters of the sector’s total emissions, challenged the tax and the Appeal Court found the carbon price legislation to be unconstitutional.
The discussion paper also made recommendations for the oil and gas sector pathway to decarbonise. These include increasing electrification, upgrading equipment and practices to abate methane, improving energy efficiency, and deploying Carbon Capture, Utilisation and Storage (CCUS).
The ERP puts a lot of faith in oil and gas companies’ ability to innovate to reduce emissions. Guilbeault argues that “Canada’s oil and gas companies have proven repeatedly that they can innovate and develop new technologies and more competitive business models”.
However, currently the GHG emission intensity of Canadian oil production is one of the highest in the world due mainly to oil sands production. And the speed of innovation to reduce emissions may not be as quick as the government hopes. Emissions per barrel in the oil sands have only fallen 33% since 1990 – the sector would need to significantly speed up this pace if it wants to meet the 2030 goal.
No intentions to slow down oil and gas production
The intergovernmental organisation International Energy Agency (IEA)’s net zero 2050 scenario forecasts that global oil demand will drop from 100 million barrels per day in 2020 to 24 million barrels in 2050.
However, Canada’s ERP does not intend to reduce the production of oil and gas despite the potential demand decrease as the world moves towards net zero. Instead, the government plans to “transform the sector into the cleanest global oil and gas producer”, to remain competitive in an increasingly shrinking market.
“The demand for oil and gas in a net zero economy will be entirely focused on those jurisdictions which can produce oil and gas with increasingly lower and ultimately near-zero production emissions” said Canada’s minister of natural resources Jonathan Wilkinson.
The Canadian government has often justified its support of the fossil fuel sector as a moral obligation to strengthen energy security across the world. This argument has particularly gained traction as the world has become cut off from Russian gas with the ongoing crisis.
With Europe threatened by an impending energy crisis this winter, Wilkinson said that Canada could increase oil and gas exports by up to 300,000 barrels per day this year to help replace Russian fossil fuels.
Wilkinson argued in a statement that “our European friends and allies need Canada and others to step up”. Currently, almost 95% of Canada’s oil and gas exports are sent south of the border to the US.
Of course, the Canadian government also argues that it has a responsibility to its allies to produce clean oil and gas, versus having to buy their fossil fuels from more morally ambiguous regimes like Saudi Arabia. It’s worth pointing out that Canada itself has spent more than CDN$1.5 billion importing Saudi crude oil in 2020, according to Canada Energy Regulator.
Ultimately, the ERP does little to encourage the transition of oil and gas to the clean energy sources required to meet net zero targets and avoid the worst impacts of climate change. Instead of responsibly transitioning Canada’s biggest emitting sector, provides the country’s oil and sector with means to continue producing polluting fossil fuels.
This move could not only puts achieving the country’s climate goals at risk, but could also pose an economic threat as the world divests from oil and gas on the path to net zero.