Federal government proposes to cap oil and gas emissions using industry-specific carbon pricing system

OTTAWA – 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 cut them by nearly 40 per cent by the end of this decade.

Both options are contained in a discussion paper that Environment Minister Steven Guilbeault will release on Monday. This is the first glimpse Canadians have of how the Liberals expect to implement the cap on oil and gas emissions promised in last year’s election.

The oil and gas industry is responsible for more than a quarter of Canada’s total emissions, or 179 million tonnes in 2020, or about what an average car would emit when circling the equator more than 17 million times.

“We just can’t ignore the fact that the oil and gas sector is Canada’s largest emitter,” Guilbeault said in April during a meeting of the House of Commons committee studying the proposed cap on carbon emissions. oil and gas.

What Guilbeault didn’t say then, and what the discussion paper doesn’t say now, is what the specific emissions cap will be. It is supposed to start at “current levels” – which, based on the data available when this promise was made, would mean 2019 levels of 203.5 million tonnes.

Reference documents and government sources suggest that the cap for 2030 will be very close to that proposed in the new national emissions reduction plan in March – 110 million tonnes. This is a reduction of 46% from 2019 levels and 32% from 2005.

Canada aims to reduce emissions in all sectors by 40-45% below 2005 levels by 2030.

The oil and gas sector has not had such low emissions since 1992. Over the past three decades, as gas, conventional oil and tar sands production has soared, sector emissions have increased by 83%. Overall emissions in Canada are about 23% higher over the same period.

Comments on options for managing the cap will be accepted until September 21, with Guilbeault aiming to unveil the final plan in early 2023.

The first option proposed involves a new cap and trade system on the oil and gas sector in isolation. Total allowed emissions would be divided into individual allowances which would be allocated to specific companies primarily 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 would be recycled into programs that help the sector reduce emissions.

The second option would modify the price of industrial carbon already applied to the oil and gas sector, possibly by increasing the price itself if necessary, but with the aim of lowering emissions from the oil and gas industry itself by limiting the trading carbon credits to the sector.

Companies can currently reduce the carbon price they pay by buying credits from others who produce less than their emissions limit. The amended plan would only allow them to buy credits from other oil and gas companies, not 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.

That’s been the Conservative Party’s position on the industry for years — using cleaner Canadian fossil fuels to replace dirtier ones produced elsewhere.

The industry has work to do, especially on the oil side, where Canada’s heavier oils require more energy to extract from the ground than in places like Saudi Arabia. Although oil sands emissions per barrel of oil, known as emissions intensity, have declined by about 30% 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 bring emissions to net zero by 2050, primarily through carbon capture and storage projects that trap greenhouse gases greenhouse before they enter the atmosphere and then store them underground. .

The alliance, whose member companies account for 95% of oil sands production, released a plan this spring to cut emissions by 22 million tonnes from 2019 levels by 2030.

Business leaders said they do not oppose a cap, but insist it must be realistic and based on consultations with industry on what is feasible. Anything more than that would likely lead to production cuts and job losses, they argued.

But the Alliance and the government remain far apart on some fundamental issues, such as determining current emission levels. The latest national inventory report says emissions from oil sands production and processing were 83 million tonnes in 2019, but the Alliance pegs the figure at 68 million.

A government official, speaking in the background because he was not authorized to speak publicly, said that if the cap on emissions from the oil and gas sector were higher than the emissions reduction plan, it would force the other industries to cut more than their share or Canada will not meet its 2030 targets.

This report from The Canadian Press was first published on July 17, 2022.

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Bonny J. Streater