Canada has issued an advance notice of a proposed regulatory order that it maintains is a landmark cap on greenhouse gases from the oil and gas sector. It aims at approximately 35% cuts by the sector. It believes that this reduction would align environmental responsibility with continued greater growth in oil and gas production, with further output rising by 16% over 2030 to 2032, relative to 2019, if there were positive decarbonization for companies.
Being one of the sectors that contribute more than 30% of Canada’s national emissions, the government is focusing on a considerable reduction. Since the country has already agreed to reduce its GHG emissions by 40%–45% by 2030 and become net-zero by 2050, this sector-wide cap forms an essential component of the country’s climate strategy. With nearly 400,000 employees in the oil and gas industry, the regulatory approach here is quite measured.
The proposed regulation would institute a new cap-and-trade program. In this program, the companies are given annual-emissions allowances, each representing one tonne of carbon emissions; the emission allowances actually shrink as the emissions cap decreases with time. Companies that cannot meet their cap can buy excess allowances from others, or use GHG offset credits to make up to 20% of emissions, or contribute to a decarbonization program to up to 10%, but the combined use of offsets cannot exceed 20%.
The cap-and-trade scheme will be implemented step by step starting from 2026. The large emitters will begin registering and reporting in 2027, referring to the previous year, while smaller operators will follow in 2029. The first compliance year, when allowances will be provided, is scheduled for 2030. The regulation aims to accelerate innovation further with incentives directed to the best performing companies as well as to pressuring those units that are higher emitting units to make investments on cleaner technologies, including methane avoidance and carbon capture solutions.
As stated by the country’s Minister of Environment and Climate Change, Steven Guilbeault, this regulation calls upon major oil and gas companies that have amassed significant profits over time to invest part of such profits in pollution-reducing technologies that can offer employment-generating capacities to local businesses. Emissions cap would be broadly applicable to the upstream oil and gas industries, including both offshore and liquefied natural gas industries. The activities covered include oil sands extraction, natural gas production, and LNG processing, which is an upstream subsector of around 85% of the industry’s emissions.
The government is opening public consultation on the draft regulation. The final regulation is expected in 2025.