On November 4th, 2024, the federal government announced its long-awaited draft Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations.
The Regulations as proposed would regulate upstream oil and gas facilities, including offshore facilities, and would also apply to liquefied natural gas production facilities. It would not include oil refineries, which are already subject to the Clean Fuel Regulations. An emissions limit (cap) would be created for these facilities such that CO2 emissions from the sector in 2032 would be 35 per cent below 2019 levels. To achieve the regulatory goal, the federal government would create a cap-and-trade system to incentivize better performers.
The first compliance period, 2030-2032, is expected to reduce emissions by 27% from 2026 reported emissions, which will be adjusted accordingly.
Operators in the sector would be provided specified distribution rates (allowances based on production levels) for each type of covered activity.
Concerns have been raised that, although not intentional, the emissions cap will limit the sector’s production as well, by limiting the sector’s growth potential based on feasibility costs of emission reduction beyond the cap to accommodate additional production. Environment and Climate Change Canada forecasts that, even with the emissions cap in place, oil and gas production will grow by 16 per cent by 2032 from 2019 levels.
“Newfoundlanders and Labradorians are proud of our energy sector and our workers, and we agree that we need to cut pollution to stay competitive in the global economy. The offshore industry in Newfoundland and Labrador has found innovative ways of producing the energy the world needs while creating less pollution.”
– The Honourable Gudie Hutchings, Minister of Rural Economic Development and Minister responsible for the Atlantic Canada Opportunities Agency
The Consultation on the draft Regulations is open until January 8, 2025. The final Regulations are expected to be published in Spring 2025.
Initial feedback from oil and gas sector stakeholders:
“This emissions cap isn’t necessary. Guilbeault and the federal government need to rethink their position on this legislation and instead work with industry to invest in realistic emissions-reduction policy, including a timeline that makes sense for all.”
– Alex Pourbaix, CEO, Cenovus Energy
“CAPP and our members believe the draft emissions cap regulations, if implemented, are likely to deter investment into Canadian oil and natural gas projects. The result would be lower production, lower exports, fewer jobs, lower GDP, and lower revenues to governments to fund the critical infrastructure and social programs on which Canadians rely.”
– Lisa Baiton, President & CEO, Canadian Association of Petroleum Producers