On December 7, the federal government released the proposed Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap. At the same time, the federal government also released its Roadmap for the Decarbonization of Canada’s Oil and Gas Sector.  

The proposed Regulatory Framework will create specific limits on greenhouse gas (GHG) emissions between 2026 and 2030 and beyond, as well as associated cap-and-trade systems.  

The proposed Regulatory Framework would apply to upstream activities including exploration and the production of crude oil and natural gas. This would include the oil sands, conventional oil, offshore oil and gas production. Natural gas production (including liquified natural gas) and processing are also included.  

The proposed Framework would not include downstream activities (refining products for end-users), as these activities are already covered by the Clean Fuel Regulations.  

National Impact 

The federal government noted that the oil and gas sector is both an important economic driver and emitter in Canada. In 2022, the sector directly accounted for 7.2% of Canada’s nominal GDP and contributed $12 billion annually on average (between 2017 and 2021) to government revenues. The sector directly and indirectly employed 412,600 Canadians in 2022. At the same time, the sector is collectively Canada’s largest emitter, accounting for 28% of all CO2 emissions in 2021. In 2019, the sector produced 201MT of CO2e (MT = 1,00,000 tonnes). The emission intensity of the sector though has decreased over time from a combination of energy efficiency, fuel switching and deploying new clean technologies.  

Emissions Cap 

The proposed Framework would cap emissions (phased-in beginning in 2026) to between 106 and 112 MT of GHGs in 2030. This level is 35% to 38% below the 2019 emission levels. The legally allowed upper emissions limit would be 131 to 137 MT by 2030 (or 20 – 23% below 2019 levels). The upper limit is based on forecasts of what is technically achievable based on modelling from the Canada Energy Regulator. The upper limit would further decrease over time.  

The federal government has not proposed limits on production, although increasing production would require further lowering of the emission intensity to meet the cap.   

Source: Estimated and projected oil and gas sector emissions (Mt CO2e) in 2019 and 2030: Environment and Climate Change Canada, A Regulatory Framework to Cap Oil and Gas Sector Greenhouse Gas Emissions, 2023.

Industry Reactions 

  • “…the unintended consequences of the draft framework announced today of a cap-and-trade system with an interim target of a 35% to 38% emissions reductions below 2019 by 2030 could result in significant curtailments – making this draft framework effectively a cap on production.”

– Lisa Baiton, President and CEO, Canadian Association of Petroleum Producers, CAPP news release

  • “It is our view that existing, economy-wide carbon pricing systems, including provincial equivalents such as Alberta’s Technology, Innovation and Emissions Reduction (TIER) system, already provide appropriate regulation to drive emission reductions toward net zero by 2050. Imposing an emissions cap, with additional regulatory complexity, does nothing to advance the certainty necessary for the planned multi-billion-dollar decarbonization projects to proceed.”

– Kendall Dilling, President, Pathways Alliance, Pathways Alliance news release 

Timelines 

The federal government is receiving feedback on the proposed Regulatory Framework until February 5, 2024. You can share feedback via PlanPetrolieretGazier-OilandGasPlan@ec.gc.ca.  

In mid-2024, the government plans to public the proposed cap-and-trade regulations, with the final regulations released in 2025.  

The Regulations are targeted to come into force in 2025. Facilities would be required to register by the end of 2026 and activities covered would be effective January 1, 2026. Compliance periods would be every three years.