Canada is set to implement a groundbreaking emissions cap on its oil and gas sector, aiming to slash greenhouse gas emissions by 37% by 2030 compared to 2022 levels. The move, announced on Monday, has sparked strong opposition from the energy industry and provinces such as Alberta. The plan introduces a cap-and-trade system designed to incentivize high-polluting firms to invest in emissions-reduction projects while acknowledging better-performing companies. This initiative to cap emissions from the oil and gas industry was first unveiled during COP28 in Dubai last year.
Environment Minister Steven Guilbeault emphasized the significance of this step, stating, “Every sector of the economy in Canada should be doing its fair share when it comes to limiting our country’s greenhouse gas pollution, and that includes the oil and gas sector. We are asking oil and gas companies who have made record profits in recent years to reinvest some of that money into technology that will reduce pollution in the oil and gas sector and create jobs for Canadian workers and businesses.” According to the latest National Inventory Report, Canada’s oil and gas sector accounted for 31% of the country’s total emissions in 2022, making it the largest emitting sector, followed by transportation and buildings.
In 2022, Canada’s oil sands alone contributed 87 megatonnes of oil and gas emissions, representing 40% of the sector’s total emissions. The surge in emissions has largely been driven by increased production. Since 1990, Canada’s total crude oil output has skyrocketed by 193%, with oil sands operations witnessing an over 800% growth, accounting for 80% of this production increase. This growth underscores the significant impact of oil sands on Canada’s overall emissions, as highlighted in the National Inventory Report.
The major carbon emitters in Canada are predominantly concentrated in Alberta and Saskatchewan, where oil sands and natural gas production are prevalent. Key players in the sector, such as Suncor Energy Inc., Canadian Natural Resources Limited (CNRL), Imperial Oil Limited, and Cenovus Energy Inc., have reported their latest greenhouse gas emissions and set net-zero goals to reduce their carbon footprint over the coming years.
Suncor Energy Inc., one of Canada’s largest integrated energy companies, emitted nearly 35 million metric tons of carbon dioxide equivalent (MtCO₂e) in 2022. The company aims to achieve net zero in its operations by 2050 and reduce emissions by 10 megatonnes across the value chain by 2030. CNRL, another major player, released over 23 million MtCO₂e in 2022 and is committed to reducing its carbon footprint by 40% in Scope 1 and 2 GHG emissions by 2035, with a net-zero target by 2050. Imperial Oil Limited and Cenovus Energy Inc. are also actively pursuing emissions reduction initiatives to reach net-zero emissions by 2050.
Canada’s proposed emissions cap for the oil and gas sector focuses on regulating emissions rather than limiting production. These regulations have been formulated through consultations with industry stakeholders, Indigenous communities, provinces, and territories, aligning with achievable technical measures. The approach allows for production growth, with a projected 16% increase by 2030-2032 from 2019 levels, assuming companies implement decarbonization measures. The pollution cap will cover upstream oil and gas facilities, including offshore and liquefied natural gas (LNG) production, which collectively contribute around 85% of the sector’s emissions.
As the 4th-largest oil and 5th-largest gas producer globally, Canada aims to remain competitive in a decarbonizing market by adapting to growing demand for low-pollution fuels. The emissions cap is positioned to assist Canadian oil and gas producers in adjusting to evolving global demand while supporting national emissions targets. With a target of reducing emissions by 40-45% below 2005 levels by 2030, the energy sector, responsible for over a quarter of all emissions, plays a crucial role in achieving Canada’s climate objectives.
Despite the environmental benefits, the emissions cap has faced criticism from Alberta and the Canadian Association of Petroleum Producers (CAPP), who argue that it effectively imposes a production cap. They warn that the policy could lead to price hikes, significant job losses, and a potential economic cost of up to C$1 trillion (US$720 billion). Greenpeace Canada’s Keith Stewart advocates for a stringent cap, highlighting the insufficient investments by oil companies in pollution-reducing measures. Conversely, Deloitte’s analysis suggests that the cap might prompt companies to reduce production rather than adopt expensive technologies like carbon capture and storage (CCS) to curb emissions without cutting output.
As the debate intensifies, it underscores the tension between ambitious climate policies and the economic impacts on the energy sector and provincial economies. The final plan and its reception will be crucial in shaping Canada’s climate and energy future.
