Ottawa unveils draft regulations for oil & gas emissions; experts warn of loopholes, industry leaders push back

The world’s fourth-largest oil producer and fifth-largest natural gas producer has long faced a dilemma: the two sectors are responsible for nearly a third of Canada’s greenhouse gas emissions, while accounting for an outsized share of economic output and employment.

Under Canada’s 2030 Emissions Reduction Plan, the nation has set a target to reduce emissions to 40 percent below 2005 levels by 2030, aiming for net-zero by 2050, with a strong focus on addressing emissions from its largest GHG-emitting sector.

Greenhouse gas emissions in Canada from 1990 to 2022.

(Government of Canada)

It wasn’t until November 4th when the federal government unveiled the Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations draft aiming “to put a clear limit on greenhouse gas pollution” from the sector, targeting a reduction of 35 percent below 2019 levels.

“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,” Minister of Environment and Climate Change Steven Guilbeault announced.

From 2025 to 2032, the proposed regulations are expected to reduce greenhouse gas emissions by 13.4 million tonnes, avoiding nearly $4 billion in climate change damages.

The approach intends to make the production of oil and gas much cleaner, recognizing that while the world transitions from carbon-based energy, the way it continues to be created must become much less polluting. Operations to extract, refine and burn oil and gas have to be more sustainable, allowing production to continue but forcing industry to come up with cleaner approaches throughout the process. The disincentives in the form of regulations will hopefully force the sector to move toward alternative technologies and sources of energy.

The oil and gas industry has been the largest contributor of greenhouse gas emissions in the country over the years.

(Government of Canada)

The system is going to operate as a cap-and-trade model, wherein the government will be allocating allowances that producers must use to offset their emissions. 

Additionally, oil and gas producers will have some ‘flexibility,’ and will be permitted to meet 20 percent of their emissions reduction target by buying offsets or by “making contributions to a decarbonization funding program to cover a limited portion of their GHG emissions.” 

“The emissions cap combined with the limited access to compliance flexibility would ensure GHG emissions from covered operators do not exceed the legal upper bound,” the draft continued.

Environmental Defence’s Oil and Gas Program Manager Aly Hyder Ali told The Pointer that he sees the ability to pay for offsets and contribute to the decarbonization fund not as “flexibilities” but as “loopholes” that make the draft regulations much weaker than what the country needs to avoid emissions levels that will move global temperatures closer to the tipping point.

“This doesn't necessarily translate to actual reduction of pollution from their operations, right? This just asks them to pay for it. And as an industry that's raking in billions of dollars in profits, that’s not enough of an incentive to stop polluting—they can just pay their way out of it." 

Experts at the David Suzuki Foundation told The Pointer that they are “not supportive of the decarbonization fund because that allows companies to pay $50 into a fund per ton of emissions, rather than taking action on them.”

The federal government will seek feedback on the proposed regulations during a formal consultation period from November 9 to January 8, 2025, before finalizing them next year. Environmental Defence will be among the organizations providing feedback on the draft regulations, ensuring that oil and gas companies cannot “wiggle out from actually meeting the responsibility of reducing pollution from their operations” using loopholes left open under the draft regulations.

Ali says one of the easiest methods to reduce pollution from the oil and gas industry is by electrifying their operations, and by reducing methane leaks especially when “the technology to prevent leakage of methane from oil and gas companies is very cheap.”

The oil and gas industry has been the biggest source of methane emissions in the country.

(Government of Canada)

Currently, one of the key components of the draft regulations also circles around reducing methane emissions, a potent greenhouse gas, by 75 percent below 2012 levels by 2030.

(Government of Canada)

Starting 2026, the emissions cap would be gradually implemented over four years with the first compliance period set for 2030 to 2032. At the end of each three-year compliance period, operators must either use their allowances or purchase additional ones from those who have reduced their emissions. 

Ali argues that the issue with this setup is that oil and gas companies won’t be required to reduce pollution until 2032, but interim targets should be established to ensure reductions begin sooner. “Delaying further will make it harder to reach the 2050 goals.” 

The draft states: “The emissions cap for each calendar year of a compliance period is equal to 73 percent of the sum of the attributed GHGs for the 2026 calendar year of each facility for which an annual report was required for that year.”

It details that only large oil and gas producers, generating “equal to or above the annual threshold of 365,000 barrels of oil equivalent”, would need to cover their emissions with allowances “until its total production was less than half the annual threshold for four consecutive years.” 

All companies of all sizes would be required to register and report their emissions under this new system.

If approved, Canada will become the first nation in the world to have imposed binding requirements on its oil and gas sector to reduce its rising carbon emissions.

The announcement came just a day after Alberta’s United Conservative Party members voted at their annual general meeting on Saturday to eliminate provincial emissions reduction targets and formally recognize carbon dioxide as “a foundational nutrient for all life on Earth.”

“I’m pissed — I’m absolutely angry,” Alberta Premier Danielle Smith said in a press conference, expressing frustration over the emissions cap, which she argues violates Canada’s constitution, and interferes with provincial jurisdiction.

The divide between Ottawa and Alberta couldn’t be clearer: one sees carbon as an existential threat to life on Earth; the other sees it as a foundational nutrient for all life.

The federal government has added six greenhouse gases to the List of Toxic Substances set out in Schedule 1 of the Canadian Environmental Protection Act, which allows the federal government to regulate emissions of these gases regardless of the source.

“That's what's putting Canada's 2030 target at risk, the fact that we don't have everyone on board,” the David Suzuki Foundation’s Senior Climate Policy Adviser Thomas Green, said. “We need the industry to do its part, and it hasn't been doing it so far…we need premiers like that of Alberta, Saskatchewan and Ontario, to stop pushing back on climate policy, by actually taking it seriously.” 

Premier Smith, meanwhile, claims “this cap will require a one million barrel a day production cut by 2030.” 

The actual impact on production is expected to be minimal—around one percent. 

According to Environment and Climate Change Canada, Canadian oil and gas production is projected to rise by 17 percent from 2019 to 2030 without the emissions cap, and by 16 percent with the cap in place, “provided the sector implements technically achievable decarbonization measures.”

As the federal government’s statement clarifies, “the proposed regulations put a limit on pollution, not production.”

Echoing the point, Green told The Pointer the regulations act as a “tool” for the federal government to focus on emissions coming from oil and gas producers.

“Those operators that can figure out how to reduce their emissions will be the chief beneficiaries, and if some renegade operators are using very polluting technologies, they will find this more difficult,” Green added.

Smith says her government is now exploring legal options in response, and described the policy as a “deranged vendetta” by Guilbeault.

Alberta’s government, in collaboration with oil and gas lobbyists, has launched its own campaign.

If you search for ‘Canada oil and gas emissions cap,’ a ‘sponsored’ link for the 'Scrap The Cap' campaign will appear in the results. The campaign’s website stirs fear, urging Canadians to “Prepare for the worst,” and highlighting claims that the “production cap” will result in the loss of 150,000 jobs nationwide, while making “groceries, gas and all of life’s necessities even more expensive.”

While there are no studies or reports to support these claims, we know climate change is already causing significant economic damage to Canada. According to a report by the Canadian Climate Institute titled Damage Control: Reducing the Costs of Climate Impacts in Canada, climate change could cost Canadians annual GDP losses of $35 billion by 2030. 

Therefore, “securing a safe and climate-stable future is only possible if we have strong emissions reduction targets backed by strong laws,” Ecojustice’s Interim Climate Director Fraser Thomson said in a statement shared with The Pointer.

He welcomes the draft regulations as a “critical step towards ensuring that Canada’s oil and gas sector’s emissions targets have the force of law and that everyday Canadians are protected from the growing costs and dangers of runaway climate change.”

The Canadian Association of Petroleum Producers (CAPP) President and Chief Executive Officer Lisa Baiton does not see the regulations the same way. 

To her they are “an unnecessarily complex layer on top of an already overly complex web of energy and climate regulations across the country. The introduction of this draft regulation comes with the high probability of negative impacts on the Canadian economy and no guarantee of emissions reductions.”

Speaking with The Pointer, Ali said he’s not shocked, and expected such statements from the oil and gas industry “because they’ve spent decades denying climate change.”

“What these regulations really do is they just solidify or codify the commitments that oil and gas companies have already made.” He calls the regulations “ground breaking.” 

For the cap to be truly effective, the draft regulations must be strengthened, and collaboration from provincial governments is a must. He says the target for companies to reduce emissions has to be increased “to at least match what the rest of the economy is being asked to do…nearly half of pollution by 2030.”

As far as the claims made by some Conservative leaders and oil and gas industry leaders, Green says “when there's a new regulation, they kick and scream and say, this is going to cause the economy to crash. This is terrible, and jobs will be lost. And then what do we discover? We discover a whole bunch of jobs are often created because industry has to find better ways to do what it's doing…For instance, I work a lot on oil and gas methane emissions. And now there's all sorts of jobs for people who are installing better equipment that doesn't vent methane into the atmosphere.”

The draft highlights that while there will be some economic costs—estimated at $3.3 billion—mainly from the oil and gas sector’s efforts to cut emissions, the regulations are expected to bring net benefits of $428 million. These estimates don’t include benefits from reduced air pollution, job impacts from carbon capture technology investments after 2032, or the potential growth of new low-carbon industries like clean hydrogen.

Experts at both Environmental Defence and the David Suzuki Foundation agree the rules “must take effect sooner than the proposed 2030 timeline” ideally before the next federal budget.

“Because without this policy, oil and gas companies will not do it voluntarily,” Ali said. “They're going to continue jeopardizing our future. They're going to continue to put us at risk while they rake billions and billions of dollars, and we’ll have to pay for the impacts of climate change.”

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