The Department of the Environment and the Department of Health issued a notice proposing regulations to cap greenhouse gas (GHG) emissions from Canada’s oil and gas sector, to reflect the country’s commitments under the Paris Agreement to reduce emissions and achieve net-zero emissions by 2050.

With oil and gas accounting for 31% of Canada’s GHG emissions, the sector’s emissions have remained high despite reduction efforts. The proposed regulations aim to set an emissions cap and introduce a cap-and-trade system to manage and reduce GHG emissions effectively. Operators in the oil and gas sector will need to register, report, and comply with remittance obligations based on the emissions cap, with allowances distributed annually according to historical production. The cap will be supported by compliance flexibility mechanisms, such as offset credits and decarbonization units, to help operators achieve reductions.

The objective of these regulations is to ensure the oil and gas sector contributes meaningfully to Canada’s climate goals, balancing emission reductions with the sector’s economic significance. This includes adjustments based on production levels and market conditions, fostering competitiveness in a low-carbon global market. The regulations also mandate consequential amendments to the Output-Based Pricing System Regulations and the Canadian Environmental Protection Act to support the cap’s implementation.

In economic terms, the regulations are anticipated to yield net benefits, valued at an estimated $428 million from 2025 to 2032, by achieving GHG reductions and stimulating investments in clean technologies. Projected reductions are incremental to existing policies and aim to drive a cumulative GHG reduction of 13.4 Mt, valued at $4 billion in avoided climate damages. The analysis also identifies costs for industry and government, with anticipated benefits extending beyond emissions reductions, including long-term gains from a decarbonized, competitive oil and gas sector. Additionally, the regulations are projected to stimulate related low-carbon industries, such as carbon capture, utilization, and storage (CCUS) and clean hydrogen, fostering a transition to a more sustainable economy.

As part of Canada’s broader 2030 Emissions Reduction Plan, the proposed cap addresses Canada’s pledges to limit warming to 1.5 °C. The document highlights ongoing regulatory and incentive-based measures that, while effective, lack guarantees on sector-wide emissions levels. This cap-and-trade system intends to bridge this gap, offering a clear pathway for the oil and gas sector to contribute to Canada’s 2030 targets and maintain competitiveness globally while transitioning to a low-carbon future.

Canada (Proposed) November 9, 2024