In recent days, the federal government has signaled its intention to release its detailed plan to cap emissions from Canada’s oil and natural gas industry.
Since this plan’s inception, CAPP has expressed serious concerns about its complexity and potential negative economic impacts, particularly as Canada faces significant economic headwinds.
Analysis of the federal government’s plan reveals that it’s less of an emissions cap and more of a cap on Canada’s economy and prosperity.
For example, S&P Global Commodity Insights analyzed the potential impact of a stringent emissions cap targeting a 55% reduction by 2035 on Canada’s conventional oil and gas sector (which includes all natural gas and oil production outside of the oilsands). That report showed that by 2035, such a policy would lead to a reduction of two million barrels of oil equivalent per day (BOE/d) in oil and natural gas production, costing the Canadian economy $247 billion in cumulative gross domestic product (GDP) and 51,000 jobs.
By contrast, the same study showed that enabling production to grow by one million BOE/d by 2035 would deliver over $1 trillion in cumulative GDP and add 36,000 jobs.
An analysis completed by Deloitte for the Alberta government that includes the oilsands estimated that from 2030 to 2040, the proposed emissions cap plan would cumulatively cost Alberta $191 billion in real GDP and $91 billion in the rest of Canada.
The federal government’s proposed plan is a blunt-force policy with inadequate thinking about how it can be implemented across a broad and diverse industry.
The first issue is the complexity of the emissions cap.
The oil and gas industry spans coast to coast, comprising hundreds of companies, tens of thousands of facilities, and over 100,000 producing wells. The conventional sector provides jobs and economic benefits across hundreds of communities and supplies feedstock for the growing liquefied natural gas (LNG) export industry. Offshore operations are vital to Newfoundland and Labrador’s economy, while Alberta’s oilsands are a major driver of national prosperity. Each sector operates in unique environments with distinct geology. They produce various types of oil and natural gas products through different methods, with a supply chain that spans the country and includes thousands of Canadian businesses.
The federal government has implemented more ambitious methane reduction targets, the Clean Fuel Regulation, and carbon levies on industry and consumers, and is soon to finalize its Clean Electricity Regulation.
The logistics of implementing yet another set of complex regulations for the emissions cap—on top of an already large stack of incongruent energy and climate regulations—will make it virtually impossible for companies to comply without cutting production.
Reductions in Canadian supply will have no impact on global oil demand and consumption. Instead, the investment, jobs, and millions of barrels of energy we lose here will flow to other producing nations, most of which do not share Canada’s high environmental and human rights standards.
The second issue is that this policy will harm Canada’s competitiveness for investment. Canada will be the only nation to impose a cap on its oil and natural gas industry. Investors require regulatory clarity, but an emissions cap adds unnecessary complexity and uncertainty. As a result, they will turn to other regions where they can plan future growth more reliably.
The third issue, though less known, will still negatively affect the country. The federal government’s emissions cap framework proposes a new cap-and-trade system specifically for the oil and gas industry. This would duplicate existing provincial systems, jeopardizing the clean technology investments needed to reduce Canada’s emissions.
The framework proposed by the federal government would drive a stake into the heart of the economy. Rigorous studies from the reputable analysts I cited earlier suggest yet another layer of policy will kill tens of thousands of jobs, drive away billions of dollars of investment, sacrifice over $1 trillion in GDP, and severely impact the lives of all Canadians.
Canada has a choice. We can discourage growth in one of the country’s largest industries and pursue aggressive climate policy at a high cost to Canadians with minimal global impact. Or we can encourage growth and prosperity that benefit all Canadians while continuing to incentivize emissions reductions.
We should also foster a new spirit of collaboration in which the federal and provincial governments work with our $180 billion oil and natural gas industry to develop pragmatic solutions for reducing emissions.
Lisa Baiton, President and CEO, CAPP
