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On Monday, Canada’s environment ministry released a discussion paper asking for public comment on potential means by which the federal government can “cap and cut” national oil industry emissions. 

Producing roughly 27% of Canada’s greenhouse gas (GHG) emissions, oil and gas is responsible for the largest emissions share of all national industrial sectors.  

To achieve Canada’s emission reduction targets of 40-45% below 2005 levels by 2030 and net-zero by 2050, the country’s oil industry must massively reduce emissions while transitioning operations and workforce to low-emission energy production.

That’s not going to be easy. Which is why Environment and Climate Change Canada (ECCC) is considering two options to put a steadily-lowering ‘cap’ on the industry’s emissions: 

• a national oil industry cap and trade program; or

• additional regulations under the Greenhouse Gas Pollution Pricing Act (GGPPA) that could result in an industry-specific carbon pricing rate.

The contemplated cap and trade program would be instituted in the form of regulations under the Canadian Environmental Protection Act. It would impose additional compliance obligations on top of current provincial and federal carbon pricing requirements applicable to oil industry participants. 

In the discussion paper, ECCC recognizes that imposing dual-level regulatory obligations would be complex and burdensome for industry participants. However, emission reductions achieved under provincial and federal carbon pricing systems would count toward the cap and trade program’s emission reduction obligations.

ECCC’s other contemplated option - promulgating additional regulations under the GGPPA - would, however, also create considerable new regulatory complexity. But that burden would be borne to a greater extent by the federal and provincial governments. 

Since the GGPPA allows provinces and territories to establish and operate their own carbon pricing programs provided they comply with federal standards (including the carbon floor price), additional regulations intended to ‘cap and cut’ oil industry emissions would have to be crafted for compatibility with the myriad different regulatory programs in place across Canada. 

The principle means of lowering oil industry emissions by this route would likely be an industry-specific carbon pricing rate above the rate applicable with respect to other industries. Contemplated new regulations might also require greater disclosure regarding production and emission forecasts, allowing ECCC to plan potential oil industry-specific carbon price hikes effectively. 

The cap and cut regulations are intended to apply with respect to scope 1 and 2 direct emissions generated by “upstream” production activities producing the bulk (84%) of oil industry emissions. Indirect scope 3 emissions generated by customers, suppliers, etc. will not be covered. The government is considering applying the rules to “downstream” refining activities responsible for 10% of the sector’s emissions.

Written comments regarding the proposed options can submitted to ECCC by email until Sep 30, 2022 at PlanPetrolieretGazier-OilandGasPlan@ec.gc.ca. For more information, visit ECCC’s webpage on the discussion paper here. 

Looking for legal assistance in connection with carbon pricing and other climate policy matters? Contact us at 647-724-4308 or info@greeneconomylaw.com. 

Also, to learn more about Canadian carbon pricing, see our recent report and online course on the subject.