Emissions cap slammed

Alberta Premier Danielle Smith and Canadian oil and gas producers came out swinging today in response to a new draft federal oil and gas emissions cap for oil and gas production that is unlikely to survive, should the Trudeau government be unseated by the Conservatives in the next federal election.

Which would leave B.C.’s natural gas and LNG sectors at a disadvantage to producers in Alberta, unless B.C. also scrapped its own proposed caps.

Federal Environment Minister Steven Guilbeault today announced draft regulations for capping greenhouse gas emissions from oil and gas sectors – which is to say Alberta, B.C., Saskatchewan and Newfoundland.

The regulations would require a 35 per cent reduction in emissions from oil and gas below 2019 levels by 2030.

Given that reducing the sector’s emissions by one-third in just eight years is unlikely to be achieved, Smith said the cap is actually a cap on production.

“It is not an emissions cap, it is a production cap,” Smith said in a press conference, where she threatened to launch a constitutional challenge to the proposed caps.

“This cap will require a production cut of an estimated one million barrels per day by 2030, and 2.1 million barrels per day by 2035, according to S&P Global,” Smith said.

B.C. has its own proposed emissions cap for oil and gas, so if the federal caps were to be scrapped – something a Conservative government could be counted on to do, should they form government in the next election – B.C. producers could be left at a disadvantage to their cohorts in Alberta.

Whereas the federal caps would require a 35 per cent reduction in oil and gas emissions below 2019 levels by 2030, B.C.’s legislation proposes caps of 33 to 38 per cent by 2030, but with a different baseline – 2007.

“Their benchmarks are different, and they are slightly different types of policy, too,” said Janetta McKenzie, manager of the oil and gas program for the Pembina Institute.

Whereas the B.C. caps would be facilitated through its new industrial output based pricing system, the federal mechanism used would be a cap-and-trade system.

“It’s a good question to be asking is how these two caps will work together,” McKenzie said.

“B.C. is going to use an existing policy mechanism – their output based pricing system – to achieve their oil and gas sectoral target. The federal government is implementing a new cap-and-trade system across the country that will lay on top of existing provincial policies.

“What role B.C.’s cap will play in that is still very much to be decided, and that’s because there is a bit of this waiting to see what the federal cap would look like. Now that the draft is out, we’re likely to see quite a bit more movement on that.”

B.C. would also take a very different approach to meeting those caps than Alberta.

Whereas Alberta plans to reduce the emissions intensity of its oil and gas sector mainly though carbon capture and storage – the $16 billion carbon capture initiative by oilsands producers via the Pathways Alliance being one of the major initiatives – the B.C. governments is opting for electrification of the natural gas and LNG sectors.

The emissions caps are simply unrealistic, says the Canadian Association of Petroleum Producers (CAPP).

“The introduction of this draft regulation comes with the high probability of negative impacts on the Canadian economy and no guarantee of emissions reductions,” said CAPP CEO Lisa Baiton.

TC Energy (TSX:TRP) also slammed the proposed federal caps, echoing Smith’s contention that they will be de facto caps on production for natural gas.

“Canadian natural gas is amongst the world’s most affordable, sustainable, and secure,” said TC Energy CEO François Poirier.

“An emissions cap, which will act as a cap on domestic production of natural gas, will harm Canadian families and businesses by raising prices on energy. It will also set back the global efforts toward climate change by slowing down the coal-to-gas switch underway that has been responsible for 55 per cent of Canada's total emissions reductions.”

While carbon capture would do much of the heavy lifting for Alberta’s oil sector in reducing CO2 emissions, methane abatement will also be key in reducing emissions intensity for the natural gas sector in particular.

“Across the sector, methane abatement will be a really big component of meeting these caps,” McKenzie said.

A lot of electricity would be needed for the natural gas and LNG sectors in B.C. to meet the emissions caps, which could pose a challenge.

The use of offsets for LNG projects that can’t fully electrify operations will be available, but McKenzie notes that carbon offsets will be limited.

“It’s 20 per cent of their compliance that they can do for that,” she said of the federal legislation, adding there would be a “limited amount” of offsets available under B.C. caps as well.

The Pembina Institute supports the emissions caps, saying that oil and gas account for nearly a third of all of Canada’s greenhouse emissions, with the oil sands sector alone accounting for 12 per cent of Canada’s total emissions.

The oil and gas sector also contributes substantially to Canada’s economy.

According to Statistics Canada, the oil and gas sector accounts for five per cent of Canada’s overall GDP, 21 per cent of Alberta’s, and 25 per cent of Newfoundland and Labrador’s GDP.

According to CAPP, oil and gas extraction in Canada employs 150,000 workers directly, and 900,000 through direct and indirect employment.