On Monday, the Trudeau government introduced draft regulations for an emissions cap on Canada’s oil and gas sector, aiming to cut emissions by 35% from 2019 levels by the decade's end. This policy, expected to stir a new chapter in the ongoing debate between Ottawa and the Prairie provinces, seeks to cap greenhouse gas emissions while allowing the industry to continue production growth.
At the heart of the plan is a proposed cap-and-trade system, a mechanism the Liberals initially promised during their 2021 election campaign. Under the system, Ottawa will set an emissions quota for the sector, with companies receiving free allowances that decrease over time, pushing them toward cleaner operations. The cap doesn’t limit oil production directly, but it is intended to spur reductions by incentivizing companies to innovate and lower their emissions.
The federal government highlights that Canada’s oil and gas sector, responsible for over 400,000 jobs, has the resources to reinvest record profits into cleaner production methods. Environment Minister Steven Guilbeault stated, “The oil and gas industry is Canada’s largest source of greenhouse gas emissions, and this policy challenges the sector to do its fair share in combating climate change.”
Canada remains the world’s fourth-largest oil and fifth-largest natural gas producer. According to the government, as global demand peaks and then declines, the market will favour fuels extracted with the least environmental impact. The cap-and-trade system aims to ensure that Canada’s oil and gas remain competitive while contributing to emissions reductions.
The policy follows extensive consultations with industry stakeholders, Indigenous communities, and provincial leaders. While some oil and gas companies have already committed to reducing emissions through measures like carbon capture and methane reduction, others, particularly from oil-producing regions, warn the cap could hinder economic growth and put jobs at risk.
This emissions cap is part of a broader climate strategy that includes financial support for technologies like carbon capture, funded through federal programs such as the Canada Growth Fund and new tax credits. The proposed regulations will undergo continued consultations before final regulations are expected in 2025.