The oil and gas sector is being increasingly scrutinized for its contribution to the climate crisis, as it is estimated that this particular industry is responsible for more than 75 per cent of global greenhouse gas emissions and nearly 90 per cent of all carbon dioxide emissions, according to the United Nations.
While many producers have said they are committed to the global goal of net-zero emissions by 2050, with production of oil and gas expected to continue to ramp up for the foreseeable future, it’s difficult to see how this will be achieved.
“About 28 per cent of our [nation’s] emissions are just from producing oil and gas,” says Nichole Dusyk, senior policy adviser and lead, Canada energy for the International Institute for Sustainable Development (IISD). “That is a major piece in the puzzle in terms of whether Canada can reach our climate targets. Our national targets are 40 per cent to 45 per cent below 2005 levels by 2030. In order for us to reach those levels, we really have to tackle the issue of oil and gas production.”
Right now, the federal government is focused on investment in carbon capture, utilization and storage (CCUS), a technology that captures the high concentrations of carbon dioxide that are emitted into the atmosphere. So far, the federal government has committed $9.1-billion to CCUS, but researchers from the IISD say this isn’t the silver bullet many believe it to be and that other short-term solutions should be explored.
Limiting the amount of oil and gas production could have a stronger impact in the short and long term, and researchers with the IISD say an emissions cap is the only way Canada will meet its net-zero targets. So far, the cap has been met with delays, but federal Environment Minister Steven Guilbeault said in the summer that final regulations are expected next year.
“What’s become clear is that the industry is not going to voluntarily reduce its emissions. It is anticipating growing production. It is anticipating growing emissions,” Ms. Dusyk says. “What we need to do in terms of regulations is make it so that reducing emissions becomes a cost of doing business.”
Canada’s emissions reduction target aims to keep global warming to 1.5 C, as outlined in the Paris agreement.
So far, Canada is expected to fall short of that target, according to a recent audit from the commissioner of the environment’s office, with the lack of an oil and gas emissions cap being cited as one of the main reasons. This is not new or unexpected information as Canada has failed to reach most of its previous emissions targets, according to the audit.
“One option on the table,” Ms. Dusyk says, “is taking the current industrial carbon pricing system, the Output-Based Pricing System, the federal backstop, and altering it so it’s specific to the oil and gas industry and increasing the stringency.”
But while there is widespread skepticism about the oil and gas industry meeting its targets, those in the industry say it’s still a possibility.
“I’m very optimistic that net zero by 2050 is an achievable target,” says Lisa Baiton, president and chief executive officer of the Canadian Association of Petroleum Producers. “I do think we need to have a little bit more pragmatism in terms of how we get there between now and then.”
Ms. Baiton says Canada’s upstream oil and gas producers have been working hard over the past few years to limit the industry’s emissions.
“That’s largely because of the major investments we make that have taken billions of dollars and hundreds of different projects to achieve those results – and we know there’s more to do,” she says.
Those projects include CCUS infrastructure and methane reduction efforts. When it comes to getting behind an emissions cap, Ms. Baiton says the measure is “completely unnecessary” and could scare away potential investors in the industry.
“We are a critical piece of the puzzle to get to net zero and we’re making really meaningful progress on that,” she says. “We should be just really embracing that instead of putting another set of handcuffs on our industry and disincentivizing capital to come to Canada.”
While there are commitments to make oil and gas production cleaner, increasing production will likely wipe out any positive impact, says Nathan Steeghs, a partner and national climate lead at Deloitte.
“The plan right now in Alberta is to boost production by up to 10 per cent. I think that that certainly runs contrary to the emission reduction objectives,” he says.
For Mr. Steeghs, the biggest issue is that the tax incentives are not enough to force the industry to make worthwhile changes.
In early 2022, the Canadian government announced its investment tax credit for CCUS projects, estimated to cost up to $1.5-billion a year to 2030, coupled with the carbon tax. In comparison, the U.S. passed the Inflation Reduction Act in 2022, which pays industry US$85 per tonne of carbon sequestered without the penalties of an added carbon tax.
“I think the challenge that we have from a Canadian perspective is I don’t think the taxpayer wants to fund more with respect to decarbonizing the oil and gas sector and so we’re at a bit of a crossroads here in that the industry’s not really being incented to do it,” Mr. Steeghs says. “We may get there through the carbon tax, but even there, we know that the energy sector’s really only paying a carbon tax on a portion of the emissions, not 100 per cent of the emissions.”
Brandon Schaufele, director of the Ivey Energy Policy and Management Centre, says that oil and gas companies have a real concern around “stroke of the pen risk,” meaning they’re worried that they could sink billions into carbon capture infrastructure only to have the political authority or regulations changed.
“You need a lot of confidence that the policy landscape that you’re working under is stable and credible for a long period of time,” Mr. Schaufele says. “As a result, if you do not have those assurances, you’re really reluctant to put private capital, private funding or private investment behind these types of initiatives.
“I do think that there is commitment by many of these firms to push some of these projects forward, but they do need that policy and regulatory stability,” he adds.
Editor’s note: This article has been updated to clarify a statement by CAPP’s president CEO Lisa Baiton. She said she is very optimistic that net zero by 2050 is an achievable target.