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An oil well service rig and storage tanks are seen surrounded by farm land near Cremona, Alta., on July 5.Jeff McIntosh/The Canadian Press

The federal government is ramping up one of its more ambitious – and contentious – efforts to curb Canada’s contribution to global warming: the introduction of new caps on greenhouse gas emissions from the oil and gas sector.

After first promising this during last year’s election campaign, Prime Minister Justin Trudeau’s Liberals are wrapping their heads around what it could actually mean. Last week, Environment Minister Steven Guilbeault launched public consultations on the policy, which Ottawa aims to finalize early next year, and released a discussion paper that lays out a couple of options for how it could be implemented.

What the government had yet to answer is this basic question: Exactly how much of an emissions cut does it think the industry can and should be expected to achieve?

Mr. Guilbeault’s eventual answer has to land in a sweet spot: pushing oil and gas companies to cut pollution as quickly and deeply as possible, but without making demands that are so onerous or expensive that the only way to meet them is for companies to cut production more than the global market for oil and gas would otherwise demand.

It’s tempting to say that the government should simply tell the oil patch that it has no choice but to do whatever it takes to contribute to meeting Canada’s target of a 40 per cent reduction in total GHG emissions from 2005 levels by 2030.

But based on modeling in the national Emissions Reduction Plan published by Ottawa earlier this year, that would mean cutting oil and gas sector pollution by a whopping 42 per cent from 2019 levels. (The modeling did not reflect what the regulated emissions cut would be.)

There are emerging production methods that will allow the industry to get part way to even an ambitious GHG target, through more efficient processes. There is also the low-hanging fruit of stopping methane leaks from natural gas and conventional oil extraction. But some of the promising technologies expected to play the biggest role, notably carbon capture, likely won’t be available at scale until the 2030s.

As such, if the industry’s emissions are capped at a level consistent with the national 2030 goal, then significantly reducing production would likely be the only way to meet the targets. That presents a three-headed problem. First, artificially lowering Canadian oil and gas production would impose heavy economic costs on Canada. Second, it might yield few environmental benefits, merely sending customers (and their dollars) to other countries – because as long as there is demand, others will provide the supply. Third, Ottawa would be blamed for major job losses in Western Canada, with the accompanying strain on national unity.

But Ottawa also needs to tune out industry voices claiming that any level of more stringent GHG emissions rules will make Canadian producers uncompetitive.

In fact, the bigger risk to the long-term competitiveness of Canada’s oil patch – in a global marketplace increasingly focused on environmental performance – is the fact that per-barrel emissions are still higher in Canada than in most other oil-producing nations. The industry is not doing nearly enough to address this. Despite record profits, companies so far are investing only modestly in clean technologies, prioritizing returns to shareholders instead.

So Ottawa shouldn’t shy away from wielding a stick to go with the billions of dollars in carrots that it is dangling, notably a tax credit to encourage investment in carbon capture.

Ottawa has to tune out the most radical voices from both sides of this debate and make a reasonable, fact-based determination about how much of an emissions reduction the industry realistically can be asked to achieve.

As for how the caps are designed, last week’s discussion paper makes clear that either of two main options being considered – a new regulatory system, in which fossil-fuel producers would have to buy credits if they failed to get their emissions under a certain level; or beefing up the existing industrial carbon-pricing system – will be complex to create.

Ottawa should lean toward whichever option industry believes will ultimately be simpler for compliance, and less liable to confusingly overlap with existing regulations.

Ottawa has to strike a careful balance. It has to aggressively push Canada’s highest-emitting industry onto an ambitious path of GHG reduction – but it must not push so hard that it undermines a pillar of the Canadian economy. Find the middle path.

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