Here’s one of the biggest Canadian news stories you probably haven’t read anything about.
Greenhouse gas emissions from the oil and gas industry peaked eight years ago. They have since fallen 7 per cent. But emissions didn’t fall because the production of oil and gas fell. It rose 16 per cent, to record levels, as emissions declined.
How could that happen? It’s the result of smart climate policy. In 2016, Canada and the United States promised to push the oil and gas industry to reduce emissions of methane, an especially potent greenhouse gas. “Venting” methane, better known as natural gas, had long been business as usual. Ottawa finalized the rules in 2018.
In the latest official climate data, released in April, oil and gas emissions in 2021 were 189 megatonnes. That’s down from a peak in 2015 of 203 MT – and the drop in venting methane more than accounted for the decline. During the same time, oil output climbed to nearly five million barrels a day from less than four. Gas production also rose and recently set new highs.
These two shifts are an essential context in the debate about how to further drive down oil and gas emissions. There’s a long way to go to net zero but for the first time there’s some real progress.
In the 2021 election campaign, the Liberals made a new promise on top of their existing climate plans: an “ambitious and achievable” emissions cap on oil and gas. The first cap would be set in 2025 and it would be lowered in 2030. It was an easy idea to market – but problems were obvious. A new system seemed unwieldy – a cap by company, by province, by type of fossil fuel? – and would likely attract legal challenges, as had the carbon tax.
The Liberals pressed forward. Last summer, Ottawa outlined options. A plan is expected soon. There are two avenues: the completely new path, a regulated cap and specialized rules for oil and gas; or strengthening the existing carbon tax system.
Ottawa last year also put out its economywide Emissions Reduction Plan. A goal was set for oil and gas to cut emissions by about 40 per cent by 2030. That is certainly ambitious, and perhaps too aggressive. But in the plan, the Liberals made a specific pledge: “The intent of the cap is not to bring reductions in production that are not driven by declines in global demand.” In plans for a potential cap, however, Ottawa said the cap “should account for” cutting oil and gas emissions by about 40 per cent.
It is unlikely that any oil and gas industry anywhere will cut its emissions by that much in the next seven years and maintain output. And what if the U.S. in 2030 still wants to buy as much Canadian oil and gas as it does today?
Cutting emissions should be done at the lowest cost across the economy – rather than take singular aim at one target. The carbon tax is Canada’s main tool and should be better used. The problem with the industrial carbon tax is it’s not tough enough. Most industries pay for only a small portion of their emissions. In the oil business, it amounts to less than $1 a barrel. The stringency of that tax must be increased, more than Ottawa and the provinces have planned. The proposal of a sector-specific emissions cap is an overly complicated idea. An industrial carbon tax that rises over time provides scope for innovation in oil and gas, and across the economy.
An emissions cap for oil and gas may seem popular but there are big legal and political risks. The carbon tax went through that odyssey. Applying the carbon levy to industry is now widely accepted, including by the United Conservative Party in Alberta.
It is true oil and gas is Canada’s largest emitter, at 28 per cent of the total. But transportation, fuelled by oil, is next at 22 per cent. Yet in the Emission Reduction Plan, emissions from cars, trucks and the rest are forecast to decline by just 3 per cent by 2030 from 2021. The reality is the vast bulk of oil and gas emissions comes from burning them – driving, home heating – not pulling fossil fuels from the ground. The world needs to use less oil and gas. Lower demand equals lower emissions.
Industry has to cut a lot more, too. Smart regulations can work. Look at the rules for methane. But more regulations aren’t always the answer. When it comes cutting domestic oil and gas emissions, stick with the policies that are already working.