Ottawa’s Emissions Cap Will in Effect Become a Production Cap, Says CIBC Analysis

The analysts say requiring the oil and gas industry to cut emissions by 35 to 38 percent below 2019 levels by 2030 is ‘unrealistically ambitious.’

Minister of Environment and Climate Change Steven Guilbeault speaks to members of the media at the COP28 U.N. Climate Summit in Dubai on Dec. 8, 2023. AP Photo/Peter Dejong

Ottawa’s push to have oil and gas companies cut emissions by at least one-third of 2019 levels by 2030 is not only “unrealistically ambitious” but also risks curtailing production, CIBC says.

“The timing of the cap remains unrealistically ambitious, and hence would make it onerous if implemented,” wrote CIBC Capital Markets analysts Shaz Merwat and Dennis Fong in a Dec. 7 note to clients, as reported by Yahoo Finance.

The federal government had unveiled the emissions cap plan that same day—requiring the oil and gas industry to cut emissions by 35 to 38 percent below 2019 levels by 2030.

Environment Minister Steven Guilbeault, who announced the plan at the United Nations Climate Change Conference in Dubai, the United Arab Emirates, said that “pollution from the oil and gas sector is still going up” and that the emissions cap would “establish a pathway to carbon neutrality by 2050.”

At the announcement, Natural Resources Minister Jonathan Wilkinson added that the oil and gas cap is an “important part of Canada achieving its goal of a 40 to 45 percent reduction across the economy by 2030.”

The emissions cap would take the form of a cap-and-trade system. The oil and gas sector will be able to buy a limited number of carbon offset credits or contribute to a decarbonization fund to lower the requirement to cutting just 20 to 23 percent.

The Liberals aim to publish draft regulations next year and the final regulations in 2025. The first compliance period is undetermined but will start between 2026 and 2030, according to the feds’ regulatory framework, released on Dec. 7.

The framework proposes to cut 20 megatonnes of emissions from oilsands operations by 2030, with methane expected to receive the largest slash (37 megatonnes) by then.

‘De Facto Production Cap’

CIBC’s Mr. Merwat and Mr. Fong reiterated in their note that the timing of the cap remains “unrealistically ambitious” even though they view the imposed reduction as being “largely feasible from a technological standpoint.”

“It is simply unrealistic in our view to expect 20 megatonnes of carbon capture to come online in five years given the scale and operational learnings required,” they wrote. “In that sense, achieving the emissions target, as stated, would in effect become a cap on production.”

In an interview on CBC’s The House program on Dec. 9, Mr. Wilkinson said production is a provincial responsibility while the federal government’s goal is “very, very clearly focused on emissions.”

“It’s an emissions cap, it is not a production cap, because that is outside of our jurisdictional authority,” he said.

He was responding to host Catherine Cullen who asked what he would say to environmental groups that criticized the Liberal government for not moving fast enough to cap the emissions.

“Canada is a complicated country and production is the responsibility of the provinces, not the federal government,” the minister said.

“We have to clearly stay in our lane and the Supreme Court has been very clear about that. We regulate emissions. And what we are doing is focusing on how fast we can go with respect to what is technically feasible to get done between now and 2030, to ensure that the sector is making a significant contribution to achieving Canada’s overall climate plan.”

Alberta Premier Danielle Smith called the Liberals’ emissions cap a “de facto production cap.”

In her statement posted on X on Dec. 7, Ms. Smith said the move by Ottawa was an “intentional attack” on her province’s economy and the financial well-being of millions of Albertans and Canadians.

She added that the Trudeau government is infringing provincial jurisdiction.

“Alberta owns our resources and under the constitution we have the exclusive jurisdiction to develop and manage them,” she said.

“The federal government must stay out of our province’s constitutional jurisdiction and instead work with us to align their emissions reduction efforts with our effective made-in-Alberta plan.”

‘Our Constitutional Right’

Saskatchewan Premier Scott Moe also condemned Ottawa’s regulatory framework to cap oil and gas emissions.

In his response to Mr. Guilbeault’s announcement, Mr. Moe said in a statement on Dec. 7 that he would fight back against the policy, including one that was announced by Ottawa on Dec. 4 that seeks to accelerate the reduction of methane emitted by the oil and gas sector by at least 75 percent by 2030.

“Saskatchewan remains opposed to the new methane regulations and the oil and gas emissions cap, and we will protect our constitutional right to build our economy in accordance with the priorities of Saskatchewan families and businesses,” the premier said in his statement.

Mr. Moe stressed that both policies would burden the province’s energy sector with “more red tape and regulations.”

“These new federal policies will have serious economic impacts on Canadians and limit our sustainable Canadian energy products from providing heat and electricity to the world,” he said.

The Pathways Alliance, a consortium of Canada’s largest oilsands companies, says it has spent $1.8 billion since 2021 on decarbonization efforts. It has proposed spending $16.5 billion to build a massive carbon capture and storage network in northern Alberta. But it has not yet made a final investment decision that would see that project move ahead.

“Imposing an emissions cap, with additional regulatory complexity, does nothing to advance the certainty necessary for the planned multi-billion-dollar decarbonization projects to proceed,” said the alliance’s president Kendall Dilling in a statement on Dec. 7.

Matthew Horwood, Reuters, and The Canadian Press contributed to this report.