It is very good that the federal government is finally making these regulations

Canada is considered to be a top climate policy laggard, having one of the lowest performance ratings among the world’s major carbon emitters in terms of climate mitigation, renewable energy development, and clean energy use.^[22]

In 2022, the United Nations Intergovernmental Panel on Climate Change (UNIPCC) said that in order to limit warming to 1.5°C or 2°C, “rapid and deep GHG emissions reductions” are required.^[23] In 2023, the UNIPCC said, “There is a rapidly closing window of opportunity to secure a liveable and sustainable future for all,” and noted that, “the level of greenhouse gas emission reductions this decade largely determine whether warming can be limited to 1.5°C or 2°C.” ^[24]

In October 2024, the United Nations Environment Programme released its fifteenth Emissions Gap Report.  It stated:  “[U]nless global emissions in 2030 are brought below

the levels implied by existing policies and current NDCs, it will become impossible to reach a pathway that would limit global warming to 1.5°C with no or limited overshoot

(>50 per cent chance), and strongly increase the challenge of limiting warming to 2°C (>66 per cent chance).”^[25] 

In 2022, which is the most recent year for which we have data, emissions from Oil and Gas Production was the largest single source of Canada’s emissions, at 31% of the total.^[26]  Emissions from Canadian Oil and Gas production almost doubled between 1990 (118 Mt) and 2019 (226 Mt), which was the last year where emissions were not artificially reduced by Covid.  They even increased significantly after 2005, when they were 195 Mt.^[27]  However, when they have been left to voluntarily reduce their own emissions, Canadian oil and gas producers have done almost nothing.  They have made enormous, record profits in recent years but have invested almost none of it in reducing their emissions, instead paying almost all of it out to shareholders as dividends.^[28] 

Policies employed to date to reduce GHGs from oil and gas production have been a patent failure:  Emissions from Canadian oil and gas production were 103 Mt in 1990.  They rose to 171 Mt in 2005 (which is the base year for the Paris Agreement national emissions targets and for Canada’s Emissions Reduction Plan).  In 2019 – the last year before the production downturn caused by Covid – emissions from oil and gas production was 226 Mt.  Of that amount, 20 Mt was from “downstream production” (such as petroleum refining and natural gas distribution) and 206 Mt was from “upstream production” (such as natural gas production and processing, conventional oil production, and oil sands mining, in-situ, and upgrading).^[29]  In 2022, emissions from all Canadian oil and gas production were 217 Mt.  That was 31% of Canada’s total emissions, making oil and gas production the largest single source of Canadian emissions.^[30]

The total GHG emissions from Canada’s other industry sectors – Electricity, Transport, Heavy Industry, Buildings, Agriculture, and “Waste and Others” – fell from 565 Mt in 2005 to 491 Mt in 2022.  In stark contrast to this trend, emissions from oil and gas production rose from 195 Mt in 2005 to 217 Mt in 2022.^[31]

The “carbon tax” on emissions from oil and gas production, which is applied under Part 2 (the Output-Based Pricing System, or “OBPS”) of the Greenhouse Gas Pollution Pricing Act or under equivalent provincial legislation, has done almost nothing to reduce emissions from Canadian oil and gas production.  This is because, in order to keep Canada’s oil and gas industry competitive with producers who operate in jurisdictions without carbon pricing, the “carbon tax” is only applied to a small fraction of Canadian oil and gas producers emissions.  They can emit the vast majority of their GHGs for free.

As an example, in its Second Quarter, 2021 presentation to its shareholders, “[t]o help investors and analysts model the potential impact of current and future carbon pricing”, Suncor analyzed what the effect of a “carbon tax” of $170 per tonne CO2, combined with other federal and provincial regulations would have on its cost of oil production.  It determined that the $170 cost would add less than $1 to the price of producing a barrel of oil.^[32]

The market price for a barrel of oil can fluctuate by over $50 in a given year.  A $1 production cost increase brought about by a $170 per tonne “carbon tax” would make very little impact on the producers’ behaviour.  It is hard to imagine how many multiples of $170 would be required to create the necessary incentive for producers to make the required emissions reductions, but it is easy to see how such a high number would be an excellent target for those who object to requiring any change from Canada’s oil and gas producers.

When they have been left to voluntarily reduce their own emissions, Canadian oil and gas producers have done almost nothing.  They have made enormous, record profits in recent years but have invested almost none of it in reducing their emissions, instead paying almost all of it out to shareholders as dividends.^[33] 

In it’s eye-opening publication, Waiting to Launch: 2024 mid-year update, the Pembina Institute studied what Canadian oil and gas producers are doing with their profits:

Canadian oilsands companies remained highly profitable in 2023, recording the second highest year of profits in the last decade. The release of 2024 Q2 financial results indicates that the sector is on pace for another highly profitable year, enabling companies to reach or be on track to reach their net-debt targets. This healthy financial position has triggered some oilsands companies to again return record levels of free cash flow back to shareholders, mirroring significant levels of share repurchases and dividends paid in 2022 and 2023.

These highly profitable years are now complemented by the completion of the Trans Mountain Expansion pipeline. Oilsands producers now have access to diversified export markets and may anticipate narrowed price differentials, signalling that profitability in the sector will further increase. There is evidence that companies are now beginning to allocate capital expenditure to targeted activities aimed at growing production.

While the regulatory filings for the Pathways Alliance foundational CCUS project and Imperial’s deployment of its solvent-assisted Grand Rapids SAGD project were a step in the right direction, these represent a very small investment towards the major emissions reduction projects first announced three years ago. Furthermore, progress has stalled in reducing emission intensity; in fact, overall intensity in the oilsands has risen 1% since 2018.^[34]

The Pembina Institute provided some specific examples:

The announcement of second quarter financial results was accompanied by increasing percentages of cash being returned to shareholders. Cenovus announced in August it would be returning 100% excess free cash flow to shareholders. In July, MEG Energy announced its inaugural quarterly cash dividend and the 100% return of free cash flow to shareholders. Cenovus and MEG Energy join CNRL, who has been returning 100% of its free cash flow to shareholders since the beginning of 2024. All three companies have met net debt targets or anticipate meeting them in Q3 2024, triggering these free cash flow allocation plans. Similarly, Suncor increased share repurchases to 75% of excess funds and plans to increase share repurchases to at or near 100%, once its net debt target is achieved.^[35]

Recommendations:

Citing some of the facts and information above (and any other research you want to do), and using your own words, consider making submissions to the online public consultation similar to these:

• Tell ECCC that it is good that they are making these regulations, because it appears to be the only way to reduce Canada’s GHG emissions from oil and gas production.

• If you want, consider expressing your disappointment that it has taken them so long to do this.

• ECCC should consider using auctions to distribute emission allowances after the first two compliance periods.