Tell the Feds to Strengthen the Regulations on Oil & Gas Emissions!
The federal government recently published the Draft Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations (the “Draft Regs”). They are now holding an online public consultation until 8 January, 2025, where people like you can comment on the Draft Regs. Click on the link above and tell the feds what you think!
It’s important that you do so. In the two previous rounds of public consultation on the Oil & Gas Emissions Cap, the government received 20,000 emails from members of the public who wanted to weaken or kill the Draft Regs. Fortunately, even more people sent emails in favour of stringent and rapid Draft Regs, but we need to keep up our action through the home stretch.
How the Draft Regs Work in Brief
Source: The Globe & MailThe Draft Regs would require upstream oil and gas producers to register with the Environment and Climate Change Minister and provide specific information about their emissions, including their annual greenhouse gas (GHG) emissions.[2] “Operators would be required to have their annual reports verified by an accredited third party and to keep records in Canada.[3]
Environment and Climate Change Canada (“ECCC”) would use the total emissions reported by operators for calendar year 2026 as the basis for the emissions cap. The cap would be set at 27% below these 2026 emissions.[4] “The emissions cap would remain at this level for subsequent compliance periods until regulatory amendments are made.”[5] ECCC would distribute, for free, “emissions allowances”, up to the level of the emissions cap, with each allowance representing permission to emit one tonne of GHGs, for free, up to the limit of the cap. These emissions allowances would be tradable in a proposed cap-and trade system.
In addition to emissions allowances, operators would be able to buy, and remit, two different types of compliance flexibility units, with each unit representing permission to emit one tonne of GHGs. The first type of compliance flexibility units are “Canadian offset credits”, purchased under the Canadian Greenhouse Gas Offset Credit System Regulations or recognized provincial offset credit systems. The second type are “decarbonization units”, obtained by paying into a decarbonization fund that the oil and gas industry could later use to help reduce their emissions. By using these compliance flexibility units, operators could emit up to 20% more GHGs than would be permitted by their emissions allowances. If all operators do this, the total annual emissions in the sector would be 20% higher than the emissions cap.
In an explanatory document published with the Draft Regs the feds stated: “The proposed Regulations would not allow for the use of ITMOs [Internationally Transferred Mitigation Outcomes – similar to Canadian offset credits, but tradable between countries and between private companies in other countries].”[6]
Issues to Consider Raising in Your Submission
#1. It Is Good That ECCC Is Making These Regulations
These regulations are absolutely necessary to reduce Canada’s GHG emissions, so it is good that ECCC is making them. 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.[7] From 2022 to the present, the biggest oil and gas producers in Canada have made record profits, but they have invested extremely little in reducing their GHG emissions, instead giving the vast majority of their free cash flow to their shareholders by way of record dividends and share buy-backs.[8] Under these circumstances, and in light of the refusal of the provincial governments of Alberta and Saskatchewan to do anything to reduce emissions from oil and gas production, the federal government must step in with these regulations.
#2. The Cap is Too Lenient
Source: Financial Times
ECCC estimates that the Draft Regs will reduce GHG emissions from oil and gas production by only 7 Mt in 2030. According to its modelling, the “baseline scenario”, meaning what would happen without the Draft Regs, would result in 134 Mt of emissions in 2030. With the Draft Regs in place, estimated 2030 emissions from oil and gas production would be 127 Mt. If companies avail themselves of the available compliance flexibilities, they could emit as much as 143 Mt in 2030.[9]
Under Canadian law, the federal government had to release a plan to achieve Canada’s 2030 emissions reduction target. Under that plan, Canada had to reduce its emissions reductions from oil and gas production to 110 Mt per year in order to achieve the target. It would appear to be almost impossible to achieve the target with the reductions contemplated by the Draft Regs. It is even less likely that Canada could reach net zero by 2050, as all countries need to do.
#3. ECCC Must Not Add ITMOs to the Regulations
Source: McLeans
“An internationally transferred mitigation outcome (ITMO) is an accounting entry that reflects a quantity of GHG mitigation (emissions reductions or removals) that occurs in one country and that is voluntarily authorized and transferred for use toward another country’s climate target or other international mitigation purpose. The Regulatory Framework indicated that the Department was considering allowing ITMOs, in the form of carbon offsets, to be used as a possible compliance option for some portion of emissions that could be covered by domestic offset credits.”[10] They are addressed in Article 6 of the Paris Agreement of 2015, but currently, they are not yet fully operational.[11]
It is good that the Draft Regs do not include the use of ITMOs, but the fact that ECCC is considering adding them to the final regulations is troubling.
It has been proven by study after study, some sponsored by international organizations and some pure academic studies, that ITMOs do not work. The first emitter, who pays for a one tonne unit of ITMOs, emits the additional one full tonne of GHGs. However, the second emitter (or organization purporting to reduce one tonne of GHGs from the environment) neither refrains from emitting nor removes from the environment one full tonne of GHGs.
While we hope that you will form your own opinion after reading this, and after doing any further research that you wish, we would urge you, in your submissions, to tell ECCC not to include ITMOs in the final regulations, because they do not work.
#4. There is a risk that there could be a “race to emit” in 2026
Source: Living in the Mac
Since the new cap would be based on 2026 emissions levels, the competing operators within the industry industry will have an incentive to pollute as much as they can in 2026 to ensure they have a higher higher portion of the emissions cap in following years.
ECCC has indicated that they do not view this as a significant risk, since operators will be limited by their production, storage, and transport capacities. However, some environmental non-government organizations have still identified this as a risk. You may want to raise the issue in your own unique individual submissions. You might consider suggesting to ECCC that, to mitigate against this risk, the final regulations should contain a clause to the effect that, if the Minister determines that the 2026 oil and gas production emissions are significantly higher than the current 2026 estimate of 156.6 Mt, the Minister may set a lower basis for the production emissions cap. If you can think of another solution to the problem, by all means, suggest it to ECCC.
There are other issues that you may wish to raise in your unique individual submissions, and we encourage you to do so. A few of them are discussed in the full Toolkit but, for the sake of brevity here, we have only discussed what we believe to be the most important four. Others may prioritize the issue differently, and that’s fine with us.
Be sure to make your submissions, in your own words, to ECCC’s consultation by 8 January 2025, using the link above! And please share the link to this toolkit with your friends, so that they can make their own submissions, too! Thanks!
For more information, and to make your submission more impactful, continue to our full toolkit.
[1] Regulatory Impact Analysis Statement for the Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations, Canada Gazette Part I, Vol. 158, No. 45. 9 November 2024. (Hereinafter “RIAS”), p. 3279. (Page references are to the Official PDF Version.) Retrieved on 20 December 2024 from https://www.gazette.gc.ca/rp-pr/p1/2024/index-eng.html
[2] RIAS, p. 3271.
[3] RIAS, p. 3274.
[4] RIAS, p. 3274.
[5] RIAS, p. 3274.
[6] RIAS, p. 3287.
[7] Environment and Climate Change Canada. 2024. National Inventory Report, 1990–2022: Greenhouse Gas Sources and Sinks in Canada. Available online at: canada.ca/ghg-inventory (hereinafter cited as “2024 National Inventory Report”), p. 12, Figure ES-2. (Retrieved on 1 December 2024.)
