On Monday, November 4, the federal government released draft regulations for the oil and gas emissions cap that was first outlined in March 2022.
The emissions cap aims to lower emissions by as much as 35 per cent from 2019 levels by the first compliance period (2030-2032), representing one of the most ambitious steps towards reducing greenhouse gas emissions to date.
But it’s not without serious concerns on many levels.
As it comes under scrutiny, Canadians are questioning: will this emissions cap help us balance environmental responsibility with economic prosperity?
For those who are less familiar with the emissions cap and what it means: it’s a strict limit on total emissions allowed in the oil and gas sector, and Canada will be the only major oil and gas exporting nation with such a cap in place.
To help companies stay within their limits, a cap-and-trade system will be established. Think of it like a ticket system: each oil and gas facility gets a set number of ‘emissions tickets’ that dictate its allotted amount of emissions. If the facility employs carbon capture utilization and storage (CCUS) or other energy-efficient technologies to keep emissions below its allotted amount, it has the option to sell leftover emissions tickets or allowances to facilities that don’t have those processes in place.
However, technologies for emissions reduction such as carbon capture utilization and storage (CCUS) are complex and expensive projects. While some small CCUS projects are underway, many large projects — including the carbon capture and storage (CCS) project proposed by the Pathways Alliance — are still to be built. As a result, it is likely many oil and gas companies will be forced to cut production to stay within their limit before CCS can be implemented at scale, introducing a host of new productivity and affordability issues for Canadians.
The emissions cap adds another layer of regulations atop already complex federal and provincial frameworks that will further complicate access to affordable, reliable energy in Canada.
Economic concerns and the perspective of engaged women
When asked about the emissions cap, only 37 per cent of engaged women were aware of it, meaning it is not widely recognized or understood across Canada, despite the major impact it could have on our nation’s prosperity. Once informed of the economic implications of the policy, one in three (34 per cent) of engaged women told us they opposed it.
Organizations with energy and economy expertise such as Deloitte have reported that cuts in production may result in lower exports, decreased revenue and ultimately raise costs for Canadian consumers, impacting everything from grocery bills to gas prices.
“Productivity is closely linked to a country’s prosperity and long-term standard of living,” says Jeff Lawson, senior vice-president of corporate development and chief sustainability officer at Cenovus Energy.
Jeff Lawson, senior vice-president of corporate development and chief sustainability officer at Cenovus Energy.
According to analysis from the Conference Board of Canada, the emissions cap could result in the loss of up to 151,000 jobs by 2030 due to the projected decline in production as a result of the cap and technological readiness to meet emission reduction levels.
This would exacerbate Canada’s already-prominent productivity problem, negatively impacting Gross Domestic Product (GDP) and quality of life for Canadians. It also places the nation at a significant competitive disadvantage — Canada has an opportunity to be a global leader in energy production and export, but restrictions put in place by the emissions cap may lead investors to partner with other oil exporting countries who are not subject to the same limitations.
“Canada needs a policy environment that is responsible regarding emissions, while enabling growth in the energy sector without putting our industry at a competitive disadvantage to other oil exporting countries,” says Lawson.
Canada’s productivity has slowed significantly in the last 10 years, meaning our economy is not growing and our GDP is in decline. That means less money in Canadian pockets to be able to afford daily expenses and essentials such as gas and energy to heat our homes.
“The oil and gas sector represented $71.4 billion in GDP in 2023 and paid $34.1 billion in federal and provincial income taxes and royalties,” says Lawson. “To put that $34.1 billion into context: it is equivalent to Canada’s Child Benefit and federal daycare subsidies in 2023 — combined. That money helps pay for jobs, hospitals, education, social programs, and other things that contribute to Canada’s high standard of living.”
For Canadian women engaged in energy discussions, the economy and affordability are of significant concern and the emissions cap raises complex questions.
While many support reducing emissions, they are equally concerned about energy policies that may not consider the impact on their personal finances or the well-being of their families and communities.
“I like the idea of cutting emissions, but I don’t think the government’s plan takes into account the full severity of consequences of cutting how much oil and gas is produced,” says Linda, an engaged woman from Fort Erie, Ontario. “I don’t think it’s as simple as wishing away emissions — we’d have to give up a lot as a country if we did that, and the things we’d have to give up are not small things.”
Engaged women want energy policy to balance environmental goals with economic growth – 87 per cent already believe that upcoming energy policies will have a negative impact on their personal finances, indicating this balance is not being achieved and there is doubt it will be in the future.
The carrot and the stick: Incentivizing investment vs. penalizing production
While the emissions cap aims to reduce emissions, it risks being seen as a ‘stick’ policy — one that penalizes production rather than promoting innovation.
In contrast, many Canadian women support an approach that’s more like a ‘carrot’ in that it incentivizes emissions reductions through technological investment.
We can look to our largest trading partner, the United States, as an example.
The U.S. Inflation Reduction Act (IRA) supports emissions reduction with various targeted incentives, such as tax credits for renewable energy sources, incentives for energy-efficient residential and commercial upgrades, and funding for the research and development of innovations like carbon capture and storage (CCS), nuclear power and more.
These policies drive innovation and economic growth simultaneously, providing a model for balancing environmental and economic goals.
In our national research, 75 per cent of engaged women told us they support emissions reduction through investment in technology and innovation, and 74 per cent support incentives for businesses to innovate to invest in projects.
“The federal government seems to believe that using a hammer to cap emissions is the way to go, instead of incentivizing emissions reduction and fostering a stronger economy, as the United States has done,” says Lawson.
Canada has available incentives that are similar but not on the scale of the U.S. These include the refundable CCUS investment tax credit, which supports access to capital for carbon management projects until 2044 and the $15 billion Canada Growth Fund, which catalyzes private investment to support the deployment of carbon management projects. However, Canadian energy companies have a competitive disadvantage and risk of reduced production due to the emissions cap — which incidentally is not a part of the IRA or any other regulatory framework in the U.S. or in other major oil producing countries around the world.
Innovation for a balanced future
Canada has a unique opportunity to foster economic prosperity and environmental responsibility by investing in innovative technologies such as CCUS.
“Canada is blessed with the breadth of its natural resource sector and the ingenuity of its people,” says Lawson. “We should harness our strengths for the benefit of Canadians and develop policy that makes life more affordable and creates nationwide wealth that supports our social systems.”
As Canada moves forward, there’s a choice to make: we can choose a path that pits economic growth against environmental responsibility, or we can pursue one that harnesses Canadian innovation and resourcefulness to have both.
To create the Canada we want, policymakers must work together with industries, communities and engaged voices across the country to build a sustainable, resilient future that benefits everyone. We can prove that economic strength and environmental stewardship are not only compatible but essential to Canada’s prosperity.