Ottawa should scrap its oil and gas emissions cap plan

Once again, Alberta is at odds with the federal government, this time over proposed regulations, which would impose a cap on greenhouse gas (GHG) emissions in the oil and gas sector, with the goal of reducing emissions by 35 to 38 per cent by 2030 (relative to 2019 levels).

The Smith government fiercely opposes these regulations and recently submitted formal feedback to Ottawa. While the federal government says these regulations are necessary to combat climate change, in the reality they will impose significant costs on Canadians without yielding detectable environmental benefits.

Firstly, it’s a universally accepted fact that a unit of carbon dioxide has the same atmospheric effect regardless of its source, be it from an oilsands mine in Alberta, a manufacturer in Quebec or a steel mill in Ontario. CO2 is CO2 is CO2. Therefore, Ottawa’s proposed GHG cap, which solely targets the oil and gas industry while exempting the remaining 73.4 per cent of the country’s GHG emissions, lacks a scientific rationale.

Moreover, Canada already has a national carbon tax aimed at reducing GHG emissions. Stacking a GHG cap on top of the carbon tax contradicts the rationale for a carbon tax and would likely result in emissions reduction at a very high cost. According to a recent economic analysis by the Conference Board of Canada, the cap could reduce Canada’s economy (i.e. GDP) by up to $1 trillion between 2030 and 2040, eliminate up to 151,000 jobs by 2030, reduce federal government revenue by up to $151 billion between 2030 and 2040, and reduce Alberta government revenue by up to $127 billion over the same period.

These new findings echo earlier studies, which show the proposed cap’s large costs and little benefits. For instance, a recent study found that an emissions cap on the oil and gas sector would inevitably reduce production and exports, leading to at least $45 billion in lost economic activity in 2030 alone, accompanied by a substantial drop in government revenue.

Again, these large economic costs come with almost no discernible environmental benefit. Even if Canada were to entirely shut down its oil and gas sector by 2030, thus eliminating all GHG emissions from the sector, the resulting reduction in global GHG emissions would amount to a mere four-tenths of one per cent (i.e. 0.004 per cent) with virtually no impact on the climate or any detectable environmental, health or safety benefits.

Meanwhile, every credible forecast of world energy consumption indicates that oil and gas will continue to dominate the global energy supply mix for decades. Given the sustained demand for fossil fuels, constraining oil and gas production and exports in Canada would merely shift production to other regions, potentially to countries with lower environmental and human rights standards such as Iran, Russia and Venezuela.

Clearly, this is an opportunity for Canada, which possesses abundant reserves of natural gas (a cleaner alternative to coal), to play a pivotal role in reducing global GHG emissions. Countries such as China, which is grappling with rising energy demands, are eager to reduce their heavy reliance on coal. And several countries including Germany want to diversify away from Russian gas for geopolitical and energy security reasons. By expanding our natural gas resources, Canada could unleash significant economic activity (jobs, revenue, etc.) while reducing global GHG emissions and improving global energy security.

The Trudeau government will likely publish a draft version of the regulations, which will include the cap, sometime in the next few months. The cap plan lacks any scientific, economic or environmental rationale so the government should scrap the cap for the benefit of Canadians and the world.