Canada Proposes a System to cap and cut oil Industry Emissions.
This week, the Canadian federal government is proposing a new cap and trade system that will essentially set a “cap” or a ceiling for emissions specifically from the oil and gas industry. The goal of this would be to drive down emissions by 40-45% from the 2005 levels by 2030
Environment Minister Steven Guilbeault will formally publish a discussion paper on Monday that should outline this proposal in more detail. From what has been shared thus far, this proposal consists of two options to address emissions within this sector. The publication of this new proposal will allow Canadians a first look at how Canada expects to implement these oil and gas emissions caps that was promised during elections last year.
"We simply cannot ignore the fact that the oil and gas sector is Canada's biggest emitter," Guilbeault said in April during a House of Commons committee meeting studying the proposed emissions cap on oil and gas.
Interestingly, what Guilbeault hasn’t said was what the specific emissions cap will be. According to a few different sources, this cap is supposed to “start at "current levels" — which going by the data that was available when that promise was made would mean 2019 levels, or 203.5 million tonnes.
Background documents and government sources suggest the cap for 2030 will be very close to the one proposed in the new national Emissions Reduction Plan in March — 110 million tonnes. That's a 46 per cent cut from 2019 levels, and 32 per cent over 2005.”
Currently, the oil and gas industry is Canda’s biggest source of emissions, representing about 27% of all the emissions. Within Oil and Gas, emissions are broken down into three areas:
Upstream emissions
Midstream emissions
Downstream emissions
Right now a majority of the sector’s emissions are from upstream production, which holds about 84% of the total emissions. With this in mind, it seems that Canada will cap the upstream emission with a potential to cap the downstream emissions as well. The paper that Guilbeault will publish says that the government will have two options and will pick whichever option is preferred by the majority.
Option 1:
The first option is a new cap-and-trade system on the oil and gas sector alone. The total emissions allowed would be divided into individual allowances will be allocated to specific companies. If companies do not purchase enough allowances to cover their emissions, they would have to buy more allowance credits from other oil and gas companies who may have purchased more than they needed. The money then raised from these auctions on emissions credits would be directed back into programs that will further help the sector cut back on emissions.
This first option seems similar in some ways to what was outlined by ESMA in their report on the EU Carbon market. You can read a full summary here, but essentially the EU operates under the ETS otherwise known as The European Emissions Trading System. This system implemented in 2005, essentially sets a limit on the total amount of greenhouse gasses that entities within this system are allowed to emit each year. The idea is that over time this limit will decrease and act as an invaluable tool to lowering the emissions by the EU overall.
Applying a form of credit and cap system is happening already across the globe just in slightly varied ways.
By applying a similar set up to the oil and gas sector in Canada perhaps it can yield similar results and mitigate emissions.
Option 2:
The second option, while a similar idea of credits, would instead modify the industrial carbon price already applied to the oil and gas sector, possibly by hiking the price itself if needed, but with the aim of ensuring the emissions from the oil and gas industry itself fall by limiting the trading of carbon credits to the sector.
Companies can currently reduce the carbon price they pay by buying credits from others that produce less than their emissions limit. The modified plan would allow them only to buy credits from other oil and gas companies, not from other industries.
It seems that there are many different opinions around which option is going to be the best fit, and of course many of these bring up skepticism and worries. In a joint statement, Alberta's energy and environment ministers said they will review the federal government's paper but will only support solutions that are developed through meaningful consultation and will keep life affordable.
"Alberta will not accept any plan from the federal government that seeks to interfere in our constitutionally protected ability to develop our resources," the statement said. "Provinces are the owners of these natural resources, which have been responsibly managed on behalf of Canadians for decades."
Sources:
https://www.cbc.ca/news/canada/calgary/cap-oil-gas-trade-system-ottawa-guilbeault-carbon-price-1.6523791#:~:text=Canada%20is%20aiming%20to%20cut,have%20risen%2083%20per%20cent.
https://www.ctvnews.ca/politics/feds-propose-to-cap-oil-gas-emissions-using-industry-specific-carbon-pricing-system-1.5991532
https://www.sustaira.com/news/esma-published-final-report-eu-carbon-market
Photo by Jason Hafso on Unsplash
