Front Burner - Emission cap hits Canadian oil, gas

Episode Date: December 11, 2023

Last week at COP28 the Canadian government announced a framework that will put a concrete limit on the amount of CO2 that oil and gas can emit. The idea is to accelerate how quickly Canada reduces its emissions. But the plan has sparked harsh criticism from all sides, including climate activists, the Conservatives, the NDP and oil and gas companies. How will the cap work? Does it go far enough? Will it impact production? And how does it fit into Canada’s climate targets? CBC senior writer Aaron Wherry explains. For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts Transcripts of each episode will be made available by the next workday.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Damon Fairless. We'll cap oil and gas sector emissions today and ensure they decrease tomorrow at a pace and scale needed to reach net zero by 2050. That's no small task for a major oil and gas producing country. It's a big step that's absolutely necessary. That's Prime Minister Justin Trudeau speaking at the United Nations climate talks two years

ago in Glasgow. That day he made a promise. It wasn't a new promise, though. It was one he'd campaigned on in the 2021 election. We're going to cap emissions from the oil and gas sector and end thermal coal exports for good. We'll give Canadians... It's been a couple years, but we're now seeing that promise materialize. Last week at COP28, the government announced a framework that will put a concrete limit on the amount of CO2 that oil and gas can emit. The idea is to accelerate how quickly Canada reduces its emissions.

But the strict cap is facing harsh criticism from all sides, including climate activists, conservatives, the NDP, and oil and gas companies. My colleague Aaron Weary is here again. Aaron's a senior writer with CBC in Ottawa, and he's going to walk us through the details of the framework and why it seems like no one's happy with it. Hey Aaron, thanks for coming on. Anytime. Okay, so let's just start really simply.

Can you briefly just walk me through the big points of the framework? What's the gist of it? Sure. So, I mean, you know, it sort of does what it says on the tin. It's a cap on oil and gas emissions. Oil and gas emissions have been, or emissions from the oil and gas sector in Canada have been rising. They're, you know, well above 2005 levels at this point. And the cap essentially says emissions have to start going down.

It sort of draws a line, you know, above where emissions were in 2019 and then brings in a cap and trade system that should reduce emissions, you know, over the next seven years and then going forward. Okay. So for those who don't know, maybe me, what exactly is a cap and trade system? Like exactly how does it work? Yeah. So it's another system.

It's another way, I guess, to put a price on carbon emissions. The government essentially says, here's what the cap is going to be, and then it either distributes or sells emissions allowances. And then the trade part is that companies or facilities can then sort of trade the allowances back and forth depending on whether they're able to reduce emissions. That sort of allows this internal market, this sort of, you know, separate market to determine what the price of emissions is going to be. But the point is that it's, there's this cap and it essentially guarantees

that emissions can't go above that and can sort of guarantee that emissions will decline in over the long term. Environment Minister Stephen Gilbo said on Thursday that this plan will set limits on emissions without restricting oil and gas production. Oil and gas is the largest emitting sector in Canada. And unlike almost every other sector of our economy, pollution from the oil and gas sector is still going up. We owe it to Canadians and to the rest of the world

to address these emissions, as we owe it to our workers and businesses to ensure that Canada's well-earned reputation for energy innovation remains our strong suit for the 21st century. But am I missing something here? Can you explain that logic? How does that work? Yeah, so essentially what the government is trying to say is we're not so much worried about how much oil and gas you produce. We're just worried about the emissions that result from that. So if you're able to reduce emissions by, you know, cutting down on methane leaks or using carbon capture utilization and storage technology or fuel switching or electrification, that's what we're focused on. They're not going to worry about what the production level, the exact production level should be or is going to be. They're going

to measure progress by emissions. And the basic argument is that that's what you're worried about, right? You're not necessarily worried about how much oil and gas is being produced. You're worried about the emissions that are resulting from that production. The other part of it is that you're not, if the government, if you're the government, if you tried to set a production cap, you're essentially guessing at what demand will be, what the kind of efficiency of that production will be. It gets kind of complicated if you want to try to do a production cap. And so by focusing on emissions, it essentially puts the kind of ball back in the industry's court to say,

if you can produce oil and gas that's efficient and isn't producing emissions, then go for it. But you have to kind of fall under this emissions cap. And so is the idea that that drives innovations in the production, like the technologies, the industry itself is driving innovations to reduce the output of emissions of oil and gas production. Is that essentially the basic logic of it?

Yeah, that would be the hope. You know, obviously there are sort of different ways of measuring this. You know, some environmentalists would say, well, there should be a production cap because, you know, one way or another, this oil and gas is going to have emissions, either in the production or in the burning of it when it reaches cars, for instance. But the government's hope is that by focusing on emissions, you can essentially incentivize or prod the industry itself to produce it more efficiently.

So can you maybe give me a sense of what does this framework mean for oil and gas producers in the sense like how is it going to change what they're already doing? Well, so that's a good question. The industry itself is saying a lot of the right things in terms of they're focused on net zero emissions. They're focused on reducing emissions. And the cap essentially says, okay, great. Now you're going to have to get on with it. There have been concerns that for all of the talk about net zero emissions from the oil and gas industry that we haven't yet seen the sort of investments

and action that is necessary to actually get to net zero emissions. And so the cap, in a way, I don't know that you would say it calls the industry's bluff, but it definitely calls the industry's bet and says, okay, if you really are committed to net zero emissions, now you have to actually get on with it. And so from that sense, both on a practical and a political basis, the government is kind of shifting the burden back onto industry to say, okay, let's, let's get, let's get on with it. Okay. And, and I want to get a little deeper into that, but before we do, this isn't working in isolations. Can you give me a sense of how this fits into the liberals broader climate plan? Yeah, it's so obviously there are, you know, numerous climate policies, uh, at work now in terms of getting Canada's emissions down to its 2030 goal and then to net zero. And the oil and gas cap is one piece of that. That said, it is a major piece of it.

If you look at emissions, you know, from 2005 to 2023, or for the most recent data, I guess we'd have 2022. It's not, you know, Canada's emissions are down, but it's uneven across the sectors. You've seen a major drop in emissions from electricity, for instance. But then you look at something like oil and gas, and emissions have gone up. And for all of the effort that has been put into driving emissions down in Canada, the progress, the ability to reach Canada's 2030 targets is severely compromised if oil and gas emissions keep going up. And so for Canada to reach that, you know, newly ambitious target that the Trudeau government committed to a 40%

reduction in emissions by 2030, you really do need oil and gas emissions to go down. Yeah. And I'll just point out the last month, the Federal Environment Commissioner said we're not on track to meet those 2030 goals, right? We're not. That's indisputable. The gap, though, the Climate Institute, the Canadian Climate Institute has an interesting graph where it says, where it kind of plots out

what the Canada's emissions trajectory looks like depending on policies that exist, policies that are being developed, and policies that are being announced. And if you go by just the policies that are on paper that actually exist right now, the gap is quite large. If you go to all the policies that have been announced, the gap gets quite small.

And so to even get really within shot of that 40% target, you need policies like this oil and gas emissions cap. And then also we've been talking about CO2 emissions, but the government's also going after methane emissions too, right? Yeah. And so that was the – they announced that for methane could significantly contribute to the oil and gas industry reaching the targets that are now set for it. If they can reduce methane emissions, which are sort of considered at this point kind of low-hanging fruit in terms of emissions cuts that you can make quickly, if the oil and gas industry can cut methane emissions significantly over the next seven years, that'll go a long way towards the industry reaching the kind of overall emissions cap. So in this case, those two policies, they might seem separate and like different burdens,

but they really kind of work in combination. In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization. Empowering Canada's entrepreneurs through angel investment and industry connections. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people and I have some startling numbers to share with you.

Did you know that of the people I speak to, 50% of them do not know their own household income. That's not a typo, 50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. So let's talk about some of the reactions here. So there's Alberta's Premier Danielle Smith, who's at COP20 as well, and she's had some harsh words for the plan. But today's announced de facto production cap on Alberta's oil and gas sector amounts to an

intentional attack by the federal government on the economy of Alberta and the financial well-being of millions of Albertans and Canadians. Alberta owns our resources, and under the Constitution, we have the exclusive jurisdiction to develop them and to manage them. And she's had some harsher words for Stephen Guilbeault. The attitude that Minister Guilbeault has taken towards our province is absolutely unacceptable. He's a menace. He's a menace to us. He's a menace to national unity.

He is clearly destructive in trying to get to some common ground. And that is on him. It's not on us. We have done everything we possibly can to approach with the spirit of collaborative federalism. He has not. And I think his imperious attitude is one that should be rewarded with removal from his position. But if this framework allegedly won't hurt production, it's less strict than what was initially floated. What exactly is Smith pushing back against? So, you know, look, there's a lot of context here. I mean, the first is that it's a liberal government led by someone named Trudeau trying to impose policy on the oil and

gas sector in Canada. And that, you know, that is going to stir up a lot of feelings and political reaction just as it has for, you know, 50 years now. That said, there is, so there's sort of two parts to it. One is that there is going to be a debate about what is technically feasible here for the oil and gas industry to accomplish. The Alberta argument is essentially that it's a de facto production cap because the emissions reductions that are required are not possible to achieve without cutting production. The government's argument is essentially that they have gone to great lengths to consult with industry, consult with experts,

and they are setting targets that are technically achievable. That if the industry, you know, makes the necessary investments, pursues the necessary technology, they can actually reach these targets. I can tell you what we're trying to do with the most innovative sector in this country, which is the oil and gas sector, which is get to the greenest barrel of oil on the planet. Because the greenest barrel of oil on the planet is the one that the world's going to want first and most. And this is about saying to the world, think about it, we're the first heavy producer of oil and gas that's putting an emissions cap in place. And so the premier's off base. This is about reducing emissions, not putting a cap on production. We'll see how that kind of works out in the next little while.

But the other piece of this is that Daniel Smith herself is committed to net zero and has said that she's supportive of net zero. So we're kind of past the point now where it was an argument over whether or not emissions should decline. We're sort of now in a debate about how fast they should decline. And that is a certain amount of progress, I guess, that we are at least now talking about how and how quickly rather than whether or not. So, but Smith has said that this is essentially targeting Alberta's economy, right?

Yeah. The argument is that this has singled out the oil and gas industry, which is, of course, largely based in Alberta. Now, the federal argument response to that is, look, there are regulations for all sorts of different sectors. You know, to take one, the transportation sector is going to be subject to regulations that say you have to sell, you know, a certain zero-emission vehicles on a certain timeline. We will finalize regulation in the coming weeks to ensure that 100% of new cars sold in the country are zero-emission vehicles by 2035. We've also published draft regulations to ensure our electrical grid is carbon neutral by 2035. The government's argument is essentially like, look, this is just one piece of all sorts of different regulations and every sector has to do its part.

So Danielle Smith vowed on Thursday last week to fight this. There's no question that if they continue on this path, it will end up with court. And I think in court, and I think we will win. We have now seen... And Saskatchewan Premier Scott Moe has also said his province will take steps to, quote, protect our constitutional right to build our economy.

So I guess I'm curious, what do you think it might look like if these provinces fight back on this? So, I mean, the next scene of battle will probably be the courts, which has sort of become a recurring storyline with the climate policy over the last decade. You know, the provinces can rightly point out that a couple of the government's regulations have run into trouble in the court system

with the courts essentially saying that the federal government has overreached. But the federal government can fall back on the idea that when there was a court challenge over carbon pricing specifically, the court came back and said, yeah, you know, the federal government does have the right to regulate greenhouse gas emissions. And so it's not obvious that this oil and gas cap is going to run into trouble, but it will almost certainly and inevitably be challenged. And, you know, we'll sort of have to see when it gets right down to it and they're going over the specifics of the regulations, whether or not the government, the federal government has done enough to kind of skirt any jurisdictional challenges. Okay. And let's talk about the oil and gas

sector. How has it reacted to this framework? You know, there's sort of been a varied response. I mean, I think that some, you know, the Canadian Association of Petroleum Producers has come out and said these, has sort of echoed what Daniel Smith said, which is this cap on emissions is essentially a cap on production. At the same time, the Pathways Alliance, which is this group of a half dozen of the biggest producers of oil from the oil sands, have come out and said, you know, we need some more time to study these regulations to decide what the impact is and decide what our opinion of them is. The Pathways Alliance is interesting because it is this group that has been very loudly sort of touting its quote-unquote plan to reduce emissions and hit net zero by 2050.

If the Pathways Alliance comes back and says, this is doable for us, that will help the government's case to a certain extent, but they also don't represent the entirety of the oil and gas industry. And so opinions are going to diverge on this. And it's really going to kind of come out, I think, in the actual implementation of this to see exactly how it impacts every single player throughout the system. On the other side of the criticism here, there's the reaction from the NDP, which has been that the liberal government isn't going far enough.

And it's, and again, I'll quote, it's pandering to the oil and gas industry. So tell me more about the NDP criticism. Yeah, so there's sort of two arguments coming back at the government from the other side of this debate. One is that they're not demanding enough of a cut. debate. One is that they're not demanding enough of a cut. You know, there was an argument going into this that the oil and gas industry should be made to match the national, you know, target for a 2030 cut, a cut of 40% by 2030. But the other argument is that they're not moving quite fast enough. You know, these regulations, this cap was supposed to come earlier than it has. And it's important to remember that we're not yet at the point where these regulations are actually coming into place.

We've just seen a framework now. There will have to be draft regulations sometime next year. And then the actual regulations at some point after that. So we're looking at a system that might not be fully in place until 2026. And one of the arguments that has come from not only the NDP but others is that this should be up much sooner than that. So that's another argument for the government to try to deal with. This is sort of the eternal debate or fight on climate policy though is that whenever you do something, one sector says, oh, you're asking way

too much and you're moving way too fast. And then another section of public opinion says, you're not asking nearly enough and you're moving way too slow. Right. And we saw a really good example of that last week with the 24-hour voting session in the House. The federal conservatives have launched a marathon voting session in the House of Commons as part of their opposition to the Liberal government's carbon tax. We have successfully killed a day of government business. This is one less day that Justin Trudeau will have to implement his destructive agenda. That is a different issue than this framework. But my point is, you know, the conservatives just straight up hate the idea, right? So tell me about their reaction to the framework. So their reaction was, I guess, as you might expect to criticize it and, you know, more or less kind of line up with the opinion coming out of Alberta and Saskatchewan

that this is, you know, bad policy and it's, and it shouldn't be imposed. You know, the major asterisk with that response being that we don't yet know what the federal conservatives would do instead. We don't know what their alternative proposal would be. I think the federal government is facing pressure on a lot of sides right now on climate policy. I think the best argument they can make for themselves as they put these pieces together is that they're getting closer

and closer to that 2030 goal. And that would at least give them an argument that some kind of progress is being made. Part of the problem they have with making the argument on carbon pricing alone is that they haven't been able to say, look, we're on target to meet our international commitments and that's why this policy is important. And without that kind of piece of being able to say, look, we're on target to meet our international commitments and that's why this policy is important. Without that kind of piece of being able to say you can meet your target, the whole case

for what they're doing climate-wise gets a bit weaker. That's another way that this cap really is key to the liberal argument because it is such a key piece of getting to 2030. All right, Aaron, thanks so much. I really appreciate it. Anytime. Right. That's all for today. I'm Damon Fairless. Thanks for listening to FrontBurner. And I'll talk to you tomorrow. For more CBC Podcasts, go to cbc.ca slash podcasts.