Canadian Gov Signals Plans to Scrap Oil, Gas Emissions Cap

The Canadian government signaled it plans to eventually lift the controversial cap on emissions from the oil and gas sector, doubling down instead on its industrial carbon pricing system to rein in pollution.

In its first federal budget on Tuesday, Prime Minister Mark Carney’s government unveiled its climate competitiveness strategy, which lays out how Canada plans to change its approach to environmental regulations and greenhouse gas emissions.

The strategy underscores how Carney has diverged from former Prime Minister Justin Trudeau’s climate policies, which mapped out short-term emission reduction targets it planned to reach through a slate of regulations.

The Carney government appears to be shifting its focus to the long-term goal of reaching net zero by 2050, saying in its budget that the strategy aims to drive “investment, not prohibitions,” and “results, not objectives.”

Oil storage containers and pipelines in Alberta. The Canadian government has signaled it may eventually lift the controversial cap on emissions from the oil and gas sector.

The change in climate policy comes against the backdrop of the US moving away from the Biden-era clean energy agenda and President Donald Trump’s tariffs crippling some Canadian sectors.

The Canadian government argued it can still reach net zero by 2050 through a revamped industrial carbon pricing system and other measures.

“Effective carbon markets, enhanced oil and gas methane regulations, and the deployment at scale of technologies such as carbon capture and storage would create the circumstances whereby the oil and gas emissions cap would no longer be required as it would have marginal value in reducing emissions,” the budget said.

Finance Minister Francois-Philippe Champagne, speaking to reporters in a news conference, wouldn’t provide a timeline for when he expects the emissions cap to be dropped.

The signal on the emissions cap will be well-received by the energy sector and Canada’s western provinces, which have lobbied aggressively against the policy, saying it singles out oil and gas companies.

“If you’re an investor and you’re looking at the Canadian oil and gas sector, it looks better today than it did yesterday,” said Heather Exner-Pirot, director of energy, natural resources and environment at the Macdonald-Laurier Institute think tank. 

The oil-rich province of Alberta is pushing for a new crude pipeline to Canada’s west coast. The provincial premier’s office said it is “reserving judgment” on the budget amid ongoing talks with the federal government about changes to other laws it says are “chasing away private investment in our energy sector.”

The budget promises to develop a post-2030 carbon pricing trajectory. It also said it plans to improve its enforcement of the federal carbon price backstop and work with provinces to harmonize or link carbon markets between jurisdictions.

Colin Busby, a director of policy engagement at the C.D. Howe Institute, applauded the federal government’s intention to ditch the emissions cap in favor of industrial carbon pricing. However, he noted the government may come under pressure to provide carve-outs for high-emission industries hit by tariffs, such as steel and aluminum.

“Once you get into this area of carve-outs, then the real value of having a nice harmonized consistent price starts to fall apart,” Busby said in an interview.

On the zero-emission vehicle mandate, which sets out targets for the share of new cars sold that must be emission-free, the budget suggests the government will announce next steps in the coming weeks. Carney said in September the government was abandoning its 2026 target and would launch a 60-day review of the overall regulation.

Meanwhile, the government is doubling down on a suite of investment tax credits brought in by the Trudeau government to increase investment in green technology and energy.

That includes extending the carbon capture, utilization and storage investment tax credits by five years and making it easier for provincial and territorial Crown corporations to access the clean electricity investment tax credit.

On critical minerals, the government is proposing to expand the list of minerals eligible for the clean technology manufacturing investment tax credit as well as the critical mineral exploration tax credit.

It also promises a C$2 billion ($1.4 billion) critical minerals sovereign fund, which would be used to invest in projects and companies.

The budget follows through on the Liberals’ campaign promise of creating a first and last mile fund, which would focus on kickstarting critical mineral projects and getting product to market.

The government also plans to update its legislation against so-called “greenwashing” that aims to combat false claims of environmental benefit. The budget said the legislation as it stands today has created investment uncertainty while causing some entities to slow or reverse efforts to protect the environment.

Sven Biggs from environmental advocacy group Stand.earth said the budget’s changes “signal a worrying back-sliding for this government — that it’s betting the economic future of Canada on a lot of the old extractive industries, including oil and gas.”

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