Summary of Pathways Alliance’s Submission on the Federal Oil and Gas Emissions Cap Discussion Paper

Submission Date: September 30, 2022

In the discussion document Options to Cap and Cut Oil and Gas Sector Greenhouse Gas Emissions to Achieve 2030 Goals and Net-Zero by 2050 (Emissions Cap) the federal government proposes two approaches to reduce greenhouse gas (GHG) emissions from the oil and gas sector at a pace and scale deemed necessary to achieve Canada’s 2030 and 2050 climate targets: 1) a new cap-and-trade system or 2) a separate and more expensive carbon pricing system.

The Pathways Alliance (Pathways) supports the government’s goals of achieving a large absolute reduction in GHG emissions by 2030 from the oil and gas sector, and the goal of achieving net-zero by 2050. Canada’s energy transition will require significant investment into a broad suite of technologies, some of which are not yet commercially available. The cost of decarbonization corresponding to Canada’s ambition is expected to be high and will take time. Balancing climate ambition with what is feasible will be key to a successful energy transition. Importantly, Canada needs an enabling policy framework and a competitive investment structure that will attract global capital and incentivize investment in decarbonization technologies within the specific context of Canada’s climate goals otherwise, the country is at risk of flight of capital to jurisdictions with more competitive fiscal policy. Pathways notes the many benefits that Canada stands to realize by advancing decarbonization projects at scale such as lowering emissions, creating jobs, and supporting Indigenous economic reconciliation while enabling a robust economy to support the country’s transition.

Existing carbon policy adds costs to Canadian firms that other jurisdictions do not face. The proposed Emissions Cap would further increase these costs and erode the sector’s competitiveness. There is also concern that with the proposed Emissions Cap, Canada is creating an incredibly complex and uncertain regulatory system which may have unintended consequences. Chiefly, both proposed options fail to provide certainty for decarbonization investment in Canada and could result in some degree of oil sands production curtailment.

Recognizing Canada’s desire to accelerate emission reduction actions in the oil and gas sector to meet our mutual net-zero goals, Pathways is of the perspective that better alternatives exist to the proposed policy design options. Importantly, a technologically and economically achievable emission reduction trajectory should be considered within the overall policy design.

Pathways Recommendations:

  1. Maintain policy stability to foster investor certaintyThe investment community needs confidence to pursue large-scale, capital-intensive projects. For this to occur, investors need both policy stability and policy certainty. Climate policies should strive for clear direction to maximize the efficacy of the program in the most cost-effective manner. Existing, economy-wide carbon pricing systems, including provincial equivalents such as Alberta’s Technology, Innovation and Emissions Reduction (TIER) system, under the Greenhouse Gas Pollution Pricing Act, already provide appropriate direction to drive emission reductions out to 2050. To complement the existing carbon pricing systems, a federal framework could be established to identify and monitor key metrics such as progress towards sector decarbonization, sector competitiveness and need for ongoing supporting fiscal measures.

  2. Establish a feasible emission reduction trajectory to set the pace. Pathways is concerned that the proposed Emissions Cap is based on impractical timeframes and trajectories. Pathways’ ambitious plan expects to advance 22 Mt of reductions from our operations by 2030, and only then with appropriate policy, regulatory and economic certainty in place. Any proposed emissions cap cannot and should not exceed that level of expected reductions for the oil sands, subject to those prerequisites. Pathways has proposed to work with government to determine a realistic trajectory for further reductions; specifically, ones that are technically, economically, and executionally feasible.

  3. Design compliance options to accelerate investment in decarbonization projects. Increased regulatory costs through carbon policies should be avoided or minimized as these costs compete with the capital needed to advance the next tranche of decarbonization activities by the sector. Pathways recommends that the federal government allow companies to direct compliance payments towards company projects that decarbonize the oil sands.

  4. Provide a competitive investment structure to attract investment and to avoid flight of capital. It is paramount that the policy framework is structured to de-risk investments in decarbonization activities. Investors will prioritize jurisdictions where policy clearly defines how investments will recover costs in a predictable and sustainable manner and deliver competitive project returns. Strong fiscal policy will be a prerequisite to enabling investment in decarbonization technologies that support Canada in meeting its climate goals. There is a suite of fiscal measures that could be considered, e.g., government funding programs, investment or production tax credits, or carbon contracts for difference. However, each has unique considerations as to how they should be designed to be most efficient. Pathways is seeking fiscal support that enables investment and is both royalty and tax efficient. Further to this, Pathways supports restoring eligibility to generate credits through the Clean Fuel Regulations for exported crude, bitumen and finished fuels using carbon capture technology.