IISD Welcomes Draft Regulations for Oil and Gas Pollution Cap

Today, the Government of Canada published draft regulations to create a pollution cap on the oil and gas sector, outlining a cap-and-trade system designed to limit overall greenhouse gas (GHG) emissions from the industry. Oil and gas production and processing are responsible for 31% of Canada's total emissions, with this proportion growing year over year. A firm cap on emissions can provide certainty for industry to invest in decarbonization, while ensuring the sector is on a path to net-zero by 2050. With the Paris Agreement's 2030 deadline fast approaching, a robust emissions cap can also ensure that the continued growth of Canada's largest source of GHG emissions is halted as soon as possible.

"The real power of the pollution cap is certainty," says Steven Haig, Policy Analyst at IISD. "A strong cap would give the oil and gas industry confidence to invest in a net-zero future and assure the public that emissions will decline. While today's draft regulations provide the foundation for meaningful emissions reductions in the sector, the proposed 'decarbonization program' loophole risks double-counting reductions and should be removed."

While the industrial carbon price has been—and will continue to be—critical to incentivising reduced emissions intensity in the sector, this policy alone has been insufficient to bend the sector's overall emissions curve downward. The industry needs a clear, long-term regulatory signal to invest in decarbonization and deliver on its promises to support Canada's climate goals. IISD welcomes today's release of draft regulations for the pollution cap as a step in that direction.

To ensure the pollution cap drives clean investment and reduces emissions, it must be just that: a cap on pollution, clear and robust. That means it must be free of loopholes.

IISD applauds the decision to omit the option of using international carbon offsets to comply with the pollution cap from these draft regulations and advises that this decision be maintained in the final regulations. The policy should be further strengthened by removing the proposed 'decarbonization program' from the final regulations to prevent double-counting of emissions reductions in the sector. The final regulations must also be designed to ensure that any domestic offsets made available to the sector reflect real, additional, and verifiable emissions reductions.

We urge the government to ensure international offsets remain excluded from the final regulations, replace the proposed decarbonization program exclusively with robust domestic offsets, and move quickly to finalize the regulations in early 2025. We look forward to seeing a robust oil and gas pollution cap implemented soon.