Ottawa considering new carbon tax system for oil and gas sector
The federal government is pursuing two avenues that would increase the cost to oil and gas producers of their carbon emissions.
In July, Environment Minister Steven Guilbeault released a discussion paper proposing an industry-specific pricing regime to complement the output-based pricing system. The Liberal government argues that an additional price signal is needed to meet its emissions cap for the sector.
The current carbon tax system has been criticized for failing to charge oil and gas producers their fair share of emissions. Earlier this year, Corporate Knights reported that some Canadians‘The largest emitters paid only a small fraction of the price of carbon emissions. The results-based pricing system (OBPS) is currently levied directly on large industrial emitters or sets the standard for provinces that choose to have their own carbon price for industry.
Even as it consults on an additional pricing model for the oil sector, Environment and Climate Change Canada is also reviewing the existing OBPS to determine if greater rigor is needed in terms of a company’s percentage‘s shows he covers.
Ottawa has pledged to cap oil and gas emissions at current levels and then reduce them 42% below 2019 levels by 2030. Industry accounted for more than a quarter of greenhouse gas emissions of Canada in 2020 and has been the fastest growing source since 2005.
As many parts of the world face extreme heat and drought this summer, Guilbeault argues that Canada must redouble its efforts to address the growing climate emergency.
Last month, the government announced a plan to either introduce an oil and gas-specific carbon price or establish a cap and trade system for industry that would provide more opportunities for trading rights. resignation.
However, the Liberal government faces determined opposition from industry and its political supporters. Alex Pourbaix, CEO of Cenovus Energy Inc., warned that the proposed cap would force future production cuts in Canada “at a time when the world is literally crying out for more oil and gas production.”
The oil industry executive made the comments on July 27 after his company – one of Canada’s‘s the largest oilsands producers – reported record cash flow and net income of $2.4 billion in the second quarter.
Pourbaix and other industry leaders are taking advantage of the current energy crisis resulting from Russia‘s the invasion of Ukraine to undermine Canada‘s long-term efforts to meet its international climate commitments.
Guilbeault and his Liberal colleagues will need to maintain a disciplined approach, encouraging additional production to meet a short-term global supply shortage while pursuing longer-term policies to drastically reduce emissions from the sector.
The OBPS is a tool that is already in place and has been confirmed by the Supreme Court of Canada. It levies a price on only a small percentage of greenhouse gases from large industrial facilities on the pretext that such a price encourages companies to reduce their GHG emissions while protecting their competitiveness.
However, the Canadian Climate Institute concluded last year in an assessment that the current system produces “a perverse long-term incentive.”
“They explicitly reward the highest-emitting facilities in the country for not making the major investments needed to be ready to compete in a low-carbon market,” the institute said in its report.
It is impossible that a new cap and trade system [for oil and gas] emerges.
–David Sawer, Economist of the Canadian Climate Institute
The price of carbon is already expected to increase annually to $170 in 2030 from $50 per ton in 2022. The institute‘The s report recommended that the government gradually increase stringency by imposing the charge on a greater proportion of an industrial polluter‘s emissions over time.
Canadian Climate Institute economist David Sawyer said a strengthened OBPS can provide much of the political momentum needed for industry to meet federal goals.
He predicted that Ottawa would strengthen the rigor of its reference to increase the real cost of collection and create stronger incentives for deep reductions.
“It is impossible that a new cap and trade system [for oil and gas] emerges,” Sawyer said in an email, arguing that such an approach would be far too cumbersome.
The oil sands industry itself has issued a “pathways to net zero” plan that commits to reducing emissions by 22 megatons per year by 2030, then virtually eliminating emissions from direct operations by 2050. The plan relies heavily on industry efforts to capture CO2 emission streams and store it underground – an extremely expensive and technically difficult undertaking.
Alberta politicians and industry leaders argue that the Liberal government‘Climate targets penalize the oil and gas sector and will force the industry to reduce production.
However, the federal government expects less reduction in emissions from oil and gas than from some other sectors. His plan aims to reduce GHGs 40% to 45% below 2005 levels nationwide by 2030, with a 31% reduction from the oil and gas industry.
In its emissions reduction plan released in March, Environment and Climate Change Canada predicted that, even before new pricing measures, the sector could expect to reduce emissions by 26% below 2005 levels by 2030. .
These projections assume that Ottawa would indeed have tightened its output-based pricing system to cover an additional 2% of businesses.‘ emissions each year, and the provinces would have to respect this additional rigor.
The outlook also assumes that Canada‘Oil and gas production would increase by almost 1.4 million barrels per day to 5.6 million – a generous assumption that many private forecasters do not share. And he assumes industry will make significant investments in carbon capture technology, spurred by a federal tax credit and that companies‘ own net zero plan.
Guilbeault and his officials are currently consulting with provinces, industry and other experts regarding the best mix of policies that would yield the most economically efficient emissions reduction pathway.
Contrary to reviews‘ complaints, the Liberals did not single out oil and gas for punitive treatment. The government has moved on a range of regulatory fronts – from carbon taxes to emissions standards for power generation to fuel efficiency standards for vehicles – to meet its commitments under the Paris on the climate.
If the Liberals stay in power long enough, the next steps would be to meet electric vehicle sales standards, including the requirement that new car sales be 100% zero emissions by 2035. The Trudeau government has also committed to setting standards for a net-zero electricity system by 2035.
These objectives are still a long way off, but the government will have to put in place measures to achieve them over the next few years.
The impacts of climate change are here and will only get worse. We still have time to avoid catastrophic effects, but all countries and industries must work urgently to accelerate the pace of emissions reductions and the transition from fossil fuels.