Will the pollution cap’s loopholes be fixed before an election?

The federal government’s proposed cap on oil and gas pollution may be a historic first for a major fossil-fuel-producing country, but climate advocates are concerned about several loopholes that could undermine what they say are crucial regulations to address climate change.

The draft regulations announced Monday outline a cap-and-trade system with the goal of cutting one-third of oil and gas sector emissions by 2030. According to the federal government, most of those emission reductions are expected to come from forthcoming regulations aiming to curb 75 per cent of methane pollution in the sector, electrifying facilities, as well as through technologies like carbon capture and storage. 

But some of the emission reductions could also be achieved through what Ottawa calls “compliance flexibilities,” which would allow companies to pay into a decarbonization fund rather than reduce emissions themselves, among other things.

Alex Cool-Fergus, national policy manager with Climate Action Network Canada, told Canada’s National Observer there is reason to applaud elements of the draft regulations: the Liberals are using their final months before an election to advance the policy rather than just putting it in their platform for re-election. And the policy itself is the first time oil and gas emissions are targeted directly, an innovative policy for a major fossil fuel exporter. But she says there are concerning aspects that need to be addressed. 

She said the regulations coming into force in 2026, with a four-year phase-in before companies are required to show their emissions reductions, is a “big disappointment.” 

“It gives [companies] too much runway to get ready,” she said. “We know we need those investments now… it's technically feasible right now for them to be achieving the targets set out in the emissions cap.”

Other than timing concerns, climate advocates want to see greater detail about how exactly the regulations will work. Having a federally-managed decarbonization fund that oil and gas companies pay into could be a good idea in theory, but the devil will be in the details, Cool-Fergus said. Details of the fund are thin, but essentially it would involve companies, like Suncor or Imperial Oil, depositing money in a fund that the federal government uses to pay for decarbonization. 

Cool-Fergus said the fund should be linked to strong labour conditions to ensure money helps workers retrain for jobs in a cleaner economy. 

“We really want to make sure that money is going directly to workers and not to oil companies themselves,” she said. “This is a way for oil companies to invest in the workers that they currently employ.”

A separate issue with the decarbonization fund is to avoid double counting. If, for example, Suncor paid into the fund to comply with the regulations, and then the feds used that money to give a grant to Suncor to invest in carbon capture and storage, the fund would be rendered pointless. It would amount to companies and government trading the same money back and forth. 

Environment and Climate Change Minister Steven Guilbeault said with profits in the oil and gas sector exploding from $6 billion to over $60 billion in recent years, the decarbonization fund is to “make sure some of that money is invested in decarbonization in the sector to ensure jobs, and to ensure the sector has a future.”

He added his office is figuring out how to avoid double counting and committed to putting safeguards in place to make sure it doesn’t happen. 

“You can't get the credit twice. You can only get it once,” he said. “It's a way to offer flexibility to companies, but there will be no double counting otherwise the system would be meaningless.”

Cool-Fergus said it is good to see the draft regulations do not currently include Internationally Transferred Mitigation Outcomes (ITMOs). ITMOs are an element of the Paris Agreement countries are negotiating, that involve one country reducing emissions, and selling the reduction credits to another country. Advocates say it’s a way to enable global emission reductions, while critics say without a high degree of transparency and accountability, ITMOs cannot be relied on because they risk double counting. 

However, the draft regulations do not rule ITMOs out of the final regulations. Rather, “the department intends to continue consulting on the issue,” according to the proposal. 

“That's a big flag for us,” Cool-Fergus said. “ITMOs should not be considered at all.”

Cool-Fergus said with the House of Commons on the verge of an election, civil society groups do not expect Prime Minister Justin Trudeau’s government to survive long — meaning it will be a mad dash to finalize the pollution cap regulations before the writ drops. That will happen next October at the latest, but could come earlier. 

“We're calling for [final regulations] to come out in or before March, because we don't trust the government is going to survive past the budget, and we absolutely need this emissions cap to be in place before the next election,” she said. 

That will be a monumental lift. The final round of consultations is expected to conclude in January and Ottawa is often slow to incorporate feedback. Before this week’s updated draft regulations, the last update the public had on the policy came a year ago.

On Thursday, Environment and Sustainable Development Commissioner Jerry DeMarco published a report tracking the progress of the federal government’s emission reduction plans and found nine measures were on track, nine were facing implementation challenges, and two were facing “significant barriers hindering effective emissions reductions by 2030.” The oil and gas emissions cap is one of the two facing significant barriers. The other is getting remote Indigenous communities off diesel power. 

“When we looked at 20 measures from the government’s 2030 Emissions Reduction Plan, we found that measures were being implemented too slowly to meet their intended emissions reductions in a timely manner,” the report found, adding the window of opportunity to slash emissions to meet 2030 and 2050 targets is “rapidly closing.”

“The federal government must pick up the pace in implementing effective measures.”

According to the latest emissions data, the oil and gas industry is the highest emitting sector, responsible for over one-third of Canada’s total emissions. Specifically, oilsands emissions have grown 142 per cent since 2005.

As previously reported by Canada’s National Observer, the oil and gas industry lobbied aggressively as the emissions cap framework was being developed, racking up over 1,000 meetings with government officials last year.