“We’re challenging this proposed policy that would stifle our energy industry,” said Alberta Premier Danielle Smith speaking at the Oct 15th press update about Alberta’s response to the federal government’s oil and gas emissions cap. “It would kill jobs and it would ruin economies.”
First proposed on December 7, 2023, as the Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap –the federal emissions cap has not failed to elicit criticism, condemnation and stark warnings.
“This fall, the federal government plans to table regulations that would set mandatory targets with irresponsible time frames for upstream oil and gas and liquefied natural gas facilities,” Smith said. “Ottawa says they’re working to cut emissions, but we all know what they’re really doing is cutting production of oil and gas, and this, by extension, will cut jobs and revenues across the country.”
As stated in the press conference, Premier Smith expects opportunistic federal ministers will use the world stage for a display of global virtue signaling and announce the emissions cap at the 2024 United Nations Climate Change Conference or COP29, November 11-22 in Baku, Azerbaijan.
Emissions reduction targets have been criticized as ineffective and damaging by research organizations like the Conference Board of Canada, and financial advisory giants like Deloitte and S&P Global. Also mentioned in the press conference, S&P Global Commodity Insights has found that a 38-40 percent emissions cap could lead to a reduction in oil and natural gas production of one million barrels per day by 2030 and a 2.1-million barrel reduction by 2035. According to the Conference Board of Canada and Deloitte, the cap could amount to a more than 10 percent reduction in oil production and a 16 percent reduction in conventional gas production in Alberta in 2030.
What would be the impact of those production cuts?
Deloitte’s report found that the emissions cap (coming into effect in 2026) will curtail production, destroy jobs and cost the Canadian economy billions of dollars. They report Canada’s oil production would be reduced by 626,000 barrels per day by 2030 or by approximately 10.0 percent of the expected production—and gas production would be reduced by approximately 12.0 percent.
As reported by the Fraser Institute, Alberta would be hit hardest, “with 3.6 percent less investment, almost 70,000 fewer jobs, and a 4.5 percent decrease in the province’s economic output (i.e. GDP) by 2040. Ontario will lose more than 15,000 jobs and $2.3 billion from its economy by 2040. And Quebec will lose more than 3,000 jobs and $0.4 billion from its economy during the same period.”
Rebecca Schulz, Minister of Environment and Protected Areas of Alberta also spoke at the press conference pointing out that the cap is unconstitutional and dangerous and that there are ways to reduce emissions without killing the economy or forcing Canadians into a lower standard of living.
“Our oil and gas sector is already leading the way on emissions reductions across our country,” Schulz said. “Emissions intensity per barrel has already fallen by 23% and we can double that in the next few years. Our methane emissions reduction target of 45% was hit three years ahead of schedule, without a cap. Technologies like CCUS will let us produce more low carbon energy than anywhere else and we will keep moving ahead, as long as Ottawa doesn’t scare away investments through policies like this cap.”
Schulz added that Environment Minister Steven Guilbeault has a history of making large pronouncements at international conferences. With COP29 coming up next month, she advised “We’ve been told that an oil and gas production cap is coming at the very same time.”
A question was posed to the Premier as to why the federal government hasn’t changed their position despite all the actions of the Alberta government, even though the federal government doesn’t have the constitutional jurisdiction to impose a cap. Smith credited the federal ideological bias saying,
“Honestly, I think that they got locked into a paradigm – thinking it (the emissions cap) was achievable. They go to international conferences, and they try to outbid every other player at the table, saying that ‘we can go stronger and harder and faster than anyone else’ and they simply don’t have a mandate from the people to do that.”
Last week, Jeff Lawson, SVP Corporate Development & Acting Chief Sustainability Officer, Cenovus Energy speaking at the Canadian Chamber of Commerce “Charting the Path” event in Calgary spoke about the coming risk of the emissions/production cap which he described as a “ripple effect”.
“Every time there’s a ratchet up of expenses in our (oil and gas) industry, there’s a ripple effect, and it affects everyone. When we are just allowed to run, we actually improve the country and make things more affordable for everyone. But we are going to have an emissions cap. It will produce less GDP for the country. We’ll have fewer exports for the country. We’ll have less money going into healthcare and schools. We’ll have more expensive gas for the fertilizer industry. We’ll have more expensive natural gas for people’s houses. That would be the ripple effect.”
One of the effects of an emissions/production cap on the oil and gas industry Lawson described was the impact of reduced exports on the Canadian dollar and the economy.
“We export oil and natural gas -we’re a huge exporter, just as we are an exporter of food, and minerals. When we export, we receive U.S. dollars in return and we support the value of the Canadian dollar. We get U.S dollars in exchange for Canadian dollars. We keep our dollar higher than it would be if we stopped exporting, and that makes every single thing every Canadians buy more affordable- food, clothing, and consumer goods. And I think we just want to get that message out to people.”
The message of the importance of maintaining the appropriate balance of exports (in relation to imports) and supporting the value of Canadian currency is crucial for the country. A reduction in exports can distort the balance of trade and devalue Canadian currency. The devaluation of currency can have a huge impact on the everyday life because the value of a currency is one of the biggest determinants of a nation’s economic performance and its gross domestic product (GDP) and as a result, it affects levels of inflation, interest rates, and prices.
Lawson advised that one of the best things government and industry can do is let everyday Canadians know what the emissions/production cap policy is doing to the lives and affordability of all Canadians. This is certainly good advice, not only to government officials, but to Albertans and Canadians alike.
Maureen McCall is an energy professional who writes on issues affecting the energy industry.