In a move that is best described as grandstanding, Steven Guilbeault Minister of Environment and Climate Change of Canada has seized upon what he says is a “window of opportunity” to launch a misguided attack on the Canadian oil and gas industry that he calls the “oil and gas greenhouse gas pollution cap”.
The oil and gas GHG pollution cap for the first compliance period, 2030-2032, would be set at 27% below emissions reported for 2026, which is estimated to be equivalent to 35% below 2019 emissions. Always the opportunist, Guilbeault chose the last day of intense campaigning before the 2024 American election to announce it.
The lead-up to this year’s U.S. election has been an exceptionally all-consuming time of information overload from sources all over the globe with multiple commentaries upon commentaries. In the true spirit of obfuscation and opportunism, the Federal Environment Minister buried his announcement in the pre-election snowstorm of information from all forms of media. Guilbeault is well known for grandstanding since his early days as a Greenpeace activist, scaling the CN tower. Now he’s bringing his stunting to new heights with an oil and gas GHG pollution cap announcement.
Although the motivation behind the emissions cap is professed to be for the benefit of Canadian industry as well as the Canadian public and the environment, it was hard for Guilbeault and MP Randy Boissonnault to hide the total misunderstanding of the basics of the global energy market behind the proposed regulations. In the press conference to announce the measures, Boissonnault paraphrased the energy industry representatives he said had spoken with him stating:
“….and they say… ‘ We know we need to have the greenest barrel of oil on the planet’…”
He then added his own erroneous conclusion: “…because who is going to want to buy that? …the answer is everyone!”
Boissonnault’s absolute misunderstanding of the motivators of the global, North American and Canadian energy market is astounding. Globally, countries, businesses and consumers are resorting to buying the most affordable energy – not the “greenest” in the current high price/affordability crunch. It is unbelievable that federal ministers could be so out of touch and their inability to comprehend the market forces at work is as great as their inability to realize that “the greenest barrel of oil on the planet” claims ring hollow with average Canadians who are in the midst of a severe affordability crisis – precipitated by failed government policies like the carbon tax. A healthy skeptical questioning of the minister’s motives raises the reality that Guilbeault and company are cynically seizing the moment in the midst of the barrage of U.S. election information to launch this ill-informed policy and capitalize on distractions and uncertainty.
In monday’s press conference, Guilbeault made the claim that “across the world there is a consensus on the need to transition to a cleaner future.” That is just not based on current global realities. Countries currently need and are buying low-priced fuels/energy. The top five countries importing crude oil in 2023 were the U.S., China, India, Japan and Korea, with the largest importer of Canadian crude being the U.S. In addition, Canada would be the only country in the world to implement an emissions cap for producers, which would handicap the industry- making it increasingly difficult to attract capital.
As MP Greg McLean, whose previous work as a financial professional work put him in close contact with not only Alberta’s oil and gas sector but also with technology start-ups stated on social media:
“Constraining Canadian oil and gas will not help the global environment. Countries will simply buy the oil and gas they need from other producing countries – most of which have much lower environmental and labour standards than Canada. This policy will continue the impoverishment of Canadians while enriching many dictatorships and corrupt regimes.”
With a 35% cap, there will be reduced production and reduced revenues. Canada will miss out on billions of dollars of contributions to the GDP from oil and gas.
“At a time when Canadians are experiencing the worst decline in our living standards in 40 years, the worst drop in per person income in the G7, the worst economic growth in the OECD, and rising unemployment,” McLean said. ”they have taken aim at Canada’s biggest contributor to export earnings and GDP (25% of exports in 2023; $209 billion in GDP) – not to mention almost one million workers in that industry and the many spinoff businesses.”
As for Boissonnault’s assertion that capital markets are going to want to finance “the greenest” Canadian oil and gas – it is yet another disingenuous claim that is not founded in fact. As is most often the case with Canadian federal policy changes and regulatory overburden, the opposite is true – that capital flees from Canada to more hospitable jurisdictions- like the U.S. This is already happening in Canada due to the existing challenging regulatory environment and even affecting companies in sectors other than oil and gas, as capital ends up seeking “greener” pastures so to speak.
For a timely case in point, (although it is not an oil and gas producer) just look to Brookfield Asset Management’s move of its head office to New York from Toronto last week to gain access to more US stock indexes and attract “a much broader universe of active public investors”. Since Mark Carney is the current chair of Brookfield Asset Management as well as the chair of a Liberal Party task force advising Justin Trudeau, one would think that MPs like Boissonnault would be more aware of current global investment trends/challenges and the huge draw of the U.S IRA, 45Q and other instruments.
Goldy Hyder, President and CEO of the Business Council of Canada called the current Canadian policy landscape “incoherent” in his statement about the cap saying: “A cap on the energy sector will make Canada’s climate policy landscape even more incoherent and uncompetitive, which will leave the country with an expensive piecemeal approach to reducing emissions.”
Certainly, the current Liberal regime has timed the announcement to limit deeper reflection on the seriousness of its implications for Canadians. My thoughts turn to another truism about the unpredictable nature of the crises that could arise from adoption of the emissions cap- “The crisis you have to worry about most is the one you don’t see coming.”
Ironically, we already have industry leaders who see the pending crisis of flight of capital and flight of technologies but also see a deeper crisis of affordability and economic challenge ahead. One of the most immediate situations the cap will cause is double-edged. As well as straining Ottawa’s relationship with Alberta, it will negatively impact Canada’s relationship with the U.S. According to Goldy Hyder, discussion of a cap sends all the wrong signals.
“At a time when Canada’s economy is stalling, imposing an oil and gas emissions cap will only make Canadians poorer. Strong climate action requires a strong economy. This cap will leave us with neither…the announcement ahead of the U.S. presidential election also sends the wrong signal to our most important trading partner that looks to Canada as a secure and reliable source of energy.”
Amidst this fevered frenzy of politicking, Enserva, the national association representing the service, supply, and manufacturing sectors of the Canadian energy industry launched their annual “State of the Industry Report” with their insights for the coming year yesterday. The event included presentations and discussions from a panel of financial experts including Mark Parsons Vice President and Chief Economist ATB Financial, Taylor Lee Senior Analyst at Rystad Energy, Randy Ollenberger Managing Director BMO Capital Markets, Tyler Dahlseide Pres at Ferus Inc. and Enserva President & CEO Gurpreet Lail sharing their perspectives on the Canadian economy, as well as the North American and global energy sectors. Gurpreet Lail opened the event and addressed the GHG emissions cap announcement as “a production chokehold in disguise.”
“This cap could put as many as 151,000 jobs at risk and cut billions from Canada’s economy, decimating the livelihoods of families and entire communities that rely on our energy sector,” Lail said. “Canada’s energy sector has made tremendous strides in reducing emissions, investing billions to lead in innovation and sustainability. Yet, the federal government is choosing punitive policies over partnerships for progress. We need collaboration, not caps.”
Enserva’s State of the Industry report is mostly good news, according to Lail. However, she advised that potential downside risks are still highlighted in the report and mostly center around policy and political risk. She said any government decision that would negatively impact investment into energy products -like the GHG emissions cap- would have a direct and significant impact on energy service, supply, and manufacturing companies and on the people that work for them. She noted the key findings of the report are that the oil and gas/energy sector in the coming year will see strong investment, stability, productivity, leadership and job growth and a deep, continued commitment to environment improvement and stewardship.
“We forecasted upstream capital expenditures surpassing $40 billion,” Lail said. “That’s the highest in over a decade. It’s an impressive benchmark that signals the energy sector’s ability to draw in substantial investment even while there’s global market fluctuation.”
Gurpreet Lail also serves as a governor on the board of the Canadian Energy Executive Association and mentioned that she is quite proud of the work CEEA is doing fostering collaboration & advocacy and leading a campaign to engage university students at universities across Canada to attract much-needed new talent to the energy industry.
Also at the Enserva event, Mark Parsons Vice President and Chief Economist ATB Financial warned that a GHG emissions cap applied only to the oil and gas sector would lead to differences in effective carbon prices for the rest of the economy that would be subject to different emissions standards. This approach would apply a higher compliance cost to one sector of the economy and not to others. The cap would undermine the national price signal with one sector being treated differently than others and undermine low-cost emissions reductions and ultimately, economic growth.
In conclusion, certainly the Canadian public, industry, policymakers and regulators should be wary of the profound negative economic impacts of the Federal GHG emissions cap. It is clear that the emissions cap will not drive innovation and create jobs in the oil and gas sector as promised.
Instead, it will create a crisis of negative economic effects that the policymakers who crafted the oil and gas GHG pollution/emissions cap just don’t see coming, even though they are getting ample warning from many economists and advisors like those quoted in this article.
Maureen McCall is an energy professional who writes on issues affecting the energy industry.