The oil and gas sector is Canada’s largest and fastest-growing source of emissions, responsible for an estimated one-quarter of Canada’s total emissions.
“Reducing oil and gas emissions is key to achieving Canada’s emission targets and driving meaningful climate action. It also will create sustainable, long-term economic growth and provide affordable, clean energy,” Environment and Climate Change Canada said in its news release.
A discussion paper the department released on July 18 outlines and seeks input on two options for establishing the cap:
1) A cap-and-trade system under the Canadian Environmental Protection Act that sets regulated limits on emissions from the sector;
2) Modifying the carbon pricing benchmark requirements for heavy emitters to create price-driven incentives to reduce emissions to levels corresponding to the cap.
Option 1, the regulated cap-and-trade system, “would establish a total quota of GHG emissions allowable for specified periods, with that quantity declining over time.”
Emission allowances would be distributed through auctioning, with the option to vary the proportion of allowances auctioned over time.
The auction design is “would be expected to be similar to those designs implemented in the European Union, Nova Scotia, Quebec and California:
- the government accepts bids (that include price and quantity) from auction participants;
- all qualified bids are ordered from highest to lowest price and are processed, starting with the highest priced bid, until the associated quantity of allowances available for auction is reached; and
- the price of the last bid processed (where the allowance supply is exhausted) sets the clearing price for the auction, which determines the price per allowance that all participants pay.”
Option 2 would modify existing GHG emissions pricing systems.
“This approach would build on the existing federal approach to carbon pricing by setting out the emissions cap trajectory in policy and modifying federal carbon pollution pricing benchmark criteria to incent further reductions from the oil and gas sector, aligned with the emissions cap trajectory,” Environment and Climate Change Canada said in its discussion paper. It “would be implemented under Canada's approach to pricing carbon pollution, the GGPPA and the federal benchmark.”
The government’s ambitious plan to reduce greenhouse gas emissions was released in March by Environment Minister Steven Guilbeault, though it didn’t specify what the emissions cap would be. That is not indicated in the discussion paper, either, although it notes that the “form and timeline of the cap will be communicated by early 2023.”
Canada is aiming to reach “net-zero” by 2050, meaning “either no emissions of greenhouse gases (GHGs) by 2050, or that all emissions are completely compensated for by removing carbon from the atmosphere (negative emissions) through other actions, for example, planting trees or carbon capture and storage technology deployment,” the discussion paper said.
The 2030 Emissions Reduction Plan aims for a 40- to 45-per-cent economy-wide reduction in GHG emissions, below 2005 levels, by 2030.
In June the government unveiled its first carbon offset trading protocol, with a goal of helping big industry to cut greenhouse gas emissions.
The discussion paper includes a list of 22 questions to help guide and engage submissions, and a series of online engagement sessions will be held to allow interested parties to share their perspectives. Interested parties are invited to submit responses to the discussion paper via e-mail to PlanPetrolieretGazier-OilandGasPlan@ec.gc.ca by Sept. 30, 2022.
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