RNNR Committee Report

The Demise of the Canadian Energy Sector

Conservative Party of Canada Dissenting Report: A Greenhouse Gas Emissions Cap for the Oil and Gas Sector

Standing Committee on Natural Resources

The Natural Resources committee undertook a study into the potential impacts of an emissions cap for the oil and gas sector. The final report failed to define terms, provide definitions, or recommend that the Government provide evidence-based details before moving forward with an emissions cap. Despite a series of witness testimony to the contrary, the Committee’s final report fails to recognize global context and the serious risk of carbon leakage; fails to recognize Canada’s oil and gas sector’s status and continued progress as a world-leader in environmental, labour, governance, Indigenous engagement, transparency, and human rights standards; fails to fully consider the impact on the economy, and on rural, remote, and Indigenous communities; fails to consider Federal jurisdiction and existing regulation in the industry; and does not adequately reflect witness testimony that an emissions cap is effectively synonymous with a production cap.

Upstream natural resources development is provincial jurisdiction. The Conservative Party opposes a federally-imposed oil and gas emissions cap, and disagrees with much of the content and many of the conclusions in the Committee’s final report, and for these reasons, are issuing this dissenting opinion.

Importance of the Global Context

Global demand for oil and gas is growing. Energy security for Canada’s European allies is threatened by Russia’s invasion of Ukraine.

In their brief to Committee, the Canadian Association of Petroleum Producers (CAPP) stated they “believe that growing Canadian oil and gas exports is the solution to both reducing global emissions and enhancing energy security.”[1] Peter Tertzakian from ARC Energy Research Institute stated that “dismissing the importance of fossil fuel systems before having sufficient, secure, and affordable clean energy substitutes is only half the problem. The other half is more ominous and reflective of past crisis.”[2] Mr. Tertzakian highlighted that global oil and gas production and exports are dominated by less democratic and environmentally responsible regimes.[3] CAPP is declaring what is already known to be true by policy experts around the world: Canada has the solutions to reduce global emissions and to enhance domestic Canadian energy security, and provide energy to free and democratic countries around the world.[4]

Global energy demand continues to increase as the world’s population grows and countries continue to develop. The International Energy Agency (IEA) projects that oil and natural gas remains critical to global energy supply and demand. But the Prime Minister has called for the phase out of Canadian oil production, vilifies the sector, and has implemented numerous regulatory and fiscal measures that undermines Canadian energy development and makes Canada less competitive, despite the sector’s disproportionate contribution to Canadian GDP, job creation, government revenue at all three levels, investment in clean tech and alternative energy development, and philanthropic and charitable social initiatives. 

As home to the world’s third largest oil reserves and as the 6^th largest natural gas producer with the 18^th largest reserves, Canada has a responsibility to help address the energy crisis, and has the technology, technical, regulatory expertise, and resources, to do so. Witness testimony from TC Energy, CAPP, Shell, CAOEC, and the Explorers and Producers Association of Canada outlined the sector’s constant and significant progress on increasing production while reducing emissions.[5]

Athabasca Oil Corporation stated “it is critical to our company and our industry that we achieve policy certainty that is realistic and achievable,” a point highlighted by several witnesses.[6]

Canadian policy must account for the global context and Canada’s competitiveness. Canada’s domestic oil and gas sector can provide global emissions reduction solutions, particularly while alternative and renewable sources cannot yet fully supply current and future energy demands. Hostile public messages combined with punitive and arbitrary regulatory and fiscal measures in Canada undermine global aspirations for emissions reduction by deterring investment and road blocking Canadian energy production and exports, enabling other producers with much lower standards to meet increasing global energy needs.

If Canada is going to meet growing global demand and displace supply from undemocratic and less environmentally responsible oil producing countries, the Canadian government must work collaboratively with industry and set attainable, predictable policy. Mark Scholz, President, and CEO of the Canadian Association of Energy Contractors (CAOEC) stated “we strongly assert that the drive for net-zero must not effectively become a cap on oil and natural gas production in Canada.”[7]

The Canadian oil and gas sector provides quality, stable, and well-paying jobs. Globally, Canada’s oil and gas sector is a leader in technology development and its standards for production, and the industry’s commitment to address climate change and cleaner production has garnered the support of many energy agency leaders. Canada has been a reliable and stable partner in the energy market for decades. The priority for Canadian energy policy development should be to accelerate domestic oil and gas development and expand Canadian exports in order to reduce emissions globally.

Industry and Government Emissions Reduction Progress

This report does not accurately capture testimony heard by this committee on the role of Canada’s energy sector in emissions reduction, producing oil and gas at a lower carbon intensity than all the other major producers around the globe.

It became clear through the study that the other parties were intent on attacking the sector, instead of taking a realistic look at the sector’s efforts, especially compared to global jurisdictions. There are sections of the report that even editorialize witness testimony by refuting facts they brought to the table – despite no other witness testimony contradicting these facts. The President of the National Coalition of Chiefs, Mr. Dale Swampy, said “this Parliament seems to treat the oil and gas sector like they’re the enemy and a problem to be fixed.”[8] – and this inclination, unfortunately, is reflected in the Committee’s final report. Starting from this premise devalues the industry’s many advancements. Shell Canada and TC Energy referenced the significant investments already made to lower emission intensity in their operations: “Per barrel emissions from the oil sands, for example, declined by approximately 33% between 1990-2020.”[9]

Canada is the only energy producing jurisdiction in the world where 6 major producing companies have a goal and plan to achieve net zero emissions. Canada’s energy industry has invested over $3.5 billion since 2018 in emission reduction technologies. According to the Canadian Association of Energy Contractors (CAOEC), that puts the industry as the largest private sector investor in Canadian emissions reduction technology and innovation.[10] Not only can Canada’s efforts benefit Canada, but the production and export of cleaner oil and gas, development of alternative energy sources such as hydrogen and geothermal, and the perfection of CCUS techniques, contribute to Canada’s environmental achievements, if Canada capitalizes on and recognizes those efforts rather than demonizes them. Canada must acknowledge and promote its energy industry’s proven track record and position as a world leader. Tourmaline Oil Corp reported the reduction of overall emissions intensity by 31%, and methane emissions by 26% in two years, while striving to become the industry’s cleanest and lowest-emitting natural gas in the world.[11] Tourmaline expressed deep concern that an emissions cap in Canada could bring all action to a halt with wider negative impacts, such as carbon leakage.

Three professors who addressed the committee opposed the proposed cap, Dr. Keith, Dr. Leach and Dr. Winter.[12] Rather than risk losing momentum of meeting targets, Craig Bryska urges Canada to expand and advance innovation by rewarding it in Canada’s world-leading energy sector.[13] The Explorers and Producers Association of Canada noted that climate policy programs should be assessed and supported based on measurable carbon reduction results.[14] Canada’s energy sector can boast results, and their various partnerships and collaborative initiatives have delivered significant progress on emissions reduction in Canada. As put by Colleen Collins of the Canada West Foundation (CWF), “Canada and its provinces are already recognized leaders in emissions reduction policy” – and adding more uncertainty would be detrimental to Canada’s investment climate.[15]

Canadian Standards Prevent Carbon Leakage

Carbon Leakage is defined as a situation where production is moved from a jurisdiction with high environmental and emissions reductions standards to a country with very little regulation, leading to an increase of global emissions. In the Canadian context, policies like the carbon tax, and new, duplicative, and changing layers of regulations that cause uncertainty and have driven private sector proponents to abandon major investments and initiatives, cause companies to shutter production, invest new operations in other jurisdictions, and force Canadian refineries to rely on imported foreign oil.

Numerous witnesses and members from all parties recognized the importance of preventing carbon leakage. While recommendation 5 does note the importance of preventing carbon leakage, the report does not adequately emphasize the risk, or the key role of Canada’s oil and gas sector in preventing carbon leakage, and replacing oil and gas from countries with lower environmental and human rights standards.

Tim McMillan of CAPP highlighted that, if carbon leakage is not considered, “this could lead to greater global emissions as we see more coal being utilized than natural gas and sources of supply for natural gas and oil coming from jurisdictions that don't have our high standards.” He noted that if an emissions cap was proposed, it could discourage investment in Canada, a jurisdiction with high environmental and social standards.[16] Colleen Collins highlighted that the industry can reduce per-barrel and total intensity while increasing production – and how this work, driving down the intensity of Canadian oil, can be used to replace higher emitting sources in global markets.[17]

Dr. Mark Jaccard advocated for a system to measure carbon leakage in any proposed cap, including as part of a cross-sector approach in Canada.[18] Michael Bernstein believed that carbon leakage could be addressed by border carbon adjustments. It was clear that addressing carbon leakage through some measures was a priority for the witnesses that appeared for this study.

An emissions cap would pose a significant risk to cause carbon leakage. As Robert Tarvydas stated, “a cap on production or even a decrease in production would likely result in leakage to other jurisdictions with environmental standards that are perhaps not as strict as Canada’s.”[19] This was noted by other organizations, such as Tristan Goodman of EPAC and Dr. Charles Seguin, who specifically noted the danger OPEC presents to Canada.[20] An emissions cap would put Canadian producers at a disadvantage compared to other global jurisdictions, reducing competitiveness on the global market and putting increased strain on the Canadian energy industry to compete with other oil and gas producers, like Venezuela, Russia, and Saudi Arabia. Carbon Leakage needed to be a major focus of the Committee’s final report, but was not.

Canadian oil and gas is produced with the highest environmental and human rights standards in the world. If pipelines that could have increased Canada’s export capacity had been completed, or if a single LNG export facility had been constructed in the last decade, Canada could displace oil from Saudi Arabia, LNG from Russia, and supply the energy European countries are seeking from Canada, at the time of writing this report.

An Emissions Cap is Synonymous with a Production Cap

The Committee heard strong opposition to a production cap from multiple witnesses, as noted in the main report (paragraph 25). Despite this opposition, the report fails to acknowledge that an emissions cap will function effectively as a production cap, and does not include recommendations to ensure that any considered emissions cap does not cap production.

Feedback that an emissions cap will be a production cap in Canada has been clear from experts, producers, industry stakeholders such as TC Energy and the Canadian Association of Energy Contractors, and from Indigenous leadership.[21] Multiple witnesses expressed a shared agreement that an emissions cap must not effectively become a production cap in practice, put well by Robert Tarvydas of TC Energy: “Government must ensure that industry's ability to adhere to an oil and gas emissions cap is achievable and economically efficient. The inability for the oil and gas sector to cost-effectively decarbonize to the levels required by an overly restrictive emissions cap would effectively create a cap on production, with irreversible impacts on energy security, reliability and affordability. This would significantly impact both Canada's economy and balance of trade, while having a negligible impact on global emissions as production moves to jurisdictions with inferior ESG profiles.”[22]

During the study, the Environment Minister admitted that production falls under provincial jurisdiction over natural resources development.[23] It’s clear the federal government must therefore distinguish a cap on emissions from a cap on production, but several witnesses cautioned the federal plan for an emissions cap will almost certainly be a cap on production as an indirect result, which was not adequately reflected in the Committee’s final report.

Dr. Charles Séguin and Dr. Andrew Leach both noted the potential for production to decline as an indirect by-product of the emissions cap.[24] While Leach highlighted regulatory uncertainty and insufficient investment, Séguin said the options for keeping up with a cap would become more difficult and expensive over time.

Similarly, Dr. Simon Langlois-Bertrand and Chris Severson-Baker both anticipated that the energy sector will likely need to reduce production[25] – and similar to the Liberal Government’s position regarding an emissions cap, to “reduce emissions”[26] without a reference to production, these witnesses believed that a cap on emissions “would result in the future in a reduction in production.”[27]

Dale Swampy of the National Coalitions of Chiefs stated that “a cap on emissions will be, in effect, a cap on production in the oil and gas industry,” and highlighted how that will harm Indigenous communities across Canada.[28]

Dr. Mark Jaccard, who otherwise generally maintained that an emissions cap could be compatible with oil and gas production, likewise seemed open to its potential for eventually restricting production.[29]

An Emissions Cap Would Duplicate Provincial Regulation

Despite the fact that Canada has not had a federally-imposed emissions cap, it is already a world leader in emissions reduction policy – and as witnesses emphasized, “One has to ask what the value is of additional legislation that creates even more uncertainty and distracts from the business of implementing existing policies.”[30]

Colleen Collins raised concerns over duplicating federal and provincial regulation, as Alberta already has a 100 megatonne cap, introduced in 2015, on its oil sands – and it “works because there is room for growth under the cap. It supports economic growth and innovation to reduce emissions, so the environment and the economy are explicitly recognized in the design of that cap. It's one thing to regulate 35 oil sands sites with six producers, but it's a whole other thing to regulate 200,000 sites across different provincial jurisdictions to establish this cap.”She also highlighted the possibility of federal-provincial battles over the cap, creating more uncertainty for investors.[31]

The Liberal government has layered and duplicated red tape, and driven energy investment from Canada, costing the cancellation of hundreds of thousands of jobs and hundreds of billions in energy projects and indigenous partnerships. Witnesses at committee were clear that more red tape would be bad for business, saying “The inability for the oil and gas sector to cost-effectively decarbonize to the levels required by an overly restrictive emissions cap would effectively create a cap on production, with irreversible impacts on energy security, reliability and affordability,” and that “uncertainty is the reason Canada has one LNG facility, which is under construction, while Australia has 16, the U.S. has seven, and the rest of the world has 70 LNG facilities.”[32]

Provinces such as Alberta, British Columbia, and Quebec already have emissions caps. The years of legal disputes led by provinces whose own regulations are arbitrarily not deemed sufficient by a Liberal government, combined with regulatory duplication and constantly changing goalposts, means that an emissions cap will be another reason why foreign investors will look elsewhere, and domestic producers will seek to leave Canada.

An Emissions Cap Would Negatively Impact the Economy, and Rural, Remote, and Indigenous Communities

The Committee’s final report does not accurately capture the significant impact of an emissions cap on economic development, and particularly on rural, remote, and Indigenous communities where local economies, job creation, and revenue disproportionately rely on oil and gas and other natural resources production.

Dr. Mark Jaccard specifically noted that government policy must focus on “not harming a particular industry or region.”[33] Dr. Jennifer Winter noted that “different treatment of a specific sector reallocates capital and labour throughout the economy, moving these production inputs away from their most productive use. This artificially expands some sectors, shrinks others, and lowers Canada’s productivity.” [34]

Dale Swampy of the National Coalition of Chiefs noted the emissions cap will be detrimental to future economic opportunities for Indigenous communities, entrepreneurs, and youth, and warned that an emissions cap will “stop new production just when we have gotten our foot in the door and are positioned to benefit and lead that new growth” and it’s “incredibly frustrating.”[35]

Mark Podslay of FNMPC (the First Nations Major Projects Coalition) highlights that getting this decision wrong impacts nations with equity stakes in the oil and gas sector: “First Nations look to take equity positions in these projects because it gives us, first of all, a say in how the projects are being built, where they're being operated and where they will be routed. Also, it's for a revenue stream. Many First Nations in the country, particularly those of us who are in remote areas or places where we don't have easy access to urban facilities or urban employment options require a revenue stream to fund self-determination priorities.”[36] For that reason, Chief Sharleen Gale of the FNMPC emphasized how Indigenous communities have been left behind, and how they “need to be involved in any decisions, policy change and discussions moving forward.”[37]

Top priorities for policy consideration by the federal government should be to promote economic reconciliation for Indigenous communities, and to maintain the economies of rural and remote regions in Canada. The Committee’s final report fails to capture the serious impacts of an emissions cap on these areas and makes no recommendations to the Government to rectify the negative economic consequences for rural, remote, and Indigenous communities that own, operate, or are shareholders in oil and gas projects.

In Conclusion

An emissions cap on the oil and gas sector has the potential to cap production; cause carbon leakage; jeopardize the global geo-political and socio-economic contributions of Canada’s world-leading environmental, labour, governance, Indigenous engagement, transparency, and human rights standards; infringe on provincial jurisdiction, even when those provinces have emissions caps themselves; undermine Canada’s competitiveness and ability to attract major private sector investment; and will be another blow to Canada’s oil and gas sector that provides billions in annual tax revenue to governments, hundreds of millions to local charities and social causes, and supports the economies of rural, remote, and Indigenous communities.

For these reasons, Conservatives oppose an emissions cap, and reject the conclusions of this report.