On September 22, 2022, Environment and Climate Change Canada (ECCC) hosted the third webinar in an ongoing series outlining the newly published document, Options to cap and cut oil and gas sector greenhouse gas emissions to achieve 2030 goals and net-zero by 2050.The webinars held previously focused on the two regulatory options proposed by the document, while the third session primarily focused on inviting feedback and discussion on the options proposed. Below is a summary of the Q&A period from the webinar. Please reach out to us or Environment and Climate Change Canada with any questions.
Q: What considerations were taken in determining the scope in the regulation? (ex. Energy security, carbon leakage, inflation, etc.)
A: The guiding principles as outlined in the discussion document were primary considerations. The primary goal of the regulation is to decline emissions at a pace and scale to achieve our targets, while being very conscious of ensuring policy coherence with other initiatives and making sure that policies make sense. Energy security and affordability always have been key concerns, and in the current global context, there is now an additional focus on security and affordability, as well as ensuring that the design of the approach is conducive to attract investment in Canada.
Q: What would sector coverage look like?
A: Holding emitters accountable is a key guiding principle and regulations would apply to all emitters. [The gov’t] is interested in thoughts on the coverage beyond upstream, including emerging industries such as liquid natural gas and hydrogen fuel production, as well as natural gas transmission pipelines and refineries. For example, hydrogen is currently produced within Canada but typically as a feedstock for chemical products, so then thinking about hydrogen as part of the O&G sector is a shift. The discussion document did not go into that area, but new entrance to the O&G sector would not be precluded from an emissions cap. New entrants would absolutely be part of the O&G sector as they emerge but there are several considerations as the approach is developed, including affordability and the energy transition. [The gov’t] is interested in views of how to treat these emerging sectors within the cap.
Q: How would the proposed scope align with action in the US to mitigate competitiveness concerns?
A: [The gov't] are closely watching the Inflation Reduction Act and what’s happening in other jurisdictions, such as California and EU models for carbon pricing systems, as [the gov't] develops these regulations and others that impact the O&G sector.
Q: What is the estimated cost to Indigenous economies? How much income do you anticipate Indigenous communities will lose? Would there be an indigenous exemption so that projects like Cedar LNG and others still have the opportunities to succeed and provide revenue?
A: With respect to impacts on Indigenous communities, including those that participate in O&G activities, it’s an important consideration as [the gov't] develops and refines the approach. In support of either regulatory option, ECCC will undertake an impact analysis in determining the scope of the emission cap and it will be an important pre-requisite for the publication of a final approach. Public input specifically in this area will be helpful, [the gov't] realizes that response is more so focused on process and principles, but specific concerns about those particular examples will be helpful as [the gov't] conducts and shares the analysis.
Q: Considering variability and carbon pricing across the world, there is concern that companies working in Canada may choose other jurisdictions in the world to invest capital. How might we address carbon leakage and competitiveness impacts?
A: In the design of carbon pricing systems to date, addressing carbon leakage (ex. what could happen if environmental regulations place high costs on industrial facilities, it’s possible that rather than reduce their emissions, companies will move to jurisdictions with less stringent carbon pricing systems in place, this could lead to carbon leakage) is a key consideration. Considering this and variability are very important parts of a carbon pricing system design. It is a key element of the design of the output-based pricing system federally and certainly of many provincial and territorial carbon pricing system. It is an element [the gov’t] will look at when considering the design of the regulatory options. For example, under Option #1, looking at the possibility of free allocation of allowances in order to address these concerns, or looking at the use of revenue. However, these options are in their early days so [the gov't] welcomes comments on how carbon leakage and competitiveness should be both assessed and addressed in both of the options.
Modelling assumptions and impact analysis
Q: What are the modelling assumptions for the emissions trajectory of an emissions cap?
A: Currently, no decisions have been made on the cap level or the trajectory of the cap level and [the gov't] expects to return for more detailed engagement on this topic. The cap trajectory will need to ensure emissions do not increase.
Q: To what extent has ECCC conducted impact analysis of the proposed cap on emissions, including the specific design elements, such as scope, or certain sub-sectors in the oil sands?
A: No decisions have yet been made on the cap level. [The gov't] expects to return for more detailed engagement on that element. In addition, in support of either regulatory option, ECCC will undertake and publish a regulatory impact analysis. [The gov't] welcomes all comments on the analysis that should be undertaken, both to determine the cap level and to analyze its impacts.
Q: What will compliance flexibility regarding the use of potential offsets or other compliance mechanisms that could be generated from facilities or activities that lie outside the scope of the regulation look like? For example, including carbon sinks on Indigenous reserves, or potential using internationally transferred mitigation options.
A: No decisions have yet been made on compliance flexibilities and to what extent [the gov't] would be permitted to be used under either the cap-and-trade option or the pricing option. This is one area where [the gov’t] is seeking industry feedback. A key objective of the O&G emissions cap is to pursue emissions reduction in the O&G sector, so that would be a key consideration in looking at compliance flexibility.
Q: Federal estimations of oil and gas emissions are markedly different from the modelling that BC has. Will all assumptions incorporated in the federal model be shared as part of this process?
A: The data and information that were provided in this presentation today were all derived from Canada's National Inventory Report published in April 2022. The National Inventory Report is used to report internationally-based, set protocols that are Internationally recognized in terms of quantifying Canadas greenhouse gas emissions. The exact methodologies in calculating the GHG emissions are developed in the spirit of continuous improvement. So every year, [Canada's] inventory folks from the department meet with their international counterparts, with provinces and territories, and where it’s possible, where it’s necessary, and where it’s feasible, updates are made to enhance the voracity and ensure that Canada provides the best and most complete information on a yearly continuous improvement basis. So [the gov't] would be quite interested in the differences that are being noted here with the data and information that BC is referring to and absolutely happy to take that discussion with the appropriate folks and perhaps an offline way and share the results from the group. Regarding the assumptions incorporated in the federal model being shared as part of this process, regulatory impact analysis statement will go through all of those assumptions and the approach to modelling impacts including the GHG impacts of any regulated approach.
Q: How has federal modelling demonstrated the effectiveness of a proposed cap? I.e., do you have quantitative evidence that this policy helps the government achieve net zero by 2050 goals?
A: Currently we are working on developing an approach and scope; any regulated option will require a regulated impact analysis that will go through the cost and benefit of the approach.
Integration with current regulations
Q: How will the federal system integrate with existing provincial regimes?
A: Provinces and territories have a number of regulatory measures in place as well as at the federal level including things like carbon pricing, methane regulations, clean fuel regulations that apply to the O&G sector. The interaction with the carbon pricing systems in the provinces and territories will depend on the option that is chosen.
- Proposed that the cap-and-trade system will apply in addition to the existing carbon pricing systems
- Modifications to the existing carbon pricing system are proposed in order to implement the cap
However, changes to other regulatory elements are not being proposed as a result of the introduction of the O&G emissions cap.
Q: Would the emissions cap would meet consent requirements under the UNDRIP? And would it go ahead if it doesn’t achieve free, prior, and informed consent from affected communities?
A: Canada has committed to the implementation of the UN declaration in the Canadian context. While it’s not legally binding in all states, Canada has undertaken to implement the declaration through federal laws and policies, thus it guides the way in which Canada recognizes and implements the Aboriginal and treaty rights recognized and affirmed in Section 35 of the Constitution Act. The engagement efforts here are undertaken in a spirit of cooperation, partnership, and good faith, with a view to finding common ground consistent with the UN declaration and principles.
Q: Regarding methane’s global warming potential, there has been some literature suggesting that the methane global warming potential would need to be updated, how would that be addressed in a regulatory context?
A: No decisions have been made on how changes on reporting requirements or global warming potentials will be taken into account as we move forward. Changes in quantification methodologies are usually accounted for in national inventory reports and our emissions systems, but as with the other elements, we do look for your comments on that issue.
Q: How would methane be treated and measured under an emissions cap or within the proposed methane regulations?
A: An emissions cap would also cover methane under both regulatory options, potentially in addition to a standalone and specific instrument, however, no specific decisions have been made on how methane would be treated under both cap options.
Q: What is the timeline of the regulations?
A: The form of the emissions cap will be communicated in early 2023 and will outline whether or not the cap is cap-and-trade or modified carbon pricing approach and would expect to also provide considerations on the scope.
Q: LNG is the best opportunity for Canada to support global decarbonization. The LNG supply chain should be incentivized and exempted from this legislation. As well, what about trends towards refineries developing hydrogen assets?
A: These are excellent points. To reiterate, no decisions on the inclusion of LNG or hydrogen production have been made in terms of the scope of the emissions cap.
Q: What are the linkages between different proposals? For example, cogeneration used in the O&G sector and the interaction between the proposed emissions cap and the clean electricity regulation?
A: No decisions regarding the coverage of cogeneration with respect to the emissions cap, this is still under development and [the gov’t is] looking for feedback on this issue.
Q: It is important to provide context for Canadian emissions. Please include the Canadian percentage of global GHG in future presentations.
A: Yes, [the gov’t] will include that in future presentations.