Impact Assessment of the Oil and Gas Emissions Cap – Factual information

This note addresses misstatements in the media related to the Parliamentary Budget Officer’s (PBO’s) March 12 report, Impact Assessment of the Oil and Gas Emissions Cap.

Under PBO’s baseline scenario, which excludes the proposed oil and gas emissions cap regulations, upstream production (excluding liquified natural gas) is projected to be 17 per cent higher, on average, over 2030 to 2032 compared to current (2022) levels. To achieve the legal upper bound (that is, maximum allowable emissions), we estimated that production for these subsectors would have to be reduced by 4.9 per cent relative to their projected baseline levels. Under the scenario with proposed regulations, total production from these subsectors would be 11.1 per cent higher, on average, over 2030 to 2032 relative to current (2022) levels. As noted in the report, the 2022 production levels for these subsectors are at or close to historical highs.

In the baseline scenario, we projected there would be significant improvements in non-methane emissions intensities for the oil sands and natural gas production and processing. We estimated the corresponding emissions reductions from these improvements in 2030 to be 16.7 megatonnes (Mt)—higher than some external[^1] estimates—but lower than the 26 Mt in “technically achievable” reductions for these subsectors estimated by Environment and Climate Change Canada (ECCC) in its 2023 regulatory framework. ECCC’s estimates of technically achievable reductions include carbon capture and storage (CCS), among other technologies.

Our report notes that the discrepancy in these emissions reductions could reflect the full inclusion of the Pathways Alliance CCS foundational project, which has an announced capacity of 10 Mt to 12 Mt, in ECCC's estimates. The report noted that a final investment decision for this project has not been made and that Pathways Alliance recently indicated that the proposed regulations “do not recognize the need for, nor enable, the fiscal supports, policy certainty and regulatory assurances that are necessary to enable decarbonization projects to succeed”.

Further, consistent with the Government’s Strengthened Methane Regulations, we assumed that methane emissions from the upstream sector over 2030 to 2032 would be 33.3 Mt below current levels.

It is in this context that having included significant improvements in non-methane emissions intensities and significant reductions in methane emissions in our baseline scenario that we assumed production levels would have to be reduced relative to projected baseline levels to achieve the legal upper bound of 160 Mt. We also assumed that firms would then maximize the use of compliance flexibilities to achieve the oil and gas emissions cap of 128 Mt for the first compliance period of 2030 to 2032.

As the report notes, our estimate of the emissions reduction in the upstream oil and gas sector required to achieve the legal upper bound falls within the range of external estimates. Similarly, our estimates of the corresponding reduction in projected oil and gas production levels and economy-wide real GDP impact are within the range of external estimates.