Canada announced the release of a new draft regulation to cut emissions in the oil and gas industry by 35% by 2030. The new regulations introduce a new emissions allowance system to cut greenhouse gas emissions pollution and promote sustainability across the country. 

Private equity and credit firms, asset managers, and impact investors should pay close attention to this regulation as it has the potential to increase costs in the supply chain, drive innovation in renewable energy technologies, and have business and economic implications beyond the oil and gas industry. 

Let’s explore the new regulation proposed by Canada in detail. 

About Canada’s proposed new carbon emissions regulation 

The new draft introduced by the Government of Canada is a set of rules and initiatives that are part of the 2030 Emissions Reduction Plan. Along with other standards, the regulation introduces a cap-and-trade system that incentivizes companies to invest in cleaner technologies while allowing for continued production growth. 

The proposed regulation aims to cut emissions from the oil and gas sector equivalent to 35% below 2019 levels. It sets a limit on pollution, not production, and it has been made clear by extensive engagement with industry insiders. 

The oil and gas GHG pollution cap is expected to help the sector grow rapidly. By reducing carbon emissions, the regulation highlights Canada’s commitment to achieving net-zero emissions by 2050. 

Key aspects of Canada’s new proposed carbon emissions regulation 

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  The Canadian government's overall plan is to reduce GHG by 40% to 45% below the levels of 2005 by 2030. Each sector has tailored targets; for instance, the oil and gas sector is mandated to cut emissions by 35% from 2019 levels.
  
  

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  The oil and gas greenhouse gas pollution cap will regulate the upstream oil and gas facilities, including offshore facilities, and it would also apply to liquefied natural gas production facilities. The emissions cap will cover activities including conventional oil production, oil sand extraction and upgrading, natural gas production processing, and production of liquified natural gas. 

• The regulation highlights the importance of reducing methane emissions, a potent greenhouse gas, and strategies for methane reduction, which are crucial for achieving low-cost and high-impact greenhouse gas emissions cuts. 

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  The Canadian government's plan to reduce emissions includes a substantial investment of $12.5 billion in tax credits for carbon capture, utilization, and storage (CCUS) projects to encourage technologies that mitigate GHGs. Additional funding is also allocated to different sectors to promote clean energy solutions, including investments in EV charging stations and renewable energy infrastructure. 

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  The Canadian Net-Zero Emissions Accountability Act mandates that the Government release progress updates on the implementation of the plan. The reports will be issued in 2023, 2025, and 2027, allowing for modifications in response to performance against goals. 

Next steps

The Government of Canada is continuing to consult on the final draft of these regulations, which is expected to be released next year. Concerned professionals can submit written comments on the proposed regulation during the formal consultation period from November 9, 2024, to January 8, 2025.

While you’re here…

Financial institutions, private equity and credit firms, asset managers, and impact investors operating in Canada should carefully consider the new draft regulation released by the Government of Canada, in their strategies and risk assessments to capitalize on opportunities and mitigate potential risks.

However, keeping up with government initiatives like this and assessing them accurately can be challenging. This is where Auquan comes into play. 

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