Canada Signals It Plans to Scrap Oil and Gas Emissions Cap

Oil storage containers and pipelines in Alberta. The Canadian government has signaled it may eventually lift the controversial cap on emissions from the oil and gas sector. Photo by Bloomberg /Photographer: Bloomberg/Bloomber

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(Bloomberg) — The Canadian government has signaled it plans to eventually lift the controversial cap on emissions from the oil and gas sector, doubling down instead on its industrial carbon pricing system to rein in pollution.

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In its first federal budget on Tuesday, Prime Minister Mark Carney’s government unveiled its climate competitiveness strategy, which lays out how Canada plans to change its approach to environmental regulations and greenhouse gas emissions.

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The strategy underscores how Carney has diverged from former Prime Minister Justin Trudeau’s climate policies, which mapped out short-term emission reduction targets it planned to reach through a slate of regulations.

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The Carney government appears to be shifting its focus to the long-term goal of reaching net zero by 2050, saying in its budget that the strategy aims to drive “investment, not prohibitions,” and “results, not objectives.”

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The change in climate policy comes against the backdrop of the US moving away from the Biden-era clean energy agenda and President Donald Trump’s tariffs crippling some Canadian sectors.

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The Canadian government argues it can still reach net zero by 2050 through a revamped industrial carbon pricing system and other measures.

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“Effective carbon markets, enhanced oil and gas methane regulations, and the deployment at scale of technologies such as carbon capture and storage would create the circumstances whereby the oil and gas emissions cap would no longer be required as it would have marginal value in reducing emissions,” the budget said.

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Finance Minister Francois-Philippe Champagne, speaking to reporters in a news conference, wouldn’t provide a timeline for when he expects the emissions cap to be dropped.

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The signal on the emissions cap will be well-received by the energy sector and Canada’s western provinces, which have lobbied aggressively against the policy, saying it singles out oil and gas companies.

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The budget promises to develop a post-2030 carbon pricing trajectory. It also said it plans to improve its enforcement of the federal carbon price backstop and work with provinces to harmonize or link carbon markets between jurisdictions.

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Colin Busby, a director of policy engagement at the C.D. Howe Institute, applauded the federal government’s intention to ditch the emissions cap in favor of industrial carbon pricing. However, he noted the government may come under pressure to provide carve-outs for high-emission industries hit by tariffs, such as steel and aluminum.

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“Once you get into this area of carve-outs, then the real value of having a nice harmonized consistent price starts to fall apart,” Busby said in an interview.