John Ivison: Even climate groups think Guilbeault’s emissions cap is dumb

Steven Guilbeault has made clear that he plans to go out with bang, championing a record unsullied by compromise, pragmatism or achievement.

The activist environment minister released the draft regulations for a cap on oil and gas emissions on Monday, under the cover of blanket U.S. election reporting.

The minister’s rationale is that regulation is needed because profits in the sector have soared.

Alberta Premier Danielle Smith said Guilbeault has a “deranged vendetta against Alberta” and promised to fight the cap in court.

Guilbeault knows the courts have already ruled that resources are a provincial jurisdiction and, deftly noted that his projections suggest that production will keep rising.

But it won’t rise at the pace that it would have, were there no cap. And the pain of those regulations will be felt in only one sector in one region of the country.

“Does it worry you that this will have a negative impact on the Alberta economy,” he was asked by CPAC’s Prime Time Politics host Michael Serapio. 

“No, it doesn’t,” he replied. “What the government of Alberta is saying is not true.”

The cap was promised in the 2021 election and its outline has now been released, even though all involved in its preparation likely know it is an exercise in futility, given the political fortunes of the governing party.

But it is an instructive microcosm of how the Liberals have doomed themselves: driving on with divisive ideological commitments that defy common sense and leave voters behind.

Oil and gas is a sector that generated $209 billion in GDP last year, accounted for one quarter of all Canadian exports and directly employs 182,000 people.

That apparently makes it a target in Guilbeault’s book. The government release took aim at business for “targeting new production, rather than decarbonization” and demeaned the industry for having seen a tenfold increase in operating profits since the pandemic.

The cap is bitterly opposed by the Alberta government and industry and comes right at the moment when Canada is on the cusp of striking its most significant decarbonization agreement — the Pathways Alliance carbon capture and sequestration project — which requires Ottawa, the province and the major oil producers to co-operate and compromise. Pathways is a consortium of major oil producers who account for 95 per cent of oilsands production.

At best, this cap is a distraction; at worst, it is a deliberate attempt by the climate radicals in the Liberal government to scupper what many consider a subsidy to increase production (which the Pathways project would, even as it lowers emissions).

By comparison, production is likely to be 10-per-cent lower than it would be without the cap by 2030, while gas production would be around 12-per-cent lower.

Less activity will inevitably mean fewer jobs, profits, exports and tax revenues.

Instead, the goal should be to maximize all those things, while reducing emissions.

The Pathways Alliance could cut Canada’s emissions by around 15 megatonnes a year in its first phase, which is around seven times the annual emission reduction that the government’s own regulations say will be saved by the cap.

Proponents see Pathways as transformative, creating a ripple effect in Canada’s decarbonization efforts, ensuring banks are more comfortable with this kind of financing and convincing industry that it can increase production while cutting emissions.

Adam Sweet is the director of Western Canada for Clean Prosperity, an organization committed to emissions reduction. He said the cap is the “wrong policy” and “couldn’t have arrived at a worse time,” given the delicate negotiations that are ongoing between the oil producers and the federal and provincial governments over the $16 billion Pathways project, which includes a 400-kilometre pipeline linking more than 20 oilsands facilities to an underground storage hub near Cold Lake, Alta.

The feds have already committed to a refundable tax credit that is expected to provide more than $12 billion over the next decade.

Ottawa has also agreed to the contracts-for-difference concept, which essentially backstops the future price of carbon credits and gives a degree of predictability to businesses planning to invest in technology like carbon capture by removing concerns about the price of credits or the actions of future governments. The feds, in effect, issue a price assurance on the value of those credits in future years, which they hope will accelerate large-scale decarbonization efforts.

Federal Natural Resources Minister Jonathan Wilkinson and Finance Minister Chrystia Freeland met with the Pathways Alliance recently and there are hopes that a more detailed agreement can be reached by the end of the year. A similar, much smaller-scale deal was struck this year between Ottawa’s Canada Growth Fund and Strathcona Resources to build carbon-capture facilities in Alberta and Saskatchewan.

But the Pathways Alliance project is so big, the province needs to be engaged too, most likely providing its own contracts-for-difference insurance policy for investors.

Now, Guilbeault has stuck a stick in the spokes.

As Clean Prosperity director Sweet pointed out, the cap regime layers a new cap-and-trade system on top of the existing Alberta TIER industrial emitters cap and trade regime that covers almost 600 regulated facilities. (TIER is the province’s Technology Innovation and Emissions Reduction regulation.) The province has had its own carbon price since 2007 and remains nominally committed to a rising industrial carbon price that will hit $170 a tonne in 2030.

TIER is not perfect. Clean Prosperity has warned that it risks being swamped by excess carbon credits, which would lower the price and reduce the incentive to invest in decarbonization projects. Alberta did tighten up the stringency of its regime in 2022, requiring companies to improve their intensity performance by two per cent a year, up from one per cent. Oilsands facilities will face a four-per-cent tightening starting in 2029.

But the next review isn’t due until 2026 and Clean Prosperity has warned that the market is in danger of being oversupplied with carbon credits before the end of the decade, which would clearly reduce their value as an incentive to invest in low carbon projects.

However, it is an existing system, designed to recognize and reward better-performing companies. The only explanation for Guilbeault’s cap is that Ottawa wants to undermine Alberta’s regime and replace it.

Smith’s government has already launched its Scrap the Cap campaign. 

But a more effective counterstrike for Alberta to shore up the sovereignty and efficiency of the TIER regime would be to offer its own contracts-for-difference guarantees and to further tighten its emissions benchmarks.

Guilbeault pays lip service to creating jobs in the oil and gas sector, but his actions suggest he wants to shut it down.

The draft regulations criticize business for investing in production, not decarbonization, but that is happening because there is no compelling business case for drastically cutting emissions yet.

There could be very soon, if a deal can be struck on the Pathways Alliance.

But Guilbeault seems to be doing his utmost to make sure the carbon-capture project does not become a reality. Pathways has asked that the project not require a federal review under the Impact Assessment Act, yet the environment minister has said there will “be no special treatment.”

He has displayed the worst traits of his party and this government — that his vision is the most valid and that the debate should be about caring, rather than methods and empirical evidence.

It is an argument that should be countered by a reminder that the project he is putting in jeopardy would reduce greenhouse gas emissions by many times the amount of his divisive emissions cap.

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