Last week, updates surfaced that the Carney government is amenable to reconsidering the proposed Oil and Gas Sector Greenhouse Gas Pollution Cap (“the cap”), provided the industry delivers progress on carbon capture projects. Originally introduced by the Trudeau government, the cap seeks to reduce upstream oil and gas sector emissions by 35% below 2019 levels between 2030 and 2032 through a cap-and-trade system layered atop existing industrial carbon pricing, with select compliance offsets eligible for use under both systems. This was met with strong opposition from provinces such as Alberta, which launched a ‘Scrap the Cap’ campaign last year. While the Liberal government initially promised to uphold the policy leading up to the election, this signals Carney’s intent to recalibrate relations with provinces such as Alberta.
Central to this move is the Pathways Alliance—a coalition of six oilsands companies backing a $16.5 billion carbon capture megaproject near Cold Lake, Alberta. If successful, the project could cut 10–12 megatonnes of CO₂ annually by 2030. Proponents claim that if Pathways delivers, it could achieve the same emissions reduction goals as the cap itself, undermining the need to layer additional policy, which many claimed would add regulatory and administrative requirements that could be disproportionately burdensome compared to the emissions reductions it would have achieved.
This move is not about weakening climate commitments, but rather about strategically reshaping them. Removing the cap could be a leveraging tool, allowing the government to implement targeted policies that maintain emissions decline while offering the industry alternative solutions, such as Investment Tax Credits and revised industrial carbon pricing. Carney's removal of the federal fuel charge highlights his appetite to remove policies that are considered overly divisive and contentious, in order to employ measures that can successfully and effectively deliver results. This update aligns with Carney’s climate platform, which focuses on more carrot vs. stick policies and aligning provincial and federal interests to progress Canada’s energy transition.
Removing the cap could position the Liberal government well for the 2026 federal carbon pricing benchmark review, which they will likely use to strengthen the stringency and consistency of industrial carbon pricing across provinces. This will put pressure on provinces operating parallel programs to align with the federal benchmark. This could trigger tensions with provinces such as Alberta, which are seeking to have more control over their future program design. The review could include strengthening benchmarks for the oil and gas sector, rendering the cap redundant by meeting similar emissions reductions in the sector without adding regulatory complexity.
This strategy is contingent on the project being built on time and at the scale needed to achieve adequate emissions reductions. Some warn that loosening or dismantling the cap before confirmation that the Pathways project will be operational in time could undermine emissions reductions and accountability.
No comments have been provided by the Pathways Group at the time of writing. ClearBlue will continue to monitor this development and will provide updates as needed.