What is the new climate action report?
The Canadian Government, supported by provincial governments, has made commitments to reducing emissions from across the entire country to meet its Paris Agreement targets. One of the most important targets is to reduce overall emissions below 2005 levels by 40-45% by 2030 from across all industries.
While there are many high-emitting sectors in the country (agriculture, transportation, forestry/land use, and heavy industry), oil and gas emissions are under the highest levels of scrutiny. Many recent regulations have been implemented and proposed, with the highest priority for actions projected to have the greatest impact on GHG emissions in the short and medium term. Current commitments extend until 2030, with the eventual goal of reaching net zero by 2050. The Government has committed to re-evaluating its GHG emissions reduction targets every five years between 2030 and 2045 to ensure progress.
The Government is serious about meeting these goals. While Canada is generally high-performing, the oil and gas industry is known for being emissions-intensive, both from CO2 and methane.
To reach these targets, several policies have been put in place. The federal Minister of Environment and Climate Change (Steven Guilbeault) has submitted Canada’s fifth biennial report to the United Nations Framework Convention on Climate Change (UNFCCC), which summarizes Canada’s progress to date toward combating climate change, with a specific emphasis on reducing greenhouse gas emissions. This document, which can be viewed in full here, encompasses all of Canada’s actions to date on combatting climate change, with a specific focus on Canada’s Greenhouse Gas Inventory, and Policies and Measures implemented to reduce Greenhouse Gas Emissions. Compared to the fourth edition of this report, the report is much more comprehensive and more detailed, outlining planned actions, implemented actions, progress toward targets, and projections until 2030.
One of the Government’s primary measures to reduce emissions from the oil and gas sector is to put a price on carbon in the form of carbon taxes and a carbon trading system, which will allow high-achieving companies to benefit from the sale of carbon offset credits. There will also be a cap put in place on oil and gas sector emissions, which was not included within the modelled projections towards 2030 emissions levels that were reported to the UNFCCC.
What has changed since the last report?
The fourth biennial report (2019) projected that Canada would reduce emissions by 227 million tonnes of CO2e by 2030 (which is the same projection that was made in the 2015 biennial report). The 2022 report showed that Canada would meet this number and is on track to reduce emissions by an additional 16% (97 million tonnes) by 2030, given the current trajectory, from the many measures put in place.
Since the 2019 report, the Government released many new pieces of regulation which have been effective in reducing industrial emissions. In 2021, the Canadian Net-Zero Emissions Accountability Act was enacted, which for the first time, implemented legal requirements for current and future governments to plan, report, and course correct on the path to net zero by 2050. This Act commits Canada to achieve the Paris Agreement 40-45% reduction below the 2005 levels commitment. The 2022 report confirmed that Canada is on pace to achieve this target.
In addition to the Canadian Net-Zero Emissions Accountability Act, the Government released Faster and Further: Canada’s Methane Strategy, and the 2030 Emissions Reduction Plan in 2022. Both of these layout current and future steps for Canada (especially the oil and gas industry) to reach 2030 emissions reduction targets (both for CO2 and methane), and to improve transparency and accountability.
National Inventory Updates
The Canadian Greenhouse Gas Inventory was updated. The 2022 report found that 1/3 of stationary combustion emissions were from oil and gas extraction, 98% of fugitive sources were from oil and gas, and 24% of total GHGs in 2020 were from the oil and gas sector (163 Mt CO2e out of a total of 672 Mt CO2e). To view the full breakdown of emissions by sector, click here. This report offered a significant increase in transparency over previous editions, which published a fraction of the details on Canada’s GHG inventory. The increase in transparency demonstrates Canada’s commitment to reaching targets.
Interestingly, the Canadian National Inventory considers “vented” emissions (intentional gas releases to the atmosphere that are part of normal equipment operation) within the same bucket as fugitive emissions (which are unintentional releases of methane gas to the atmosphere), and these contribute towards the same total. These are typically distinguished from one another when reporting emissions volumes.
What does all of this mean for producers?
The substantial increase in transparency, and the adoption of many new regulations governing emissions, suggests that Canadian producers must prepare for changes. It is generally agreed that despite high greenhouse gas emissions per capita, the Canadian oil and gas industry has done an excellent job of reducing emissions. A carbon trading market in Canada has helped facilitate this reduction by allowing producers who exceed emissions targets to generate “offsets” which can be sold.
Reducing methane emissions will remain the primary focus in the short and medium, especially in the oil and gas sector. Given the Government’s pledge to reduce sector methane by 75% by 2030 (below 2012 levels), aggressive action will be taken. Many options exist for reducing methane. Regulatory compliance targets will be tightened, with rising penalties for missing them. Now, producers must come up with a plan for how they will reduce their methane emissions.
In general, there are four ways to reduce methane emissions:
- Prevent equipment from emitting in the first place, including equipment replacements, repairing leaking components, or improving infrastructure to retain natural gas within the system. While this is likely the most optimal choice, in many cases, it is not possible due to economics or logistics.
- Capture methane and send it to market, which usually involves building pipelines. This option allows companies to realize profits from otherwise lost methane, but again, there may be significant economic limitations to this option.
- Capture methane and use it onsite to power gas-driven equipment or in generators to produce electricity for use onsite or offsite. This option is used frequently.
- Capture methane and destroy it through combustion, another frequently used option. Flaring has long been the go-to for managing methane emissions. However, new Canadian regulations are proposing to ban flaring from all oil sites due to inefficiencies and incomplete combustion. One thing remains certain: if none of the above options are commercially viable (which will be the case for many low-producing sites or remote sites), you need some way to destroy your methane. Enclosed combustors and incinerators are the best options for the near-complete destruction of methane gas into CO2, drastically reducing the greenhouse potential in the process.
However, the large contribution of combustion-related emissions in the GHG inventory indicates that eventually, once methane targets have been achieved, producers will need to consider their options for reducing CO2 emissions. The timeline of these potential changes is unknown, but producers should consider this possible future state while planning operational improvement projects and other forward-looking initiatives. For now, producers should focus to the best of their ability on reducing methane emissions through one of the four mechanisms outlined above while remaining mindful of potential future scenarios.