The elephant in the room of the federal climate plan

Hugo Cordeau
TMX construction in 2016. All eyes will be on the expected federal emissions reduction plan for the oil and gas sector expected later this year. Kindermorgan handout

Feb. 15, 2023

Feb. 1 marked another landmark: sea ice reached its lowest level in history. The climate crisis is here. We must act accordingly.

The math to ensure the crisis stops worsening is simple: we need to emit fewer greenhouse gases. Since Canadians are among those who emit the most greenhouse gases per capita — four times the world average — we have the moral imperative to reduce our emissions.

The great news is that we already have a carbon tax, and clean electricity regulations and subsidies are coming shortly.

But all eyes are on the oil and gas emissions cap, which should be ready by the end of 2023. It is promoted as the critical mechanism to reduce the industry's greenhouse gas emissions by 42 per cent in 2030 relative to 2019.

However, with the current accounting method, there is no evidence the proposed emission ceiling will lead to a decrease in greenhouse gas emissions caused by this industry.

In fact, Canada's 2030 Reduction Plan confirms the opposite; it plans to increase oil production by 1,400,000 barrels per day between 2020 and 2030, representing an increase of 33 per cent.

This greenhouse gas emission increase is equivalent to seven Bay du Nords, a contentious offshore oil project for which the government is being brought to court by environmental groups that argue the project will prevent Canada from hitting its greenhouse gas emission reduction targets.

Hence, Canada has a plan to decrease greenhouse gas emissions from the oil and gas sector by 42 per cent, but this plan also includes a 33 per cent increase in crude oil production. Yes, you read that correctly — Canada claims we can have our cake and eat it, too.

How is this possible? Does the government have a magic bullet to make pollution go away?

Not really. It is more of an intellectual gymnastics exercise to achieve the desired result.

The biggest flaw in Canada's expected emissions reduction plan is that it will likely omit the majority of the greenhouse gas pollution for which Canadians are responsible, writes Hugo @cordeau_. #cdnpoli - Twitter

The federal government excludes the majority of greenhouse gas emissions caused by a barrel of oil

Indeed, only production — scopes 1 and 2 — is calculated in Canada's greenhouse gas emissions, representing approximately 15 per cent of the emissions caused by a barrel of oil.

Scope 3 emissions — produced when the oil is burned abroad or in Canada — represent 85 per cent of the industry's greenhouse gas emissions and will likely be omitted from the cap.

It is often pointed out that 26 per cent of greenhouse gases emitted in Canada come from the oil and gas sector. However, this understates the real impact of this industry; the exported emissions from the burning of fossil fuels represent 1.3 times the greenhouse gases of the whole of Canada.

This is enormous! It is five times the emissions spewed from all the cars, trucks and planes circulating in Canada.

Application case

Numbers can be complex, so let us visualize the Scope 3 emissions of crude oil. To simplify the exercise, let's say that one unit of pollution is produced for every 1,000 barrels of oil produced daily. To do so, let’s use Canada's reduction plan data and clarify the hypothesis.

Assumption 1. All greenhouse gases exported are additional.

1.1: The Intergovernmental Panel on Climate Change clearly states that oil and gas must reduce significantly by 2050. Hence, this assumption is not binding since fossil fuels are not an energy of transition.

Assumption 2. The pollution issue of the combustion of a barrel of oil pollutes as much in 2020 as in 2030.

Based on this report, 4,185,000 barrels of oil per day were produced in 2020, leading to 4,185 units of pollution. Of this pollution, 15 per cent comes from the production process, which is what the government aims to reduce by 42 per cent.

This reduction is expected to be achieved through better technology, like carbon capture, or by switching tar sand production to offshore drilling. So, the production process will decrease its pollution by 42 per cent, from 628 to 364 units.

However, the federal plan also calls for a 33 per cent oil production hike, which will increase pollution. But because of the improvements in technology, this increase will be 27 per cent, instead of 33 per cent — still far from the claimed 42 per cent reduction.

This exercise has significant limitations, but reducing the pollution caused by the production process does not imply that there will be a decrease in the total amount of greenhouse gas emissions caused by the oil and gas industry.

Cap on oil and gas sector emissions

The biggest flaw in Canada's plan is that it will likely omit Scope 3 emissions, the majority of the greenhouse gas emissions for which Canadians are responsible. Regardless of the form of the next cap on emissions, if Scope 3 emissions are excluded, we will likely increase the pollution caused by our activities.

It is possible to include all greenhouse gas emissions caused by the oil and gas industry; all we have to do is to create a cap that includes all the emissions caused by this industry, Scope 3 included. It can be formalized as a cap and trade system — where firms trade their carbon credits — or as a carbon tax.

By doing so, Canada’s oil and gas industry would finance the research and development of the energy transition, not worsen the ongoing climate crisis. Not bad.

Hugo Cordeau is a PhD student in economics at the University of Toronto. His research focuses on climate policies. In the past, Cordeau researched the impact of climate change on wind power in Canada, as well the measures explaining the adoption of electric vehicles in Quebec.

[Top photo: TMX construction in 2016. All eyes will be on the expected federal emissions reduction plan for the oil and gas sector expected later this year. Kindermorgan handout]