One of Trudeau’s most important climate policies is on the chopping block. Can Ottawa’s Plan B get buy-in?

Four years after unveiling plans for a limit on all oil and natural gas industry emissions in Canada, the federal government is — in all likelihood — scrapping the cap.

The previous Liberal government said that its proposed oil and gas emissions cap, a centrepiece of its climate policy, was integral to this country hitting its climate targets. 

But after years of arguments with industry and premiers over the policy, the latest federal budget says that, actually, Canada can get to net-zero by other means. 

The country can instead “create the circumstances whereby the oil and gas emissions cap would no longer be required,” through a combination of effective carbon markets, oil and gas methane regulations and greater deployment of carbon capture and storage, Tuesday’s budget said. 

That means the proposed emissions cap could die before it ever takes effect, a move celebrated by those in Western Canada who feared it was already killing investment and would limit the expansion of not only the oil industry, but the nascent liquified natural gas sector, too.

The pivot on the emissions cap also reinforces that Prime Minister Mark Carney is drawing a line in the sand between himself and his predecessor, Justin Trudeau, by putting more emphasis on economic growth and less on climate action — while still trying to achieve some sort of consensus around climate policy.

The emissions cap was first announced by then-Prime Minister Trudeau four years ago at the UN climate summit in Glasgow, followed by the unveiling of key policy details at the summit in Dubai two years ago.

In Dubai, Steven Guilbeault, the environment minister at the time, said the cap was necessary because the oilpatch wasn’t moving fast enough to cut emissions. Of all the environmental policies unveiled by Trudeau, Guilbeault described the emissions cap as one of the most important.

But leaders in the Alberta oilpatch have said the policy unfairly targets the industry responsible for this country’s top export and a key economic driver for Canada as a whole.

“It does make people nervous around investing. It also didn’t help that it was proposed so you could never work out exactly what it would be,” said Tristan Goodman, CEO of the Explorers and Producers Association of Canada. 

“I think the government has sort of said, ‘Look, we need some certain things done and that will get us to where we want to be without having an emissions cap.’ — that’s a positive step in the right direction.”

By indicating a willingness to scrap the cap, Carney is reinforcing that his top priority is the economy, said University of Calgary economist Trevor Tombe.

He’s also responding to changing priorities of Canadians. 

During the 2021 federal election, climate change was listed as one of voters’ top priorities and all major parties had said they were committed to pursuing a net zero emissions target. 

After years of rising inflation and amid a turbulent trade relationship with the U.S., data from political surveys suggest Canadians now see political relations and the economy as a greater priority.

In his first move as Prime Minister, Carney scrapped the consumer carbon tax, another central climate policy of Trudeau’s time in office.

But coming up with an alternative to these policies that will please groups with competing priorities will be a tough needle to thread, said Tombe. 

The oil and gas industry’s Achilles heel has always been its emissions. The sector has made strides to be more efficient, but total emissions have continued to rise as production increases.

Still, in the first hours after the budget was released, there was a rare moment of tempered unity between industry and environmental groups that have long supported the proposed cap.

There’s more than one way to skin a cat, and a sector-specific emissions cap isn’t the only way to drive emissions down, said Chris Severson-Baker, executive director of the Pembina Institute, a Calgary-based environmental think-tank.

If Ottawa can indeed fix the industrial carbon pricing scheme — and get the provinces like Alberta on board — it could push industry to actually move forward with investment in emissions-reductions projects, he said.

Dale Beguin, vice-president of the Canadian Climate Institute, agreed.

“Industrial carbon pricing, when it’s working to its full potential, is the most powerful tool in the government’s toolkit,” said Beguin, who said he hopes to see the changes brought in quickly.

“Speed matters because in the absence of those changes, we have more uncertainty, and uncertainty scares away investment.”

One voice that was notably quiet following the release of the Liberal budget was Alberta Premier Danielle Smith. She’s typically one of the most vocal critics of the proposed oil and gas emissions cap.

In a statement, Smith said she’s reserving judgment for now as she works on a memorandum of understanding with the federal government to remove or carve out “bad laws chasing away private investment” in the energy sector, and to approve both a pipeline to the B.C. Coast and a major carbon capture and storage project near Cold Lake, Alta. 

“I expect the federal government to reach an agreement on this [memorandum] by Grey Cup so we can move on to the next step and begin attracting private capital back to Canada’s natural resource sector,” Smith said. 

It’s hard to predict what the response will be from Smith and Carney when they emerge from those discussions, though in recent weeks both camps have signaled a greater willingness to work with one another.

At the end of the day, economist Tombe believes Carney’s top priority these days is to bolster the economy — and oil and gas is a significant money-maker.

It remains to be seen what each side will commit to in order to get there.