Oil and Gas Cap Faces Its End as Ottawa Sets New Climate Conditions

Takeaways

• Ottawa has signalled plans to eliminate the oil and gas emissions cap, but only if certain climate targets are met.
• The government’s new Climate Competitiveness Strategy emphasizes carbon pricing, methane rules, and investment incentives.
• Reactions from Alberta and opposition leaders remain cautious, citing concerns over tax hikes and policy uncertainty.

After months of uncertainty, Ottawa is signalling the end of the oil and gas emissions cap, but not without caveats.

Tuesday’s federal budget did not explicitly announce the controversial Trudeau-era cap’s removal, but it laid out the conditions under which it would no longer be needed. According to Canada’s Climate Competitiveness Strategy, introduced in the 2025 budget, an “effective” carbon pricing system, stronger methane regulations, and widespread deployment of carbon capture and storage (CCS) would make the cap redundant.

Finance Minister François-Philippe Champagne confirmed this stance before presenting the budget, saying, “There are a number of steps that need to happen. And when conditions are met, we won't need the cap anymore. But the conditions will have to be met.”

The announcement marks a shift from last year, when the Trudeau government released draft regulations requiring oil and gas companies to cut emissions 35% below 2019 levels. Final rules were never implemented.

Read More: ESG Investing And The Discomfort Of Big Oil

Continuity and Change in Climate Policy

Prime Minister Mark Carney’s government appears to be blending old and new approaches. The budget confirms that Ottawa will continue clean electricity and fuel regulations and finalize methane rules. However, it stopped short of reaffirming Canada’s 2035 electric vehicle sales mandate, saying only that next steps will be announced soon.

A major focus is on industrial carbon pricing. The government reaffirmed its commitment to raise the carbon price to $170 per tonne by 2030, aiming to align all provincial systems, such as those in Ontario, Saskatchewan, and Alberta, with this national benchmark. Ottawa also hopes to secure a “pan-Canadian agreement” on a carbon price trajectory toward net zero by 2050.

Mixed Reactions from Provinces and Opposition

Reaction to the new approach was mixed. Conservative Leader Pierre Poilievre denounced the planned carbon price increases as a “tax,” arguing they would drive up costs for food, housing, and essential materials.

In Alberta, Premier Danielle Smith said she is “reserving judgment” on the conditional withdrawal of the cap. The province is negotiating a memorandum of understanding with Ottawa and expects clarity by mid-November. “Although we remain hopeful of reaching a positive outcome, because we are in the midst of sensitive negotiations with the federal government, we do not wish to comment further at this time,” Smith said, emphasizing Alberta’s concerns about federal policies that have “devastated” its economy.

Also Read: The Growing Need for ESG Companies, Sustainability, and Climate Solutions

Investments and Incentives for a Low-Carbon Future

The budget also emphasized investment-driven climate action rather than prohibitions. Ottawa plans to create a $2 billion critical minerals sovereign fund to support mining projects and battery production. It also promises legislation to implement the clean electricity investment tax credit, along with tweaks to other clean economy incentives to ensure Canada remains competitive.

In addition, the government will revise its greenwashing legislation to reduce uncertainty for investors and fund a Youth Climate Corps program worth $40 million over two years.

However, not all reactions were positive. Green Party Leader Elizabeth May criticized the inclusion of tax benefits for low-carbon LNG facilities, calling them “fossil fuel subsidies” and vowing to vote against the budget unless changes are made.

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Source: CBC