Canada’s proposed emissions cap on oil and gas production could cost up to $289,000 per tonne of carbon dioxide actually eliminated from global emissions, according to a new study that challenges the policy’s cost-effectiveness.
The analysis by the Center for North American Prosperity and Security, published in June, estimates the cap would cost $2,887 per tonne based on domestic economic impact alone. However, when accounting for global carbon displacement, the cost could reach $96,000 to $289,000 per tonne of emissions actually reduced worldwide.
The study, led by energy policy researcher Heather Exner-Pirot, is based on Parliamentary Budget Officer estimates that the cap will reduce Canadian GDP by $20.5 billion by 2032 while cutting domestic emissions by 7.1 million tonnes.
The research argues that Canadian production cuts would likely be replaced by oil from other countries, limiting actual global emissions reductions. Since Canadian oil sands crude produces only 1-3% more emissions than global averages, the study calculates that worldwide emissions would decrease by just 71,000 to 213,000 tonnes rather than the full 7.1 million tonnes of Canadian reductions.
For Canadian conventional oil and natural gas, which have lower emissions intensity than global averages, the study argues displacement would actually increase global emissions, creating what researchers call an “infinite price per tonne of carbon.”
The Parliamentary Budget Office found the emissions cap would reduce Canada’s real GDP by 0.39% in 2032 and eliminate approximately 54,400 full-time equivalent jobs. The cap targets a 35-38% reduction in upstream oil and gas emissions from 2019 levels by 2030.
The study notes that absolute emissions from Canada’s oil and gas sector peaked in 2014 despite production increases, with oil sands operators reducing emissions per barrel by 30% since 2013.
The study argues the policy will make Canada’s oil and gas sector “significantly less competitive” and could reduce the industry’s capacity to invest in emission-reduction technologies such as carbon capture and storage, particularly in the current lower oil price environment.
Industry experts and economists have criticized the current proposal as “unworkable” and “overly expensive,” according to the study, which notes the policy would layer a cap-and-trade system specifically for oil and gas on top of existing carbon pricing mechanisms.
The research references Canada’s 1994 energy vision, developed jointly by federal and provincial governments with industry representatives, which helped transform oil sands into “a trillion dollar nation-building project” with production increasing tenfold since then.
Read: Will Canada Abandon Its Oil and Gas Emissions Cap?
The federal government has not finalized regulations for the emissions cap, which is part of Canada’s commitments under the Paris climate agreement. The government maintains that the policy focuses on reducing emissions rather than production.
Environmental groups and government officials supporting the emissions cap were not immediately available for comment on the study’s methodology.
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