Part 6 in a series on Canada’s 2030 Emissions Reduction Plan

If you’re making a plan to cut Canada’s greenhouse gas emissions, the logical place to start is Canada’s oil and gas sector.

The oil and gas sector is Canada’s largest and fastest-growing source of greenhouse gas emissions. In 2023, Canada reported 208 million tonnes of oil and gas sector emissions, representing 30% of Canada’s total national emissions and a 7% increase from 2005, our base year for the Paris Agreement on Climate Change.

Initially, Canada’s plan aimed to reduce emissions from the oil and gas sector by 31% from 2005 levels. However, this requirement has now increased to a 47% reduction because emissions have continued to rise since the plan’s inception. To achieve its emission reduction target, Environment and Climate Change Canada forecasts that the oil and gas sector needs to reduce emissions to 110 million tonnes by 2030.

Production emissions are only a small part of the story

It is important to stress that these oil and gas sector totals only reflect the emissions that come from the production of oil and gas. According to the Paris Agreement, the emissions from the use of oil and gas that Canada produces are recorded where they occur.

That means that emissions from the oil and gas we use domestically are captured in our national totals, but emissions from the oil and gas we export are not. Rather, they are captured in the domestic totals of the importing nation.

That has big implications for Canada, one of the world’s largest producers and exporters of oil and gas. The environmental non-profit, Ecojustice, reported that emissions from Canada’s fossil fuel exports topped one billion tonnes of CO2e in 2023 “significantly eclipsing the country’s total domestic emissions estimate of 702 million tonnes for the same year. “¹

Limits on supply

Critics of Canada’s emissions plan argue that the best thing Canada could do to protect the climate would be to leave our oil and gas in the ground. In 2021, the International Energy Agency concluded that to reach net-zero emissions by 2050 and meet the Paris Agreement targets, no new coal, oil, or gas development should occur. The agency emphasized that existing fossil fuel reserves are sufficient to meet global energy needs throughout the transition.

There is no need for investment in new fossil fuel supply in our net zero pathway

International Energy Agency, Net Zero by 2050, A Roadmap for the Global Energy Sector

Further reinforcing this point, a 2022 study in Environmental Research Letters found that fully exploiting current reserves would generate enough greenhouse gas emissions to exceed the 1.5°C warming limit set by the Paris Agreement. To stay within that threshold, the study concluded that 40 per cent of already-developed reserves must remain untapped.

Opponents argue that even if Canada did limit its production of oil and gas, the demand for fossil fuels will still exist, and other countries will simply fill it, so why should Canada suffer economically?

Economy vs. the climate

Debates over Canada’s oil and gas industry tend to boil down to conflicts between financial benefits vs climate benefits. Promoters of the sector say it makes important contributions to our economy; however, how important those contributions are depends somewhat on your perspective.

Among all the sectors that make up Canada’s diversified economy, oil and gas exploration ranks in the middle of the pack. The sector accounted for about 3.3% of Canada’s national GDP in 2024. If you include the refining and pipeline transport industries, the share increases to around 4.5-4.7%, depending on the year.

The sector accounts for a similar share of employment. Oil and gas producers employ approximately 150,000 people directly and support around 750,000 jobs indirectly, which accounts for about 4% of Canada’s national employment.

While it may be a modest contributor to the national economy, the story is different regionally.

In Alberta, the sector, including refining and pipeline transportation, accounts for 21.8% of GDP and about 10% of employment. The sector also plays an outsized role in Saskatchewan as well as Newfoundland and Labrador.

It is this disproportional importance of the oil and gas sector in certain provinces that makes it a key source of tension in federal-provincial relations. Reducing emissions to avert the worst effects of climate change is one of our country’s top priorities, but some regions worry that plans to cut oil and gas emissions could disproportionately harm their economic well-being. That makes the path forward especially challenging.

So, how is Canada tackling this thorny challenge in the 2030 Emission Reduction Plan?

Canada’s oil and gas climate strategy

Perhaps the most consequential thing about Canada’s plan to cut oil and gas sector emissions is what it does not include – Canada 2030 ERP contains no plans to reduce the supply of oil and gas.

Instead, the plan relies on the expectation that the global demand for oil and gas will naturally decline as countries transition to renewable sources of energy.

Canada’s 2030 ERP aims to reduce Canada’s domestic demand for oil and gas by promoting the use of renewable energy in sectors such as transportation, buildings, and electricity generation. But for export markets, our message seems to be “if you want to buy our oil and gas, we’ll keep making it”.

What Canada’s oil and gas climate strategy does commit to is lower emissions intensity — the amount of greenhouse gases released per barrel of oil or equivalent volume of natural gas. The idea is that as countries become more focused on emissions reduction targets, Canadian oil and gas could be more competitive if it produces fewer emissions than supplies that come from other countries.

To be clear, the combustion of oil or gas releases a certain amount of greenhouse gases, regardless of where it comes from. Emissions from the production of oil and gas, however, can vary widely based on the geology from which oil or gas is extracted and the production process used. In 2015, the global average emission rate to produce crude oil was about 50kg of CO2e per barrel.

In Canada, where nearly 60% of our oil production comes from the oil sands, our emissions from production are particularly high.

Oil sands are hard to extract because they are not liquid and can’t be pumped conventionally. They are a mixture of sand, water, and bitumen – oil that is too heavy or thick to flow on its own.  To extract oil from bitumen, it must be heated with hot water or steam to make it flow. The oil sector largely uses oil and gas to generate the heat and power needed to run the equipment and the extraction process.

The scale of the oil sands’ “earth heating” operations is mind-boggling. To extract one barrel of oil sands oil, a producer has to heat up two tonnes of bituminous earth. Canada’s oil sands are currently producing at a rate of over 3 million barrels per day.

Simply put, in Canada, it takes a lot of oil and gas to produce oil and gas.

That makes Canadian oil among the most emissions-intensive to produce anywhere in the world. With the oil sand factored in, on average, a barrel of oil extracted in Canada emitted 74 kg of CO2 equivalent emissions during its production in 2023.

Canada’s emissions intensities have improved in recent years as the industry has invested in more efficient extraction processes and technologies. However, current rates are still around one and a half times higher than the global average from 2015.

Canada’s 2030 ERP aims to cut the emissions intensity of our oil and gas to 35 kg of CO2e per barrel by 2030, so that Canadian oil and gas will be more competitive on the world market.

Canada wants the industry to invest its record cash flow to realize this target. They reason that investments today in decarbonization and diversification, during a period of record profitability, will also better position the sector over the medium-term, minimizing future climate-related financial risks for companies, workers and Canadians. 

Given that Canada expects a global transition away from fossil fuels, a key plan strategy is to find other things for the oil and gas sector and its workers to do in the future.

In Canada’s vision, the oil and gas sector will transition and diversify into other non-emitting energy products and services. This would include producing low-carbon hydrogen, geothermal heat, as well as using the carbon in Canada’s oil sands to produce new innovative products like carbon fibre products, new construction materials and battery components.

The plan elements

How do these strategies translate into plans to get oil and gas sector emissions to 110 megatonnes by 2030?

Part of the plan relies on three measures already in place that are expected to reduce emissions economy-wide:

1. The price on carbon pollution. While the high-profile consumer carbon tax has been eliminated, it is the industrial carbon tax that is expected to provide the economic incentives for large emitters in Canada to transition to lower-emitting technologies. While the industrial carbon tax only applies to about 600 companies in Canada, those companies account for 40% of Canada’s national emissions, and they include all the companies that account for Canada’s oil and gas sector emissions.
   
2. Canada’s methane regulations: Canada’s 2018 methane regulations for the oil and gas sector were the first national-level regulations in the world specifically targeting methane reductions. Published under the Canadian Environmental Protection Act, they aimed to cut methane emissions by 40–45% below 2012 levels by 2025.
   
3. Clean fuel regulations: In July 2022, Canada finalized rules to reduce the carbon intensity of fossil fuels used in Canada. The regulations call for a 15% reduction in the carbon intensity of these fuels by 2030. Producers can comply with the regulations in various ways, most importantly by blending renewable fuels like renewable diesel, ethanol, biodiesel, and renewable natural gas into conventionally produced fuels to reduce their emissions intensity.

Beyond these economy-wide measures that are already in place, the 2030 ERP is committed to moving forward in five additional areas specific to the oil and gas sector.

1. Capping oil and gas sector emissions.
2. Advancing carbon capture, utilization and storage.
3. Even more methane emission reductions.
4. Eliminate “unproductive” subsidies for the oil and gas sector.
5. Supporting sector jobs in the transition.

Unfortunately, in the three years since the release of the plan, progress on many of these items has been slow.

1. Capping oil and gas sector emissions

The federal government has proposed a cap on emissions from the oil and gas sector. Essentially, that means making the targeted emissions reduction for the sector mandatory. The proposed range for the cap is a 35–38% reduction in emissions by 2030 from 2019 levels, allowing some flexibility.

While making oil and gas emission limits mandatory may sound like government strong-arming the industry, it is worth noting that the proposed cap was developed in consultation with industry and is in line with the voluntary emission reductions that the industry has already proposed. The cap is formalizing what the industry and independent analysts have already said is achievable.

An analysis by the Pembina Institute, an independent energy think tank, concluded that the proposal is a “feasible pathway” for the oil and gas sector to meet its emissions reduction targets:

Our analysis show how voluntary commitments already made by oilsands companies—like the Pathways Alliance plan to reduce emissions by 22 Mt per year by 2030— in addition to federal and provincial targets to reduce oil and gas methane by 75%, along with electrification, carbon, capture, storage and utilization (CCUS) and several other measures can move Canada toward the target in the required timeline.

Meeting the emissions cap – A feasible pathway for the oil and gas sector
Pembina Institute – March 2024

The proposal doesn’t cap production, but rather emissions, meaning oil and gas companies can still grow output if they follow through and reduce production emissions, through measures such as carbon capture or process efficiencies.

But regardless of that, industry and some provincial leaders, notably Alberta Premier Danielle Smith, strongly oppose the cap, calling it a threat to jobs and provincial jurisdiction.

The policy is moving along. The initial framework was released in December 2023, with a goal of implementation by 2026. Draft regulations were published in November 2024; however, the federal election in April 2025 introduced uncertainty into the process and timetable.

2. Advancing carbon capture, utilization and storage

One thing that is clear in the 2030 ERP is that Canada is fully committed to developing carbon capture, utilization and storage (CCUS).

Critics argue that, to date, the technology has only been deployed in pilot projects and does not yet have a proven track record on a larger scale. While it is technically possible to capture and store carbon, no one has yet demonstrated a reliable, cost-effective method that meets the scale required to achieve climate goals. 

The other major criticism is that the “promise” of CCUS enables and prolongs fossil fuel production by delaying more transformative shifts to renewable energy and electrification, giving the appearance that oil and gas can be “clean” and justifying new investments in fossil infrastructure.

On the other hand, CCUS technology features in every credible forecast to reach net zero, because it is seen as the only way to address those final, hard-to-abate emissions.

In 2022, Canada’s 2030 ERP highlighted CCUS as a key emissions-reduction tool, particularly for the oil and gas, cement, steel, and fertilizer sectors. Commitments to develop CCUS in Canada included:

• Developing a CCUS Investment Tax Credit (ITC)
• Funding RD&D (research, development & demonstration)
• Advancing regulatory frameworks for CO2 storage
• Supporting the build-out of infrastructure like CO2 pipelines

Since then, the CCUS Investment Tax Credit (ITC) has been introduced. However, no large new CCUS projects have been started. Some, like the large Pathway’s Alliance CCUS project, are in the planning stages – but these are neither approved nor financed.

The financing is likely a critical hurdle. CCUS struggles with economic viability, and industry is not likely going to want to proceed without large government, meaning taxpayer, subsidies.

The national regulatory frameworks that are necessary to support CCUS projects are still in development. Developers will not want to start any large projects without certainty about what the rules governing those projects will be.

On the R&D front, federal programs like the Strategic Innovation Fund and Clean Fuels Fund have supported some smaller-scale CCUS pilots, but the scale and speed are not close to what’s needed to achieve Canada’s emissions targets.

Overall, since Canada’s 2030 ERP, some foundational steps have been taken to develop CCUS, especially around tax credits, but no major CCUS projects have launched, and progress is well behind what would be needed to hit emissions targets. Industry interest is high, but policy certainty, cost challenges, and permitting delays remain key obstacles.

3. Further methane emission reductions

Since each tonne of methane has 28 times the global warming potential of a tonne of carbon over a 100-year period, focusing on reducing methane yields a high impact for the effort.

Canada’s oil and gas sector accounts for about 40% of all methane emissions in Canada, the other major sources being waste and agriculture. For the oil and gas sector, reducing methane is highly feasible because many methane reduction technologies are readily available and cost-effective. These include leak detection and repair (LDAR), replacing or upgrading valves, pumps, and compressors and capturing vented gas for sale or reuse.

In many cases, for producers, these actions pay for themselves because they prevent the loss of a marketable product, natural gas.

The government has committed to going beyond the current regulatory requirements of a 40-45% reduction by 2025, to develop new measures to reduce oil and gas methane emissions by at least 75% below 2012 levels by 2030.

The progress on cutting the oil and gas sector’s methane emissions has been pretty good. A proposed regulatory framework aimed at reducing oil and gas sector methane emissions by 75% was released in November 2022. That framework has progressed to draft regulations that were released in December 2023. Final regulations are expected to be published in 2025 and take effect by 2027, giving the industry time to prepare and comply.

4. Eliminate “unproductive” subsidies for the oil and gas sector.

As part of its emissions plan, the federal government has committed to eliminating inefficient fossil fuel subsidies and to developing a strategy to phase out public financing for the fossil fuel sector, including financing provided through federal Crown corporations. Canada and other G20 countries had already committed in 2009 to phase out and rationalize inefficient fossil fuel subsidies over the medium term.

An “inefficient subsidy” is defined as one that encourages wasteful consumption, reduces energy security, hinders investment in clean energy, and undermines efforts to combat climate change.  Bottom line, it’s a subsidy that doesn’t support a transition to a cleaner, more sustainable energy future. 

Since the release of the 2030 ERP, the federal government has taken some positive steps to eliminate subsidies. These include:

• Phasing out “flow-through” shares for oil, gas and coal activities, eliminating this tax-advantaged vehicle for financing in fossil fuel exploration and development.
  
• Ending international public financing: By the end of 2022, Canada stopped using public funds to support “unabated” fossil fuel projects outside of Canada. That means that Canada will no longer finance new oil or gas pipelines, coal-fired power plants, or LNG terminals in other countries, unless those projects have strong emissions controls.
  
• Developing an assessment framework: In July 2023, the Government of Canada released the Fossil Fuel Subsidy Assessment Framework. It is a set of rules and definitions to help the government identify and eliminate fossil fuel subsidies that are considered “inefficient”.

Despite these steps, though, the federal government and Crown corporations, such as Export Development Canada (EDC), have continued to provide substantial support to the fossil fuel sector. In fact, estimated federal fossil fuel subsidies increased substantially in 2024 to nearly $30 billion.

Critics argue that part of the problem is the government’s lack of a comprehensive plan to fulfill its commitment.

As part of the 2024 federal budget, the government committed to releasing an implementation plan by fall 2024 to phase out domestic public financing for the fossil fuel sector, including financing provided through federal Crown corporations.

To date, the government has not published a detailed plan. This omission has drawn criticism from environmental groups and international observers.

5. Supporting sector jobs in the transition

While there may be some disagreements on accelerating the pace of change, most observers agree that a transition in energy systems is coming and that it will have an impact on workers in Canada and globally.

Part of Canada’s plan is to ensure that the shift to a low-carbon economy is fair, inclusive, and equitable, particularly for workers and communities that are economically dependent on high-emission industries like oil, gas, and coal.

So far, since 2022, the federal government has taken several steps to advance its commitment to supporting “good jobs” for oil and gas sector workers as part of the 2030 Emissions Reduction Plan (ERP).

Most of the work done to date lays the groundwork for such a transition. This includes:

• Introducing legislation to guide long-term job transition planning (Bill C-50).
• Creating a Secretariat to coordinate sustainable job policies.
• Funding training and workforce development programs.
• Investing in regional diversification and clean energy infrastructure.
• Supporting Indigenous participation in the new energy economy.

The federal government has made meaningful progress in setting the stage for a fair workforce transition, but the real test will be turning plans and policy frameworks into visible, local results that workers can count on.

That said, critics, including labour groups and environmental organizations, have called for faster implementation and more direct support for oil and gas workers, especially those in remote or single-industry communities.

The wild card – a Trump tariff-inspired economic downturn

In the end, the most impactful measure to cut Canada’s oil and gas sector emissions may not be in the plan at all.

Economists are increasingly anticipating a global recession, influenced in part by President Trump’s tariff policies.

While a recession is undoubtedly harmful to individuals’ well-being, causing job losses, financial stress, and health challenges, it can also inadvertently benefit the environment by reducing demand for oil and gas, leading to lower production and, consequently, a drop in greenhouse gas emissions.

Since the start of the year, oil prices have fallen, with the benchmark West Texas Intermediate (WTI) crude dropping over $13 to $58.29, a decrease of around 19%.²

Lower oil prices can lead to reduced production from existing operations, particularly affecting non-conventional oil sources such as oil sands, which are more sensitive to price fluctuations due to their higher extraction costs. According to industry practices, when WTI prices fall below around $60 per barrel, new investments in oil sands development tend to slow or even halt.

Despite this slowdown in new projects, some existing oil sands operations may continue to function even if WTI prices drop to $40 or lower, provided that sunk costs are high and marginal costs remain low.

If an overall decline in oil production results from economic downturns and lower oil prices, it could lead to a decrease in global greenhouse gas emissions, as oil extraction and consumption are major sources of these emissions.

Forward-looking questions

The combustion of fossil fuels for energy is by far the primary cause of the climate crisis. Many believe that the best thing Canada could do to avert an existential crisis for humanity is to leave its oil and gas in the ground.

But Canada’s position is pretty clear: if there are customers to buy our oil and gas, we will continue to produce and supply it. In the meantime, our plan is to do our best to limit the emissions from producing oil and gas, while trends in global demand take shape.

It seems like the only position that will satisfy the needs of the economy and encourage political stability in our country.

But there remain important questions on the margin:

• Will federal policy encourage or facilitate increases in production to extract even more oil and gas?

• Will our elected leaders support the building of pipelines that will make it easier to get oil and gas to market, which in turn will make investing in increased production even more attractive?
  
• Will our government continue to use taxpayer funds to encourage this industry that accounts for a modest part of our national economy and threatens the well-being of humanity?

In the face of a warming planet, the real question is not whether we can afford to transition quickly away from fossil fuels, but whether we can afford not to. ■

1. Since the publication of the Ecojustice study, Canada has finalized its national greenhouse gas inventory report – total CO2 equivalent emissions in 2023 were 694 million tonnes of CO2e ↩︎
2. Oil price on May 2, 2025 ↩︎