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Timing of Ottawa's oil and gas emissions cap 'unrealistically ambitious': CIBC

Environment Minister Steven Guilbeault announced new details of Canada's plan to cap emission on its oil and gas sector on Thursday, Friday, Dec. 8, 2023, in Dubai, United Arab Emirates. (AP Photo/Peter Dejong)
Environment Minister Steven Guilbeault announced new details of Canada's plan to cap emissions on its oil and gas sector on Thursday, Dec. 7, 2023, in Dubai, United Arab Emirates. (AP Photo/Peter Dejong) (ASSOCIATED PRESS)

The timing of Ottawa’s newly spelled-out plan to cap the oil and gas sector’s direct emissions is “simply unrealistic” without slashing production, say analysts at CIBC Capital Markets.

Environment Minister Steven Guilbeault announced new details of the policy on Thursday at the ongoing UN climate summit in Dubai, known as COP 28. The framework requires Canada’s oil and gas sector to cut emissions by more than a third of 2019 levels by 2030. The plan is based on a cap-and-trade system, where companies can buy and sell a limited number of emissions permits, rewarding firms which pollute less.

Federal lawmakers previously envisioned a 42 per cent emissions cut by 2030, prompting push-back from top executives.

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“The timing of the cap remains unrealistically ambitious, and hence would make it onerous if implemented,” CIBC Capital Markets analysts Shaz Merwat and Dennis Fong wrote in a note to clients on Thursday.

“[The] legislation (if deemed constitutional) would likely not occur until 2025 amid an election that is increasingly likely to be a referendum on climate policies,” they added.

Draft regulations are expected to be published for comment in mid-2024, with the final rules projected to come into effect in 2025. However, Merwat and Fong see a constitutional challenge from provincial governments as “almost certain.”

Ottawa says consideration will be given to how to phase in the system between 2026 and 2030. The 16-page framework aims to cut 20 megatonnes of emissions from oilsands operations specifically by 2030, with methane making up the largest slice of planned reductions (37 megatonnes).

The expected cuts in the oilsands are roughly in line with the 22 megatonne target that the Pathways Alliance hopes to achieve through its foundational carbon capture and storage project in Alberta. However, the group, composed of six major oilsands companies, has not made a final investment decision on the $16.5-billion plan.

“We view the imposed reductions as largely feasible from a technological standpoint, but to us the timing of the cap remains unrealistically ambitious,” Merwat and Fong wrote. “It is simply unrealistic in our view to expect 20 megatonnes of carbon capture to come online in five years given the scale and operational learnings required. In that sense, achieving the emissions target, as stated, would in effect become a cap on production."

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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