Ottawa’s oil and gas emission cap plans risk ‘unintended consequences’

Ottawa has released preliminary plans for an emissions cap on the oil and gas sector, the latest step in Canada’s bid to reach net-zero by 2050.

A discussion paper published earlier this month by Environment Minister Steven Guilbeault outlines two regulatory options; a sector-specific cap-and-trade system, or a steeper carbon price for the industry. The government says it intends to unveil full details in early 2023.

Kevin Krausert is CEO and co-founder of Avatar Innovations, a Calgary-based venture capital firm and startup accelerator that pairs entrepreneurs with the biggest companies in Canada’s energy patch. He sees alignment between Ottawa and the energy industry. However, he hopes the government’s approach evolves beyond the two proposed options.

“I don’t think either are helpful. I think there are unintended consequences for both,” he told Yahoo Finance Canada’s Editor’s Edition. “If it is going down a road of bludgeoning an industry with a hammer, I don’t think that will be well received. It won’t result in emissions reduction, and probably just results in capital leaving the country.”

Got a question for Kevin Krausert? Email Jeff.Lagerquist@yahoofinance.com and let him know what interests you in the world of clean energy and technology.

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

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Video Transcript

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JEFF LAGERQUIST: Which direction do you think the industry is leaning between cap and trade or modified carbon price?

KEVIN KRAUSERT: I think we'll see where the industry goes. I think the industry needs a contract for difference is what they need. They need certainty they're going to be going there. I don't think either are helpful. I think there's unintended consequences of both options.

And the conversation that we need to be having is, how do we incentivize certainty to the investors so they invest in these technologies to not just ensure the longevity of Canada's primary economic engine in a carbon-constrained world but also open up the door to many other heavy, heavy industries that can be structured around Canada's carbon capture solution. So I would hope conversations evolve past the two options proposed in the discussion paper.

JEFF LAGERQUIST: So the provinces have jurisdiction over natural resources. That's a point raised recently by Alberta Energy Minister Sonya Savage. But the Supreme Court has ruled that Ottawa has jurisdiction over emissions. If this policy, whichever direction they go, modified carbon price or cap and trade, if it actually starts to impact levels of investment and levels of production, has the federal government crossed a boundary there? I think the Pathways Alliance has said it's concerned that the government's approach, as it's written now, could lead to shut-in production.

KEVIN KRAUSERT: Yeah, and I think that Minister Gilbeaut's clarifications over the weekend have calmed a number of people down in this industry that there's room for negotiation. But as I've explained in the past, this is a three-party issue. This is the government of Canada. This is the province of Alberta. And this is the investors of the company who have, first of all, international investment opportunities.

So if they think they can generate a better return somewhere else outside of the country, that's where they're going to go. The province has a huge role to play in this as well as the federal government, who's made these commitments on emissions reductions. So I would hope all three of those parties are working closely together to deliver that result.

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