Oil and gas production can meet 'historical highs' under emissions cap: PBO

Even with a national oil and gas emissions cap, Canada's fossil fuel sector could boost production by 11 per cent by 2032, according to an independent analysis.

The Parliamentary Budget Office (PBO) released a new analysis on Wednesday showing the federal government's oil and gas emissions cap would not affect the sector's current production levels — but it does raise questions about whether it would limit future growth.

The report estimates that oilsands and natural gas production and processing in 2030-32 (the first compliance period under the cap) can achieve growth "well above current levels."

The cap would allow the oilsands to add about 500,000 barrels a day, which would increase production by 15 per cent above 2022 levels. Natural gas producers can also add trillions of cubic feet, representing a 12 per cent increase, according to the PBO.

The report notes that would being production "close to historical highs."

It lands after the federal government released draft oil and gas cap regulations in November. Final regulations are expected to be released in the spring.

While Ottawa calls it a pollution cap, critics call it a production cap. Wednesday's PBO report clarifies that the draft policy does not cap production at current levels.

But forecasts from the Canada Energy Regulator show Canada's fossil fuel industry could have been on track to increase production by more than 15 per cent in that timeline.

In a statement, a spokesperson for Environment and Climate Change Minister Steven Guilbeault disputed that federal cap could result in a future production cut.

"The pollution cap drives oil and gas CEOs to reinvest their profits back into Canada instead of overseas, all while allowing for increased production," said Alisson Lévesque, the minister's director of communications.

"It does so by making companies invest in made-in-Canada innovation, including carbon management, methane reductions, and other initiatives that will create thousands of good jobs, cut pollution and ensure Canadian industries are competitive."

Lévesque added the PBO report presented "an inaccurate and misleading picture of the draft regulations."

Potential hit to GDP

The PBO estimates that Canada's projected real gross domestic product (GDP) in 2032 would fall by 0.39 per cent, and projected nominal GDP (which does not account for inflation) by $20.5 billion, if the emissions cap prevents the industry from achieving that level of growth.

The Conservatives linked prime minister-designate Mark Carney to that loss of potential oil and gas growth. Carney has suggested he would follow through with the government's climate policies, except the consumer carbon tax.

"Parliamentary budget officer's report calculates Carney's oil and gas production cap will kill 54,000 full-time Canadian jobs and $21 billion of yearly GDP," Conservative Leader Pierre Poilievre said on social media.

"How reckless. Right in the middle of a trade war with the U.S., Carney is attacking OUR jobs."

Alberta's premier called the report's findings "scathing."

"The evidence is clear: the federal government's proposed emissions cap is unconstitutional, bad for the economy and bad for Canadians. We urge the next elected prime minister to abandon this extreme and ideological cap," Premier Danielle Smith said in a statement.

The oil and gas sector is responsible for the largest share of Canada's emissions. Unlike other sectors, its emissions have not been on a downward trajectory.

According to Canada's latest emissions report, the oil and gas sector in 2022 was responsible for 31 per cent of Canada's emissions.

Like previous reports, the PBO does not factor in the cost of climate change and its impact on the GDP. It also does not consider the jobs that could result from decarbonizing the oil and gas sector and other sectors.

The report states the cap would prevent at least 7.1 million tonnes of emissions, equivalent to keeping 2,175,184 cars off the road.

The report also estimates future reductions by drastically cutting methane emissions, the most potent greenhouse gas, and the fossil fuel sector's historic emissions intensity.

It does not consider emissions reductions from specific projects like carbon capture and storage, which a consortium of oilsands companies is proposing through the Pathways Alliance.

Janetta McKenzie, the oil and gas director with Calgary-based energy think-tank the Pembina Institute, said those projects "obviously would be a huge, huge project to reduce emissions in the oilsands."

"So they assume that virtually no further action is taken to reduce those non-methane emissions in the next few years, which is not congruent with what some of those firms have said."