The history of the Athabasca oil sands development in Canada is a tale of technological evolution and environmental challenges. From early bitumen extraction methods to today’s advanced in-situ techniques, each advancement has aimed to increase efficiency but has also raised environmental concerns. Innovations have reduced water and energy use, yet the ecological footprint remains substantial, prompting a need for a delicate balance between technological progress and environmental preservation.

At the heart of this challenge lies the need to reconcile Canada’s environmental ambitions with the economic realities of an industry that is a linchpin of the province of Alberta’s economy and a significant contributor to the national GDP. While the tar sands account for approximately 10% of Canada’s total GHG emissions (according to Natural Resources Canada), they generate on average $54bn in economic activity annually. In 2020 alone, its operations supported 166,000 direct and indirect jobs across the country.

Environmental opposition
Environmentalists have repeatedly criticised the Canadian government for allowing oil sands operations to continue. One of their primary concerns is the significant use of water in tar sands operations, which not only consumes a considerable portion of the Athabasca River’s flow but also leads to contamination of water sources. Despite measures to conserve and store water, major concerns remain about the leakage of toxic substances from tailings ponds into groundwater and surface water, posing a risk to both the environment and human health.

Moreover, the extraction of tar sands results in significant environmental degradation and destruction of vast areas of boreal forest. Extraction and processing are highly energy-intensive. These activities not only pose a threat to local wildlife and ecosystems but also contribute to global climate change.

The opposition also advocates for the rights and well-being of Indigenous communities affected by tar sands developments; several major pipeline projects associated with the tar sands cross Indigenous lands without consent.

As the environmental scrutiny of tar sands operations intensifies, major industry players have publicly committed to innovative strategies aimed at reducing their carbon footprints. Companies like Syncrude, Suncor Energy and Imperial Oil are at the forefront of these initiatives, leveraging technology and collaborative efforts to address the environmental challenges inherent in oil sands extraction and processing.

Suncor Energy has invested in carbon capture technology to reduce GHG emissions from industrial operations. In March 2021, it announced a significant investment in Svante, a Canadian clean-tech startup focusing on eliminating industrial GHG emissions through a novel second-generation CO₂ capture technology. This technology aims to decarbonise industrial emissions and hydrogen production at a fraction of the cost of traditional carbon capture methods. Suncor’s investment is intended to support the acceleration of commercial-scale deployment of this technology.

In January 2023, Imperial stated it will further help Canada achieve its net zero goals by investing about C$560mn (US$413mn) to move forward with construction of the largest renewable diesel facility in the country. The plant will use low-carbon hydrogen produced with carbon capture and storage (CCS) technology. The project was first announced in August 2021, with the province of British Columbia (BC) supporting the development through a Part 3 Agreement under the BC low-carbon fuel standard. A significant portion of the fuel produced will be supplied to the province in support of its plan to lower carbon emissions. Imperial also intends to integrate renewable diesel in its operations as part of the company’s emission reduction plans.

Recognising the scale of the challenge, the Pathways Alliance was established in 2022, which includes Canada’s six largest oil sands producers: Canadian Natural Resources, Cenovus Energy, Imperial Oil, MEG Energy, Suncor Energy and ConocoPhillips. Together these companies represent about 95% of Canada’s oil sands production. Their goal is to achieve ‘net zero by 2050’, and according to Pathways, the Alliance’s decarbonisation work has amounted to $1.8bn from 2021 to November 2023. Its major proposed project is a potential $16.5bn CCS network that would be built in northern Alberta.

Meanwhile, in recent years, Canada’s Ottawa, Ontario-based federal government has announced several ambitious climate pledges, including cutting Canada’s carbon emissions by between 40% and 45% by 2030. In December 2023, the government introduced its long-awaited plan for oil and gas companies to cut their emissions by up to 38% from 2019 levels by 2030, using a cap-and-trade system.

The framework will restrict oil and gas operations, referred to as ‘covered facilities’, from releasing GHGs unless they are registered within the cap-and-trade system and possess either an emissions allowance or a similar credit that authorises them to emit a specified quantity of GHGs annually. The regulatory authority will distribute ‘emission allowances’, with each allowance equivalent to one tonne of CO₂e, up to the set emissions cap of 106–112mn tonnes.

These allowances will be allocated to the covered facilities based on their emission levels. Such facilities will be mandated to surrender one emission allowance or another approved compliance unit for each tonne of GHG they release, up to the yearly maximum limit. As time progresses, the government will reduce the number of allowances distributed, compelling covered facilities to either reduce emissions, acquire additional allowances, buy offsets, or contribute to a fund dedicated to decarbonisation.

The system introduces ‘compliance flexibility’ which allows facilities to use federal and provincial domestic offset credits or contribute to a decarbonisation fund for a portion of their emissions. While emissions allowances can be traded within the cap-and-trade system, credits from other carbon pricing systems cannot be used as substitutes. Facilities have the additional option to use offset credits from Canada’s GHG offset system or provincial credits acknowledged under federal regulations, but only up to a limit, currently set at about 20% of their emissions. They may also choose to contribute to a future decarbonisation fund as an alternative compliance method.

In December 2023, the [Canadian] government introduced its long-awaited plan for oil and gas companies to cut their emissions by up to 38% from 2019 levels by 2030, using a cap-and-trade system.

Provincial pushback and industry concerns
This move towards a cap-and-trade model marks a significant pivot in the country’s climate strategy. Federal Environment Minister Steven Guilbeault has stated the cap-and-trade system ‘considers the global demand for oil and gas, and the importance of the sector in Canada’s economy, and sets a limit that is strict, but achievable’. Climate policy analysts agree that the framework was a step toward meaningful and realistic reductions in oil and gas emissions, but the cap will need to decline steeply after 2030 for Canada to reach net zero GHG emissions by 2050.

However, Canada’s emissions cap proposal has sparked significant opposition from key stakeholders within the country. Alberta and Saskatchewan, two of Canada’s largest oil-producing provinces, have voiced strong objections, framing the proposal as an unwarranted intrusion by the federal government into provincial affairs and a direct threat to their economic well-being.

Alberta Premier Danielle Smith has been especially vocal, characterising the emissions cap as an overt act of federal overreach that undermines the province’s economic foundation. She has publicly committed to disregarding the federal mandate, suggesting that the proposal is not just regulatory in nature but is perceived as an aggressive move that could jeopardise Alberta’s economic stability and growth. Smith has also said she is prepared to take Ottawa to court again over the oil and gas emissions framework. ‘There’s no question that if they continue on this path, it will end up in court and I think we will win,’ she maintains.

Similarly, Saskatchewan’s leadership has taken to social media platforms to express disapproval of the federal government initiative. The province’s stance is that the new methane regulations and the oil and gas emissions cap not only encroach upon provincial jurisdiction but also disregard the economic priorities and the welfare of Saskatchewan families and businesses. This perspective underscores a fundamental dispute over the balance of power between the federal government and the provinces, particularly in areas of economic development and environmental regulation.

The federal Conservative opposition, along with various industry groups, has also criticised the cap, questioning the necessity and practicality of such a measure. They argue that the oil and gas sector is already taking significant strides towards reducing emissions and that additional federal mandates may impose undue burdens without corresponding benefits.

The collective resistance from Alberta and Saskatchewan, along with industry stakeholders, reflects broader concerns about the potential economic repercussions of stringent emissions caps. Critics worry that such measures could stifle investment, hinder growth and lead to job losses in regions heavily reliant on the oil and gas sector. They advocate for a more collaborative approach that recognises the economic contributions of these industries while still addressing environmental concerns. These concerns are amplified by the spectre of carbon leakage, where stringent local regulations could inadvertently push oil production to regions with looser environmental standards, undermining global environmental gains and Canada’s competitive stance in the international oil market.

The Pathways Alliance has said it does not oppose a cap on sectoral emissions. The question, says the organisation, is whether the cap will be too restrictive and limit the ability of industry to grow its production. ‘We support the federal government’s efforts to make significant emissions reductions by 2030, and its goal of net zero by 2050,’ said Mark Cameron, Pathways’ Vice-President of External Relations. ‘However, getting there requires a practical and realistic approach to emissions reduction to protect jobs and investment and help provide global energy security.’

What’s next?
The Canadian government, led by Liberal Party Prime Minister Justin Trudeau, is actively seeking feedback to shape the draft regulations of the new framework, which is scheduled for release in mid-2024 for public comment. The plan is to formally introduce these regulations in 2025, initiate reporting requirements by 2026, and gradually implement an emissions cap from 2026 to 2030.

However, Canada’s recent legislative efforts to control GHG emissions has resulted in a standoff between federal and provincial climate strategies.

The upcoming federal election (before autumn 2025) introduces additional uncertainty, with the possibility that a Conservative victory could lead to significant changes or the dismantling of the current framework.

There will now be intense efforts from various stakeholders, including governments and oil and gas companies, to shape the final form of the framework, aiming for a system that is both effective and compatible with existing emission reduction initiatives. Failure to align with the expectations of Alberta and Saskatchewan could likely lead to legal challenges against the framework.

Achieving the collective goals of reducing emissions, ensuring energy security and fostering economic growth requires clear and coherent policies, incentives and regulatory frameworks. With the critical year of 2030 approaching, the urgency to finalise and implement an effective emissions reduction strategy is paramount, given the significant investments and infrastructure developments needed to achieve these goals.

*All dollars cited are Canadian dollars.

• Further reading: ‘Global oil demand expected to reach record levels’. The share of unconventional oil is predicted to reach 30% by 2030.
• A Rystad Energy report names Canadian support of renewables second only to the US.