While the oil and gas sector has made commitments and investments to cut emissions, much more work is needed.
Emissions in the oil and gas sector continue to rise, putting Canada’s climate targets further out of reach. While the federal government has advanced a number of policies this week to cut emissions in the sector, getting emissions on the right track requires faster implementation.
Our analysis shows that significantly reducing oil and gas emissions is doable, and a range of solutions can play a role, but time is short.
Most companies have already set commitments to reduce emissions—both to comply with existing regulations and remain competitive—but targets alone aren’t enough. Commitments need to lead to actions, requiring companies to implement and invest in a suite of solutions to meet their climate targets. This Insight tracks the sector’s commitments and actions.
Oil and gas emissions commitments aren’t enough to put the sector on target
The Pathways Alliance consists of the six largest oil sands producers in Canada, collectively responsible for 95 per cent of the emissions from oil sands production. Together, the Alliance has committed to reducing their emissions 22 megatonnes of all greenhouse gases annually by 2030 and 68 megatonnes annually by 2050 to reach net zero.
Commitments to reduce emissions haven’t been concentrated in oil sands alone. Table 1 lists the voluntary targets set by companies that contribute to 95 per cent of the emissions from all Canadian oil and gas facilities that emit more than 10 kilotonnes of CO₂e annually. This includes operations in natural gas production and more conventional oil operations.
Collectively, climate commitments cover 86 per cent of reported emissions from the oil and gas sector. These commitments include targets to reach net zero operations by 2050, as well as interim emissions targets for 2030 or earlier. Other targets also include emissions reductions in specific segments of a company’s operations (e.g. specific site targets), and methane reduction targets.
However, in many cases company commitments are not aligned with Canada’s climate goals.
As Figure 2 illustrates, the average level for 2030 corporate targets sits only around 30 per cent reduction from 2019 levels. These averages fall short in ambition compared to federal modeling from the 2023 Progress Report on the Emissions Reduction Plan, which shows the sector’s emissions declining by 41 per cent below 2019 levels by 2030.
What actions are being taken to cut emissions?
To be credible, commitments also must be backed by action. Aligning the sector with Canada’s 2030 target depends on implementing solutions targeting reductions across the value chain.
Companies are actively investing and deploying ‘safe bet’ solutions. These include:
- Reducing methane emissions, which is released when it is leaked, flared, or vented from oil and gas production, transportation, and extraction-related activities. Since 2015, several companies have steeply reduced methane emissions. For example, Cenovus reduced methane emissions from its upstream operations by 59 per cent since 2019. Similarly, Canadian Natural Resources reported it cut methane emissions in half in 2022 compared to 2016 levels. Reducing methane emissions also benefits companies, as it allows them often to recover more of their marketable product.
- Cogeneration—an emissions-reducing innovation where excess heat from the process of extracting oil is used to spin turbines that generate electricity—is another solution being deployed by companies. Currently, cogeneration projects power a remarkable 40 per cent of Alberta’s electricity supply.
- Fuel switching to lower-carbon energy is also playing a role. Arc Resources’ Dawson Creek gas plant, for example, has been powered by hydroelectricity since 2011. In this case, electrification reduces emissions from electricity generation by relying on non-emitting sources compared to coal or fossil gas.
The progress on these solutions underlines how companies can implement emissions-reducing activities while making a profit. Additional policy efforts, such as the amended methane regulations can help further increase the adoption of these technologies.
Companies are also investing in ‘wild card’ technologies—potentially significant contributors to emissions reductions, though their role is more uncertain.
- Carbon capture, utilization, and storage (CCUS) is one example. Canadian data from the Global CCS Institute’s Facilities Database indicates that 21 new oil and gas-related CCUS facilities will have an estimated operational date between now and 2030, adding to the 12 pilots completed and projects that are operational, and 18 projects that still have unclear timelines.
- Companies are also investing in other low-carbon alternatives, including the production of clean hydrogen for certain use-cases, as well as further exploring research on renewable natural gas and biofuels. These fuels can reduce emissions by replacing the consumption of fossil fuels with lower-carbon fuel sources.
Government policy can accelerate action in the oil and gas sector
Despite progress, efforts to deploy solutions will need to accelerate to align the sector with Canada’s emissions reduction target, and governments have a critical role to play.
Efforts such as the oil and gas emissions cap and tightening the methane regulations can help send clear signals to reduce emissions in the sector, while grants and investment tax credits such as the federal CCUS and clean hydrogen investment tax credits and Alberta’s new CCUS grant program help de-risk investments in wild card technologies.
These policies can accelerate momentum in the oil and gas sector to reduce emissions, cut costs, and remain competitive in a net zero future.
Arthur Zhang is a research associate with the Canadian Climate Institute.