The drums of war are beating.
A looming showdown over Canada’s oil and gas industry became all but certain after newly-installed federal Environment Minister Terry Duguid confirmed Prime Minister Mark Carney’s committment to implementing a nation-wide emissions cap that many in Alberta’s oil and gas industry say amounts to a defacto production cut.
“Canada wants the energy but not the pollution that comes with its production,” Environment Minister Terry Duguid said in an interview with The Canadian Press, reiterating that a Liberal government under Carney would maintain the cap.
The battle over emissions regulations has been intensifying since the Liberal government introduced draft rules last November, requiring oil and gas producers to cut emissions by about one-third over the next eight years.
Despite prorouging Parliament, comments on the proposed legislation closed in January, days before US president Donald Trump was sworn in threatening tariffs.
The proposed cap-and-trade system has drawn fierce opposition from Alberta, where the energy sector accounts for nearly 60% of the province’s greenhouse gas (GHG) emissions and remains the economic backbone of the region.
Carney has vowed to repeal the consumer carbon tax effective April 1 ahead of a federal election that promises to be a no-holds-barred slugfest on the issue of emissions and the economy.
But observers say if Carney does indeed become prime minister, Alberta’s resistance may leave him with no other choice but to dramatically hike the industrial carbon tax or impose even stricter emissions caps to meet federal climate targets and make up for lost revenues.
Alberta argues that its emissions intensity is already decreasing while its economy grows, proving that aggressive federal intervention is unnecessary.
The province’s emissions intensity has fallen by 20% since 2005, and absolute emissions dropped by 1.2 million tonnes between 2021 and 2022 — making it the only jurisdiction in Canada to see a significant reduction.
Yet Ottawa’s cap would force even deeper cuts, which Alberta claims would cripple its industry. With Alberta refusing to comply with production limits, the federal government would need alternative methods to keep emissions reductions on track.
The policy is unprecedented among major oil-producing nations, with Canada being the only top exporter imposing such a restriction. Even Norway, which has some of the world’s strictest climate policies, does not cap oil production.
The energy sector, along with Alberta’s government, argues that Ottawa’s plan will drive away investment, destroy jobs, and increase global emissions by shifting production to countries with weaker environmental regulations.
This week, a coalition of energy executives called on all four major federal party leaders to recognize a “Canadian energy crisis” and scrap the cap. Conservative Leader Pierre Poilievre has pledged to do exactly that, repeatedly slamming Carney for his support of emissions limits.
But for now, the battle lines are drawn.
Alberta has made its position clear: it won’t accept an emissions cap. If Carney wants to enforce federal climate targets, he’ll need another way to do it — and that may mean making industry pay a far steeper price.
Alberta Premier Danielle Smith, who met with Carney on Thursday said she issued a laundry list of demands including the elimination of the emissions cap and scrapping the ‘so-called’ clean electricity regulations.
“We had a very frank discussion in which I made it clear that Albertans will no longer tolerate the way we've been treated by the federal Liberals over the past 10 years. I provided a specific list of demands the next Prime Minister, regardless of who that is, must address within the first six months of their term to avoid an unprecedented national unity crisis,” she said.
