CANADIAN L’INSTITUT

CLIMATE CLIMATIQUE July 2022

INSTITUTE DU CANADA

TRANSITION PATHWAYS FOR

CANADA’S OIL AND GAS SECTOR
How the sector can decarbonize operations and develop new net zero products
By Chris Bataille

Introduction
The global low-carbon transition raises big questions about the future of Canada’s oil and gas
sector. As a whole, the sector represented $105 billion of Canada’s gross domestic product
(approximately 6.5 per cent) and $105 billion in exports in 2020 (approximately 16 per cent).
However, it also represented about 27 per cent of Canada’s greenhouse gas emissions in 2020
(ECCC 2022a) and was one of the main drivers behind the increase in Canada’s total greenhouse
gas emissions in the past three decades.

There is no doubt that the sector needs to transition and find ways to dramatically reduce its
greenhouse gas emissions: the question is how. Part of the solution in the short term is decar-
bonizing production—continuing to meet crude oil and gas demand on the journey to net
zero emissions, while reducing the risk of stranded assets. In the long term, however, the indus-
try will need to pivot to new ultra-low emissions business and product lines to stay profitable.
Fortunately, there are both short and long-term opportunities for major oil and gas players
poised to make this transition.

The Paris Agreement goals of limiting the global temperature increase from pre-industrial levels
to “below 2° C and towards 1.5° C” require net zero carbon dioxide emissions by mid-century and
net zero greenhouse gases by 2070.1 The recent report by the International Panel on Climate
Change (IPCC) further indicates that global greenhouse gases must fall 27-43 per cent and carbon
dioxide emissions 27–48 per cent by 2030 from 2019 levels to keep 1.5–2° C in sight (IPCC 2022).

1 Carbon dioxide from fossil fuel combustion and industrial processes represents 64 per cent of greenhouse gases in 2019 (IPCC 2022). Carbon dioxide from
deforestation and land use changes is another 11 per cent. Methane from fugitive oil and gas, agriculture, and land use represents 18 per cent. Nitrous oxides
from various sources are four per cent, and fluorinated gases, mainly from industry, are two per cent.
 The Canadian Net-Zero Emissions Accountability Act commits the country to reaching net
zero greenhouse gases by 2050. No sector is exempt, including oil and gas production serving
both domestic and international markets (Government of Canada 2021). To this end, in its recent
Emissions Reduction Plan, the federal government commits to reducing oil and gas emissions
by 30 per cent from 2005 levels by 2030, or 42 per cent from current levels as overall emissions
from the sector have risen since 2005 (ECCC 2022b).

So what are oil and gas companies to make of this? Both their means of production (Scope 1 and
2) and products (Scope 3) are emissions intensive. How do they stay competitive and profitable
as global demand plateaus and eventually falls, with what will likely be wild gyrations in price?
How do they manage their existing assets, with sunk capital and difficult-to-change greenhouse
gas profiles? What retrofits are worthwhile, and why? What new products will be viable? What is
the government’s role in helping support oil and gas companies and workers to succeed while
ensuring the necessary transition?

The purpose of this paper is to initiate discussions on these questions in the policy-making
context and demonstrate that while the global low-carbon transition is often seen as a threat
to the oil and gas sector, it could also present a major opportunity.

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 2

Canada’s oil and gas sector
and its greenhouse gas emissions
The gasoline, diesel, and jet fuel that goes in our vehicles and the natural gas that heats our
homes, buildings, and industry is processed in several steps from various grades of crude oil and
gas. Crude oil production results in different variations including: offshore light oil, conventional
light and heavy oil, and integrated and in-situ oil sands.

Offshore light is typically the least emissions intensive because the coproduced natural gas
must be carefully managed for explosion and fire risk, particularly at sea. This means that very
few fugitive emissions (unintentional emissions, leakage, or discharge of gases or vapours) are
allowed. Natural gas is also coproduced with conventional light oil production (mainly meth-
ane) and gets piped separately for processing; however, with laxer standards than offshore
production, it can result in significant fugitive emissions depending how the field and trans-
port are operated.

In conventional heavy production, less gas is coproduced. It typically does not get its own pipe
and is normally flared, usually incompletely and therefore partially as methane, a potent green-
house gas. Oil sands production requires lots of heat produced mainly from combustion of natu-
ral gas to extract the bitumen from sand. Then, either synthetic crude or light hydrocarbons
(e.g. natural gas liquids) are needed as diluent to allow bitumen to flow in pipelines. Gas is also
needed to supply heat and add hydrogen in the process that upgrades bitumen to full synthetic
crude oil. These processes all result in a high level of greenhouse gas emissions.

Canada also has a dedicated natural gas production industry, with both conventional and
hydraulic fracking methods of extraction. This industry produces most of Canada’s gas and the
larger part of its process produces carbon dioxide emissions and fugitive methane emissions.
The raw formation gas that is extracted is a varying mixture of methane, ethane, natural gas
liquids, water, hydrogen sulfide, and carbon dioxide. Formation gas cleaning plants are used
to separate out the water, hydrogen sulfide (which is reinjected), and carbon dioxide (which is
released into the atmosphere). Straddle plants remove the ethane and natural gas liquids for
use as chemical feedstock, diluent, or fuel. Because of the value of the ethane and natural gas
liquids as ready-made feedstocks for the chemicals industry, that industry operates closely
with the gas industry.

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 3

 Not only is a lot of heat and electricity needed for the oil and gas sectors, but a significant amount
of methane emissions leak from various parts of these industries. Methane leaks are estimated
to be equivalent to at least 7 per cent of Canada’s total greenhouse gas emissions from energy
supply and demand and possibly 13 per cent or higher according to recent research into Canada’s
fugitive emissions (Chan et al. 2020; Tyner and Johnson 2021; MacKay et al. 2021). The International
Energy Agency (IEA) recently raised its estimates of Canada’s methane fugitives by 43 per cent
(IEA 2022), and has recommended that all producers aim to reduce their fugitives by at least 75
per cent (IEA 2021a). The IPCC indicates that 50-80 per cent of current fugitives can be reduced
for less than $50 per tonne of carbon dioxide equivalent and more than half of current fugitives
at a negative cost, due to extra methane becoming available for sale (IPCC 2022).

Forecast global demand for crude oil and gas on the way to a 1.5° C world
In the IEA net zero scenario (IEA 2021b), global crude oil demand falls steadily to about 20 per cent
of current consumption by 2050. In this scenario there is limited use of carbon dioxide removal
and natural gas demand peaks in the mid 2020s, falling to about a third of today’s consump-
tion by 2050. In 2050, about one quarter of oil and gas continues to be produced in North
America, with most of it used for chemical feedstocks (currently 14 per cent of global crude oil
use and eight per cent of gas)2 and abated with carbon capture and storage (CCS). How much
will continue to be produced in Canada and by which companies will depend on the cost and
greenhouse gas intensity of production, inclusive of any net carbon pricing and other climate
and trade policies of Canada and its trading partners.

To engage this massive, generational transformation, high-level political direction and policy
certainty that greenhouse gas emissions from oil and gas will be capped and drop to net zero
by 2050 is required from both the federal and provincial governments. This must be associated
with recognition by all levels of government and stakeholders that global crude oil production,
as indicated by the IEA and others, could fall by roughly 80 per cent by 2050. Existing Canadian
crude oil producers with established reserves, and especially those with built oil sands projects,
will likely be competitive down to their operating cost of roughly $15-$25 per barrel. Fulsome CCS
and other aggressive measures to reduce greenhouse gas intensity may add only $5-$6 per barrel
(Bataille et al. 2015). This assumes Canada’s fugitive methane emissions levels have been reduced
at least 75 per cent by 2030, as recommended by the IEA and promised by Canada’s current
government. Below $15-$25 per barrel, other lower-cost regions (e.g. most of the Middle East)
will have more of the market share, assuming they have also reduced their fugitive emissions.

2
https://www.dena.de/fileadmin/dena/Publikationen/PDFs/2019/Feedstocks_for_the_chemical_industry.pdf

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 4

Short-term opportunities to improve
the oil and gas sector’s carbon
competitiveness
Canada’s oil and gas sector has several opportunities to improve its survivability and competitive-
ness in a world where the greenhouse gas intensity of production and consumption of crude oil
and gas products is strongly controlled and overall demand is falling. Many of these options are
based on technologies that are already readily available and, in some cases, are highly cost effective.

Dramatically reducing fugitive methane emissions

The cornerstone for responsible greenhouse gas management by the oil and gas sector is to dramati-
cally reduce its fugitive greenhouse gas emissions as soon as possible using existing technologies and
practices. The government reviewed its methane regulations in late 2021, with the goal of reducing
fugitive emissions by 39 per cent by 2025 and by 75 per cent by 2030. The sector has evolved a regula-
tory regime and associated management culture for worker safety, hydrogen sulfide control, and fire
prevention. Fugitive greenhouse gas minimization must be added to this list. Several measures are
available to reduce fugitive methane and carbon dioxide: relatively cheap repair activities focused on
pipeline leaks, moderately capital intense additions of wellhead hoods and gas collection lines to all
wells, and more capital intense application of CCS to formation gas cleaners to capture and dispose
of carbon dioxide. Using all these strategies, a new ultra-tight regime for gas should be imposed as
soon as feasible, perhaps over the next three to five years for larger producers with greater manage-
ment capacity, and before the end of the decade for smaller producers.

Technological advances can help make compliance easier and cheaper. Multiple monitoring
systems (e.g. satellite services provided by companies like Québec-based GHG Sat), airborne
lasers, and pipeline inspections could be used to confirm whether fugitive emissions reduction
goals are being met. Because of the monitoring challenges that make carbon pricing difficult,
“speeding ticket” penalties may be required that escalate for repeat violations based on multi-
ples of the current carbon levy.

There are other more expensive and involved actions that could help the oil and gas sector with
fugitive methane management, but they come with a cost and governments and industry would

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 5

 need to be careful about how ratepayers are impacted. For example, all formation gas cleaners
releasing significant amounts of carbon dioxide could have CCS applied within five years, and
the cost would be tolled back to users in the rate base. All retired wells could be sealed to 1,000-
year permanence levels. As part of this, the federal Orphan Wells program could be expanded,
but to prevent it from becoming a subsidy to producers, the costs should be tolled back to oil
and gas producers and, if this proves difficult, to all users. The added cost could incentivize effi-
ciency improvements, but low-income households would need support through provincial util-
ities commission regulatory regimes, for example, through reduced utility bills.

It should be noted there are large differences in methane fugitive emissions rates in Canada. Part
of this difference relates to product structure (i.e. pure gas plays, light oil, heavy oil and unconven-
tional, offshore), but a large component relates to governance. British Columbia’s gas sector, for
example, has an official leakage rate of 0.22 per cent (ECCC 2022a) and perhaps 1.6-2.2 times that
in reality (Simmons 2021; Tyner and Johnson 2021). Alberta’s official fugitive emissions rate is 1.15
per cent (ECCC 2022a), but will likely rise by 1.5-2.0 times this with improved monitoring (Chan et
al. 2020; MacKay et al. 2021). Saskatchewan has historically flared over 20 per cent of its produced
methane due to the preponderance of heavy oil, and currently sits at 11.9 per cent, but overall fugi-
tive emissions have fallen approximately 50 per cent with the application of recent regulations
(Government of Saskatchewan 2021). These values give an overall rating of 1.13 per cent official leak-
age rate across the Western Canadian Sedimentary Basin, which could rise to 1.7-2.3 per cent. If
recent updates to the B.C. gas production regulation are followed (e.g. no routine non-emergency
flaring, with modifications as necessary for light and heavy conventional production, and shutting
down or choosing not to develop wells as necessary (BC Oil and Gas Commission 2021)), it is possi-
ble to achieve a leakage rate less than 0.5 per cent across Canada by the late 2020s to early 2030s.
The latest inventory indicates that fugitive emissions are already 25 per cent lower than 2019 levels
as a result of the 2016 federal commitment to a 45 per cent reduction from 2012 levels by 2025. At
COP26 the Canadian government committed to the IEA’s recommended 75 per cent reduction in
oil and gas fugitive emissions by 2030 compared to 2019. Recent progress indicates this may possi-
ble; it would contribute significant direct emissions reductions and improve the business case for
blue hydrogen and derivatives, which are discussed in more detail below (ECCC 2022a).

A sector-specific oil and gas emissions cap falling to net zero greenhouse
gas emissions by 2050
Given the critical need to reign in rising oil and gas emissions against the backdrop of falling
emissions in the rest of the economy, and provide firm direction to reach net zero, all oil and gas
combustion and possibly fugitive greenhouse gas emissions should be under a sector-specific
and declining cap ending at net zero emissions by 2050. This system, rooted in the federal govern-
ment’s 2022 Emissions Reduction Plan (ERP), would be negotiated as a successor to the Output-
Based Pricing System or Alberta’s Technology Innovation and Emission Reduction Regulation.
It would provide the sector with its own cap-and-trade system or regulatory framework. These
would be under the governance of provinces with federal oversight within its jurisdiction over

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 6

 total emissions. The explicit goal would be net zero by 2050 with only additive, verifiable, and
geologically permanent offsets allowed, like bioenergy with CCS or direct air capture plus CCS.
Interprovincial trading could be allowed but just within the oil and gas sector. Within the hard and
declining cap, means would be investigated for existing oil sands projects to run out their lives at
ever lower greenhouse gas intensities (e.g. solvent extraction; direct contact steam generation;
CCS, blue and green hydrogen for heat and upgrading; and other as yet unknown possibilities).

It is debatable whether fugitive emissions should continue to be governed separately under

the existing methane regulations or co-governed with combustion emissions. If all combus-
tion and fugitive emissions were put under one cap, a logical outcome could be the oil and gas
sector rapidly eliminating lower cost fugitive emissions by 2030. The sector could have some
cost offsetting from increased methane revenues, while eliminating higher cost and more
uncertain combustion emissions starting in the late 2020s and early 2030s. In either case, a 75
per cent reduction in fugitive emissions by 2030 (equivalent to about 0.5 per cent or less of total
production after recent advances in monitoring), should be maintained given their importance
for future oil and gas sector actions to reduce greenhouse gases (Bauer et al. 2022), and a 90 per
cent or better reduction should be encouraged.

Finally, given the world will likely require some permanent, additive, and verifiable negative
carbon dioxide removal emissions to maintain the Paris targets while allowing developing
countries to meet core needs, some form of incentive will be needed. In the short run this could
include allowing offsets under the emissions cap for the oil and gas sector, providing they meet
the established criteria. In the long run, the cap could become negative or a “bounty” could be
offered (Bataille and Lee 2021).

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 7

Long-term opportunities to transform
Canada’s oil and gas sector
So far, this paper has explored the emissions constraints on the oil and gas sector in a low-car-
bon economy and the opportunities to reduce these emissions in the short term. Now we can
consider the fun part: the long-term opportunities to transform the sector so it can take advan-
tage of new global markets and succeed in the low-carbon future. Canada’s oil and gas compa-
nies are masters of the chemical engineering arts of mixing and matching carbon, hydrogen,
and oxygen atoms to transform feedstocks into fuels and materials. This is currently a highly
greenhouse-gas-intense activity both because of the high process heat used and the green-
house gas intensity of current feedstocks for sourcing these atoms. If we can incentivize oil and
gas companies to find and use ever lower greenhouse gas intensity processes and feedstock
sources (e.g. from carbon capture and use, biomass gasification, direct air capture of carbon
dioxide, or electrolysis of water), these cornerstone commodities could be produced in Canada
at much lower intensities. This is where Canada’s access to secure CCS geology (e.g. the Western
Canadian Sedimentary Basin), biomass, and clean electricity from several sources, becomes a
strong competitive advantage in a global low-carbon world. With these advantages, Canada can
secure a strong position as a supplier of choice for aviation fuels, high-value chemical feedstocks,
and replacement net zero fuels for buildings and industries that have challenges converting to
electricity and hydrogen (Bataille 2020). We will consider first hydrogen and its derivatives, then
oxygen, and ultimately carbon.

Blue hydrogen production

Hydrogen is currently used in large quantities for integrated synthetic crude oil production
and merchant upgraders, as well as for ammonia and other chemical production. It is made
by reforming methane in two steps into hydrogen and carbon dioxide. The carbon dioxide is
currently released to the atmosphere and could have CCS applied to it, creating “blue” hydro-
gen (Bataille et al. 2021). For blue hydrogen to be sustainable, the fugitive methane emissions
levels would need to be less than or equal to 0.5 per cent, and at least a 90 per cent capture rate
of carbon dioxide would be required (Bauer et al. 2022). This is difficult to do technically and
economically with modern steam methane reformers because they separate the process carbon
dioxide waste stream, on which CCS is cheap and easy because the carbon dioxide is concen-
trated, and the heat waste stream, on which CCS is hard and expensive because it is diluted
in nitrogen. However, there is another option in autothermal reformers. This option should be

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 8

 encouraged because the heat and carbon dioxide are produced together, making the waste
stream carbon dioxide more concentrated and easier to capture. Carbon dioxide from early
blue hydrogen production, like that from Air Products’ project, could be moved via the Alberta
Trunk Line for permanent disposal or enhanced oil recovery projects in older wells. Enhanced
oil recovery can count as permanent disposal if all the carbon dioxide is reinjected, if the process
is managed to maximize sequestration instead of minimizing carbon dioxide costs, and if the
wells are sealed properly afterward. While there is significant debate about how much project
support should be provided to kickstart a blue hydrogen industry (e.g. through the CCUS tax
credit), there is a legitimate role for government to help build key carbon dioxide transport and
disposal infrastructure and tolling it back on use.

Transitioning to green hydrogen

While the oil and gas sector will have a head start in blue hydrogen, based on falling solar, wind,
and electrolyzer costs, it is anticipated that green hydrogen made via water electrolysis will
supersede blue hydrogen globally by 2035-2040 for almost all new production. Green hydrogen
is critically dependent on low-cost clean electricity to be competitive without subsidies (e.g. less
than $0.01-0.02/kWh in regions where there is competition with blue hydrogen), and regions
most likely to kickstart production of green hydrogen are those with access to cheap hydro-
electricity and poor CCS geology, e.g. Québec (Bataille et al. 2021; Neff et al. 2021). Small modu-
lar reactors are another pathway to supply heat and electricity for electrolysis and may be a key
primary energy source in regions with poor wind and solar. However, too little is known at this
time about their eventual costs. Finally, water electrolysis during green hydrogen production
produces oxygen as a valuable byproduct. Where the oil and gas sector has long-term skills to
contribute is in the handling, storing, transport, and especially use of blue then green hydrogen
to make higher value products with low greenhouse gas intensity carbon and oxygen.

Low greenhouse gas carbon-based fuels and feedstocks

In the short run, it is expected oxygen for chemicals, hydrocarbon, and alcohol fuels will come
from air separation units powered by ever cleaner electricity; in the long run, oxygen could come
as a byproduct from electrolysis for making green hydrogen. Once a steady surplus of relatively
low greenhouse gas oxygen is available, it can be used as a chemical feedstock or for oxycombus-
tion, such as in NET Power’s CO2 methane driven electricity generation system. Because of the
ample geology for CCS in northeast British Columbia, Alberta, and Saskatchewan as well as inex-
pensive methane, the NET Power system could be a key supplier of clean electricity to support
variable wind and solar in these regions. The oil and gas sector’s geological reinjection skills could
be a key complement, given the necessity to dispose of the excess carbon dioxide. In a related
way, the oil and gas sector’s skills with drilling and geological management could be used for
deep geothermal generation (Roberts 2020).

In the long run, most useful chemicals (e.g. carbon monoxide, methane, methanol, ethanol, and
ethylene) for fuels, plastics, and other end uses require carbon, which currently comes from fossil

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 9

 fuels. It could instead come from using waste carbon dioxide streams, biogenic carbon sources
(e.g. anaerobic digestion, fermentation, or woody biomass gasification), or be directly captured
from the air. Canada’s oil and gas sector is ideally suited to conduct the molecular “Lego” neces-
sary to make chemicals and fuels from low greenhouse gas carbon, hydrogen, and oxygen.
There will likely be large global market opportunities associated with this carbon management
business. First, it will take long past 2050 to replace the buildings and industrial facilities that
run on fossil methane, and companies that can make a zero greenhouse gas methane replace-
ment will have many opportunities. Second, methanol, ethanol, and ethylene are cornerstone
commodities of the plastics and other chemicals industry. Companies that can master physi-
cal carbon management—replacement of fossil carbon sources with lower or zero greenhouse
gas intensity sources—will have a significant role to play in creating fuels and feedstocks for
industries such as high-value legacy buildings, aviation, and chemicals. The functional limits to
this business opportunity will be how fast we can substitute direct use of electricity and hydro-
gen in the transport, buildings, and industry sectors, and the eventual cost of carbon dioxide
removal, for example via biomass combustion or direct air capture of carbon dioxide followed
by its permanent geological disposal. Implementing large scale carbon dioxide removal will be
an enormous institutional challenge, however, and is still projected to cost at least $200-300 per
tonne of carbon dioxide, with enormous clean energy requirements.

Industry hubs for hydrogen, oxygen, and carbon management

Coordination of the supply, storage, and demand for hydrogen, oxygen, and carbon compounds
will be easier and the per tonne costs lower if they are collocated in industrial clusters near exist-
ing oil and gas hydrogen, upgrading, and chemical production facilities. This would ideally be
near geology suitable for bulk storage of hydrogen (i.e. salt caverns) and carbon dioxide (i.e.
depleted oil and gas fields and deep saline aquifers). An open provincial and federal invitation
could be offered to chemical companies to develop net zero synthetic chemical clusters (e.g. Fort
Saskatchewan, Medicine Hat, Lloydminster), with preapproved industrial zoning, CCS collection
and disposal, high voltage transmission, blue then green hydrogen production and storage, and
potentially district heat sharing from which small and medium enterprises could “farm” heat
using industrial scale heat pumps. Finance could be made available for elements such as plan-
ning and infrastructure, and the federal and provincial governments could even build the core
infrastructure and toll its costs back to participants.

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 10

 Conclusion
This paper offers a vision for how Canada’s oil and gas companies can decarbonize their produc-
tion, maintain market share as demand for crude oil and gas falls, and simultaneously pivot
to new net zero products. Fulfilling this vision means oil and gas companies could evolve into
“carbon management” companies using low greenhouse gas carbon, hydrogen, and oxygen to
make useful fuels and materials feedstocks at ever lower greenhouse gas intensities. Looking
deeper into the future, the sector could eventually become carbon negative via biomass and
direct air capture of carbon dioxide use followed by CCS, their profitable “mantra” being ever
less carbon dioxide in the air, ever more recycled, and ever more back into the ground.

Implementation of this vision, however, requires several interlinked policy interventions that
need further research to develop properly. The following is a list of potential policy actions that
could help move the technological pathways talked about in this paper forward:

▶ Implement strict fugitive methane emissions regulations, with at least a 75 per cent reduc-
tion by 2030 or earlier. Several companies have demonstrated this can be rapidly achieved,
so a credit system could also be implemented for companies that reduce their emissions
early and/or go above and beyond the targets.

▶ Reduce and eventually eliminate fossil fuel production subsidies (GSI 2022, Samson et al. 2022).

▶ Establish an oil and gas emissions cap falling to net zero (and possibly negative) by 2050,
inside or outside the existing provincial or federal output-based pricing system (OBPS)
systems. Whether it is based on carbon dioxide or greenhouse gases will depend on how
the policy is designed to interact with the prior fugitive methane emissions policy.

▶ Develop instruments to improve policy certainty for capital intensive, long-lived projects,
e.g. contracts for differences indexed to a prespecified product price or climate policy
(Sartor and Bataille 2019; Beugin and Schaffer 2022).

▶ Develop policy, such as the Clean Electricity Standard, to make sufficient low cost and reli-
able clean electricity available for green hydrogen and process heat, for example, through
industrial heat pumps or directly for heat.

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 11

 ▶ Support research, development, and commercialization of technologies that can enable
the use of Canada’s woody biomass resources as a carbon source, and make this more of
a priority and possibly attract more global investment.

▶ Develop a low-carbon fuel standard (LCFS) compatible with net zero emissions. This could
be a key policy for helping low carbon fuels reach markets. A Canada-wide LCFS is expected
to emerge in Fall 2022. Given the challenges and five years it has taken to negotiate the
existing policy, further tightening may work best if it’s done with partners in the United
States, modelled on California and British Columbia’s policies, and with careful tracking of
“well-to-combustion” life-cycle emissions.

▶ Preplan, zone, and establish infrastructure for industrial clusters. This could include hydro-
gen production and storage; CCS collection and disposal; high voltage transmission; waste
heat collection and reuse with heat pumps; and recyclable material collection and process-
ing. This would require cooperation between the federal and provincial governments, and
could include prebuilding of infrastructure by government and tolling back on use, or tax
credits to establish the infrastructure.

▶ Create long term signals to trigger negative emissions, which could come by strengthening
the OBPS and equivalent benchmarks while allowing inclusion of permanent, additive, and
verifiable offsets, or perhaps via a “bounty” on negative emissions (Bataille and Lee 2021).

In order for this package of policies to be implemented and politically accepted, a fast but effec-
tive process is required to engage stakeholders and produce adaptable federal and provincial
plans to take the oil and gas sector to net zero emissions, supported with new technology and
compatible with global developments. The Alberta provincial government accomplished a simi-
lar process in the early months of 2015 leading up to the Paris Agreement, with full buy-in from
all significant stakeholders, including large oil and gas firms, but the plan was later abandoned
(Leach et al. 2015).

Given their jurisdiction over natural resources, the provinces will likely remain in the driver
seat, but the federal government can play a crucial planning, coordination, and funding role.
Establishing a national, independent arm’s length agency could help in this regard. It could be
mandated with evaluating federal and provincial plans, monitoring progress, and suggesting
modifications to provincial and federal governments, following the example of the UK Climate
Change Committee.

While the journey from producing some of the most greenhouse gas intense barrels on the
planet to profitable greenhouse gas negative carbon management may seem long and improb-
able, and the laundry list of necessary policies lengthy, it is not only necessary if Canada is going
to meet its net zero goals, it is feasible with vision and effort on the part of all stakeholders.

TRANSITION PATHWAYS FOR CANADA’S OIL AND GAS SECTOR 12

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