Trudeau Liberals offer new cap-and-trade plan to cut emissions 40 percent by 2030

The federal government has a new proposal to drive down emissions by almost 40 percent by the end of the decade. Ottawa wants to use an industry-specific cap-and-trade system or a modified carbon pricing system to set an emissions ceiling for the energy section.

The two options are contained in a discussion paper Environment Minister Steven Guilbeault published Monday. The paper explains the Liberal's plan to implement the oil and gas emissions cap promised in last year's election, The Canadian Press reported.

"We simply cannot ignore the fact that the oil and gas sector is Canada's biggest emitter," Guilbeault said in April during a House of Commons committee meeting studying the proposed emissions cap on oil and gas.

Background documents and government sources told CP the cap for 2030 will be very close to the one proposed in the new national Emissions Reduction Plan in March — 110 million tonnes, which is a 46 percent cut from 2019 levels.

Ottawa is also aiming to cut emissions across all sectors by 40 to 45 percent from 2005 levels by 2030.

The first proposed option is a new cap-and-trade system in the oil and gas sector. The total emissions allowed would be divided into allowances and allocated to specific companies mainly through an auction. Companies that don't buy enough allowances to cover their emissions will have to buy allowance credits from other oil and gas companies that bought more than they need.

The funds raised from the auction would be recycled to programs that help the sector cut emissions, CP reported.

The second option would modify the industrial carbon price already applied to the oil and gas sector — and possibly hike the price itself if needed. This option seeks to ensure emissions from the oil and gas industry fall by limiting the trading of carbon credits to the sector.

Companies can already reduce the carbon price they pay by buying credits from others that produce less than their emissions limit. Under the modified plan, these companies would only be allowed to buy credits from other oil and gas companies — not from other industries.

A government official, speaking to The Canadian Press on background,  said if the cap on emissions for the oil and gas sector comes in higher than the Emissions Reduction Plan, it will force other industries to cut more than their share or Canada won't meet its 2030 targets.

Input on the options to manage the cap will be accepted until Sept. 21. Guilbeault is aiming to unveil the final plan early in 2023.