Thanks for this opportunity to appear.
In my remarks, I'm just going to focus on two challenges. The first is setting the level of the greenhouse gas cap, and the second is the design of a policy mechanism to achieve the cap, and I'm sure you're hearing a lot in both of those areas.
First, with setting the level of a greenhouse gas emissions cap, we need to clarify that this is an emissions cap, not a production of oil and gas cap. That might seem obvious to everyone here, but I hear a lot of environmentalists who will talk about a mandated decline in oil and gas production. This would be unnecessarily harmful to fossil fuel-endowed regions in our country and probably would be unconstitutional as a federal policy anyway.
Second, though, understand that an emissions cap that ultimately reaches zero is already technically feasible today, so this case on the other side.... There are environmentalists on one side and industry on the other. I hear people saying that it's not technically possible to get to zero emissions and that we're going to need offsets or other things, and that's not true, and it wasn't true 20 years ago. The issue is cost, of course, and more innovation would certainly help to decrease the cost, but we can get to zero now. We have the technologies.
The third point is to aim for a cap where the incremental costs of additional greenhouse gas reduction in the oil and gas sector in, say, 2030, 2040 or 2050 should approximate the incremental costs of reductions in other sectors. The idea is that you do that because this minimizes the cost to your whole economy of reducing greenhouse gases, but there is a qualification to that. The cost to the economy of greenhouse gas reduction in trade-exposed industrial sectors like oil and gas as well as steel, chemicals, aluminum and cement will be greater if Canada's policies are more stringent than those of the industries' foreign competitors.
In practice, this means that, while we might have a 40% national reduction target for 2030, we might require significantly more than a 40% reduction in some of our domestic sectors like electricity, transport, buildings and land use, and perhaps only a 15% to 25% reduction in trade-exposed sectors like oil and gas. I've also heard people say that the national target is this and therefore that's the cap level in oil and gas, and that, again, doesn't make sense to me.
In terms of the mechanisms—the second part of my talk—to achieve the cap, there's much to discuss here. Obviously in an opening comment I can't say a lot, but I would say that, given the importance of oil and gas in total Canadian emissions—some 25% and above—and its role in producing secondary energy products whose combustion is the main cause of climate change, it might be administratively easiest to remove oil and gas from the current output-based pricing system and establish its own sector-specific cap and trade system.
Within that system, producers within the oil and gas sector would of course trade with each other, and you would try to set it up in the way that Ms. Hastings-Simon was talking about, although I'm not sure you need to auction all the permits. Those are big discussions that one can have. Also producers within the sector could acquire lower-cost external kinds of offsets; but I'm talking about offsets that really do take CO2 from the atmosphere and put it underground, not the offsets that many of us analysts are finding somewhat bogus in many cases. Instead, it would be extracting CO2 from the atmosphere, something called direct air capture. We have the technologies now. They're in their early stages in burying the CO2 underground or even bioenergy capturing the CO2 and putting that underground.
My final point is that governments, whether federal or provincial, enacting the policy will want to adjust the sector target. So there's going to be some signalling from the federal government, and we may need to provide some public support to sustain the competitive position of Canada's oil and gas industry relative to foreign competitors in jurisdictions with laggard greenhouse gas efforts.
That was the point I was making earlier. You're going to look at what you achieve in oil and gas, and it can be different or less ambitious because it's a trade-exposed sector, and you may even provide some kinds of public support.
I will end my comments there and thank you very much for your attention.