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OTTAWA — Prime Minister Mark Carney’s government is signalling it could scrap the proposed cap on emissions from the oil and gas sector, shifting instead toward strengthened industrial carbon pricing, expanded carbon capture incentives and updated methane regulations. The change is outlined in the 2025 federal budget and the government’s new climate competitiveness strategy, which argues the cap would have “marginal value” if other measures drive sufficient emissions cuts.
The emissions cap, first proposed under Justin Trudeau, was never legislated or in force. Draft regulations would have required the sector to cut emissions by up to 35 per cent below 2019 levels by 2030. Alberta Premier Danielle Smith and Conservative Leader Pierre Poilievre had both urged Ottawa to abandon the policy, arguing it would restrict production in the oil sands. Carney’s budget says a combination of effective carbon markets, tougher methane rules and large-scale technologies such as carbon capture and storage could make a cap unnecessary.
Instead, the federal government plans to tighten its industrial carbon pricing system — known as the output-based pricing system — and apply it in provinces that fail to meet federal benchmarks. Alberta has frozen its industrial carbon tax, while Saskatchewan has paused its program entirely. Carney’s plan promises to “promptly and transparently” impose a federal backstop in any jurisdiction that falls short. The government also intends to map out a long-term pricing trajectory to 2050 to give industry certainty.
Oil sands producers have warned that stricter industrial carbon pricing could undermine their competitiveness, but many in the sector prefer it to an outright emissions cap. The budget specifically references the Pathways Alliance — a group of six major oil sands companies — and its proposed $16-billion carbon capture and storage network in northern Alberta. Ottawa is extending its investment tax credit for carbon capture projects by five years to help support the proposal, which Finance Minister François-Philippe Champagne called potentially “transformative.”
The budget also commits to maintaining and updating Trudeau-era policies such as clean electricity and methane regulations, while reviewing the clean fuel standard. However, it walks back recent changes to the Competition Act aimed at curbing “greenwashing,” saying those rules created investment uncertainty. The government says it will still prohibit false environmental claims, but companies will no longer have to substantiate every statement using third-party metrics, and outside groups will lose the ability to challenge claims before the Competition Tribunal.
Environmental groups say the shift away from an emissions cap and continued support for carbon capture risks prolonging fossil fuel production in the oil sands. Industry and Alberta see it as a compromise that supports jobs and investment while lowering emissions intensity. Carney has said his focus is on “results over objectives,” signalling a willingness to abandon specific targets if companies can prove emissions decline without limiting output. The future of the oil sands under the strategy will depend on whether promised technologies, including carbon capture and methane reduction, can deliver deep reductions at scale.
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