Parliamentary Budget Officer Says Oil & Gas Cap Will Harm Canadian Economy: REPORT

Parliamentary Budget Officer Says Oil & Gas Cap Will Harm Canadian Economy: REPORT

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PBO emissions cap report says Canada will lose jobs and GDP

Yet another report, this time by Canada’s Parliamentary Budget Officer (PBO), has concluded that the oil and natural gas emissions cap will take a bite out of the economy at a time when Canadians can least afford it [1].

The proposed cap—which many organizations including the Canadian Chamber of Commerce, Fraser Institute, Deloitte, and Montreal Economic Institute, agree will also reduce production—is projected to lower Canadian real gross domestic product (GDP) by 0.39% in 2032 and reduce nominal GDP by $20.5 billion. This is on top of an economy-wide reduction in employment by 40,300 jobs and full-time equivalent by 54,400 in 2032.

How come there are adverse economic effects? You guessed it: the PBO’s analysis, in line with the other organizations above, estimates that the required reduction in oil and gas sector production levels will essentially limit Canada’s full output potential [2]. A post-release of the PBO’s report clarified that instead of production levels 17% higher over 2030 to 2032, the cap would limit Canadian production by 5.9%, down to 11.1% higher versus 2022 levels [2].

At a time when Canada:

  1. Just experienced an entire decade of near-stagnant GDP per capita growth
  2. Is expected to have the second-worst GDP per capita growth among 30+ OECD countries through 2040
  3. Has alarmingly weak labour productivity levels compared to our competitors with the Bank of Canada sounding the alarm in 2024
  4. Is seeing our standard of living drop
  5. Has also seen $670 billion in cancelled or suspended forestry, mining, and energy projects over the past decade

…it becomes abundantly clear that Canadians cannot afford any more suffocating regulatory policies that hinder the development of our job-creating, prosperity-generating natural resource sectors.

Below, we review the main highlights from the PBO’s report on the oil and gas emissions cap so you don’t have to. Also see:

REPORT HIGHLIGHTS

• To achieve regulatory compliance under the proposed cap, Canada would have to reduce production in conventional, oil sands, and natural gas and processing sectors by 4.9% over 2030 to 2032

• Canada’s required reduction in upstream oil and gas production will decrease Canada’s real GDP by 0.39% in 2032 and reduce nominal GDP by $20.5 billion

• While some of the reduction in real GDP reflects a loss of productivity (that is, real GDP per hour worked), most of the economic loss reflects both lower employment and lower average hours worked in 2032

• Achieving the legal upper bound over the cap’s first compliance period will reduce economy-wide employment in Canada by 40,300 jobs and full-time equivalents by 54,400 in 2032

Other Oil & Gas Cap Studies with Similar Findings

Goldy Hyder says emissions cap will make Canadian poorer

The PBO joins a handful of other organizations who have also studied the proposed oil and gas cap. Like the PBO, they have also found similar results, concluding that the policy would have an adverse effect Canadian jobs and the economy at large.

Conference Board of Canada:

The Conference Board of Canada estimates that the oil and gas production cap could:

  • Reduce employment in Canada anywhere from 82,000 to 151,000 jobs nationwide by 2030
  • Reduce Canada’s gross domestic product (GDP) by up to $1 trillion between 2030 and 2040
  • Reduce federal government revenue by up to $151 billion between 2030 and 2040

Montreal Economic Institute (2022 & 2024):

MEI says that Canada’s oil & gas production/emissions cap could:

  • Reduce Canada’s GDP by anywhere between $44.8 billion and $79.3 billion annually
  • Reduce production to an equivalent volume of Canada’s total current annual exports
  • Reduce exports to Canada’s trading partners, who would have to find energy sources elsewhere – likely from less reliable, less transparent, and undemocratic countries
  • In 2024, the MEI reported on how the emissions/production cap could cost Canada up to 112,900 jobs by 2040

Deloitte:

Deloitte says that Canada’s oil & gas production/emissions cap could:

  • Reduce Canadian oil production by 10%
  • Reduce Canadian natural gas production by 12%
  • Reduce jobs in the country by 90,000 between 2030 and 2040
  • Create a permanent economic downtown equivalent to $191 billion of lost activity in Alberta
  • Create a permanent economic downtown equivalent to $91 billion of lost activity in the rest of Canada

Fraser Institute:

Canada’s oil and gas production cap could:

  • Move global oil and gas production away from Canada to other jurisdictions abroad
  • Result in significant economic losses across the country
  • Harm Canada’s petrochemical and plastics sectors

Canada the Only Country to Cap Oil & Gas

Danielle Smith says oil and gas cap will make life more unaffordable

Currently, Canada is the only major oil and gas producer set to cap emissions. Let’s worth stepping back for a moment, and asking ourselves “Why that is?”

No other country worldwide would cap its oil and gas production because it’s just a terrible idea.

The oil and gas sector is a massive contributor to our economy at large. It accounts for 900,000 jobs, one-quarter of our total exports (2023, by value), and is expected to generate $1.1 trillion in government revenues from 2000 to 2032, funds used to pay for our critical social programs that support our standard of living.

Canadians Cannot Afford an Oil & Gas Production Cap

Gabriele Giguere says reducing local oil and gas supply will cede market share to global competitors

Global oil and natural gas demand is growing and is projected to reach new record highs in the decades ahead. Several important questions remain:

  • If Canada chooses to limit its oil and natural gas production under an emission cap, how does that benefit Canadians or the world?
  • Does reducing Canada’s ability to meet growing energy demand keep oil and gas in the ground?
  • Will the cap enhance global energy security or make the Canadian economy stronger and more prosperous?

Limiting Canada’s capacity to supply the world with the oil and gas it needs does none of the above. All this does is make Canadians poorer by foregoing the massive economic opportunities that go with stepping up to meet global energy demand.

Canada has shot itself in the foot for too long. It’s time to change course, reduce regulatory barriers, and build new trade infrastructure that will help our country diversify its export markets and take control of our economic independence.

The proposed oil & gas production cap is not compliant with the future path Canadians must take to secure our economic future. All this ill-conceived policy will do is drag Canada down while we’re trying to step upwards and reverse course.

SOURCES:

1 - https://www.pbo-dpb.ca/en/publications/RP-2425-032-S--impact-assessment-oil-gas-emissions-cap--evaluation-incidence-plafond-emissions-secteur-petrolier-gazier

2 - https://www.pbo-dpb.ca/en/additional-analyses--analyses-complementaires/BLOG-2425-010--impact-assessment-oil-gas-emissions-cap-factual-information--evaluation-incidence-plafond-emissions-secteur-petrolier-gazier-donnees-factuelles