Proposed Amendments to the Federal Methane Regulations for the Oil and Gas Sector - Technical backgrounder

Published on December 4, 2023

Overview of methane and volatile organic compounds

Methane is the main component of natural gas that is used to power many parts of the economy, from heating of buildings to transportation, to industrial processes. In its pure state, it is a colourless, odourless, and flammable gas.

Methane is a potent greenhouse gas. Scientists estimate that it is responsible for 30 per cent of observed global warming to date and warn that global levels of atmospheric methane continue to rise.  Methane is classified as a short-lived climate pollutant, meaning it stays in the atmosphere for a short time compared to other gases like CO2. As a result, actions to cut methane emissions will quickly lower their atmospheric concentrations and lead to a relatively quick climate response. Taking action to reduce emissions is one of the fastest, most cost-effective things we can do to fight climate change, protect our environment, and keep our air clean.

Lowering methane emissions can also have positive impacts on air quality and public health. Volatile organic compounds (VOCs) in the oil and gas sector are released from many of the same venting and fugitive sources as methane. VOCs are precursors to the formation of ground-level ozone (O3) and particulate matter (PM), which are the main constituents of smog. Smog is known to have adverse effects on human health and the environment.  It causes serious health problems such as reduced lung function and asthma attacks, and is responsible for half a million premature deaths globally.

Methane is included in the list of toxic substances under Part 2 of Schedule 1 of Canadian Environmental Protection Act (CEPA).

In 2021, the oil and gas sector was the largest industrial emitter of methane in Canada, accounting for about 40 per cent of Canada’s methane emissions.

The majority of methane emitted from Canada’s oil and gas sector is released as fugitive emissions or from venting sources. Fugitive emissions include unintentional releases of methane from pressurized equipment, whereas venting emissions include intentional releases of methane from normal equipment operations (e.g., to control pressure), or from specific oil and gas activities (e.g., well completions). Fugitive and deliberate venting of methane emissions occur during the extraction, production, processing, and transportation of crude oil and natural gas. Lowering methane emissions from these sources can often be achieved with a low cost to oil and gas companies, as captured methane can be sold or used as a useful source of energy.

Federal regulations to reduce methane emissions in the oil and gas sector (2018)

The Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds (Upstream Oil and Gas Sector) were initially finalized in 2018 under the Canadian Environmental Protection Act, 1999. They were designed to help Canada achieve its target to reduce methane emissions by 40 to 45 per cent below 2012 levels by 2025 from the oil and gas sector. They apply to upstream oil and gas facilities located both onshore and offshore.

These regulations set facility level restrictions on the amount of methane that can be vented, restrict emissions from pneumatic devices and require industry to regularly inspect their equipment to ensure that no unintentional emissions are occurring.

Equivalency agreements are currently in place until 2024 for Saskatchewan and 2025 for Alberta and British Columbia.

Requirements under the proposed Amendments (December 2023)

The proposed Regulatory amendments are intended to ensure a reduction of methane emissions in the upstream oil and gas sector by at least 75 per cent below 2012 levels by 2030. This would be achieved by expanding the scope of the existing Regulations, introducing a focus on maximizing emission reductions, removing some exclusions, and ensuring all practical actions to lower emissions  that are considered both achievable and cost effectiveare in place by 2030.

For interested regulatees, the proposed Amendments also introduce a performance-based standard and compliance pathway option focused on emissions outcomes, rather than prescribing specific actions. This provides industry with the flexibility to manage methane reduction activities that best work for them provided they are able to undertake standardized monitoring, reporting and verification of their efforts.

Regulatory approach

The proposed amendments target key emissions in the oil and gas sector:

Flaring, other than to avoid serious risk to human health or safety arising from an emergency, must be supported by an engineering study examining options for the use of hydrocarbon gas to produce useful heat or energy.

The requirements related to managing fugitive emissions would come into force for all facilities in 2027. Also starting in 2027, facilities increasing gas production would need to design and operate systems to eliminate venting and to follow other new requirements such as limits on flaring. All facilities in the oil and gas sector would be subject to the new requirements in 2030. This implementation approach spreads compliance costs across several years and allows some facilities to delay investments for compliance purposes, or, in some cases, would allow late life-cycle production sites to avoid new capital investments.

Performance based approach

This proposed measure sets out an alternative pathway for compliance (with the regulatory approach) and includes a performance standard that would rely on the installation of continuous monitoring systems to monitor the facility’s potential methane emission sources. Upon detection of methane emissions, a mitigation response must be initiated according to timelines dictated by the emission rate. By following this alternative approach, operators would be exempt from the other requirements of the regulation.

Anticipated benefits and costs

Reducing methane emissions is one of the lowest-cost actions Canada can take to reduce greenhouse gases. Environment and Climate Change Canada estimates that the cost to comply with the draft regulations will be about $70/tonne of greenhouse gas emission reductions. Other estimates from independent experts indicate that the actual cost could be even lower than this already conservative estimate.

Costs to industry include its expenditures in new equipment, leak detection and repair activities, and administration costs. The average annual regulatory compliance costs (from 2018-2035) are expected to be less than a single percent (0.8 per cent) of the total expenditures oil and gas companies made in 2016.

From 2027 to 2040, the proposed Amendments are estimated to result in incremental costs of $15.4 billion, while the cumulative GHG reductions are estimated to be 217 Mt of CO2e, valued at $27.8 billion in terms of the estimated social benefits of avoided global damages. The monetized net benefits of the proposed amendments are estimated to be $12.4 billion.

Send your feedback

Help shape Canada’s updated oil and gas methane regulations. Starting on December 16, 2023, Environment and Climate Change Canada will accept feedback on the draft regulations until February 14, 2024. The final regulations are expected to be published in the Canada Gazette, Part II, in late 2024. Comments are requested to be submitted through the new Online Regulatory Consultation System (ORCS).


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