Ottawa’s environment ministry is floating possible changes to carbon-pricing rules for industry that are stoking fresh anxiety in

the oilpatch , with industry groups and experts warning the proposals could conflict with the

Carney government ’s push to increase energy exports. In a discussion paper outlining the potential changes, Environment and Climate Change Canada says it is looking to strengthen Canada’s industrial carbon markets, which have suffered from weak prices in recent years. But industry and independent experts say the measures will also raise costs for energy and manufacturing companies facing tougher global competition.

“It would have very negative consequences for jobs and businesses across Canada, not just within oil and gas,” said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents natural gas and conventional oil producers.

“It’s an extreme approach that provides very little flexibility to the (businesses) it would apply to. It’s very costly to implement and it looks like it’s designed, quite frankly, by a group of academics that don’t have any real business sense.”

In its paper, the federal environment ministry argues its aim is to protect competitiveness while reducing emissions, and it invited industries and stakeholders to provide feedback by Jan. 30.

The proposals arrive at a sensitive moment as Alberta and Ottawa negotiate a carbon-equivalency agreement under their recent bilateral memorandum of understanding on energy. While such a deal could exempt the province from adopting many of the proposed measures, uncertainty over the outcome of those talks — and over the direction of federal climate policy — has rattled producers in the oilpatch.

The discussion paper has also surfaced a potential fault line in the industry, as Ottawa floats the possibility of dramatically expanding carbon pricing to cover smaller emitters.

One option under consideration would slash the minimum emissions threshold for mandatory carbon pricing from 100,000 tonnes a year to 10,000 tonnes — and lower still for conventional oil and gas — a move that could pull hundreds of smaller operators into the system for the first time.

Critics say the move would disproportionately raise regulatory burdens on smaller companies — including producers pumping as little as 500 barrels per day with a handful of employees — for minimal cuts to overall emissions, according to ARC Energy Research Institute analysts.

The report also raises options that would tighten systems like Alberta’s industrial carbon market by requiring them to ensure demand for carbon credits exceeds supply, reducing excess credits and narrowing the ways companies can lower their carbon bill.

Industry leaders have argued the proposals run contrary to the stated goals of the Carney government to increase Canadian energy exports and could contradict parts of the recent Canada-Alberta memorandum of understanding on energy.

The Canadian Association of Petroleum Producers called the proposals “fundamentally misaligned” with the direction of the prime minister and with commitments contained in the MOU on carbon policy.

“The consequences of uncompetitive and punitive carbon policy are production decline and lower investment, contrary to the government’s stated goal of becoming an energy superpower and the fastest-growing economy in the G7,” CAPP

wrote in response to the report. “The dissonant signals to investors from Canada’s national economic vision articulated over the last several months and from the release of the (government’s) discussion paper need to be urgently reconciled.”

The group also warned recently finalized changes to federal methane regulations could cost industry up to an additional $14.6 billion, if Ottawa is unable to reach a new methane emissions equivalency agreement with Alberta.

But environmental groups and climate policy analysts say the Carney government must act on its promise to tighten carbon markets that have seen an oversupply of credits, with prices falling well below federal benchmark levels in key provinces like Alberta.

“Carbon markets aren’t working in Canada yet, so clearly, reform is needed,” said Michael Bernstein, head of the Canadian climate non-profit Clean Prosperity.

“Alberta’s system, which is more than half of Canada’s entire market, has credits trading around $40 a tonne. And so you’re just not going to have companies motivated to decarbonize when the reward for decarbonizing is $40 a tonne. It’s just not enough money to justify the often billion-dollar-plus price tag of the capital they have to deploy to decarbonize.”

An analysis by Clean Prosperity suggests the costs for the average oilsands producer under Alberta’s system could rise to $2.35 per barrel by 2030, from $0.59 per barrel in 2024, if carbon credit prices reach $130 per tonne.

The viability of large-scale decarbonization projects, such as the Pathways Alliance’s major carbon capture project, hinges on carbon prices rising high enough to generate substantial revenue from carbon-credit sales.

Pathways Alliance , which represents five of the biggest oilsands firms, declined to comment on the federal discussion paper — or on negotiations underway with the provincial and federal governments on a three-way deal to deliver carbon-capture and other emissions-cutting projects tied to a potential new bitumen pipeline.

While higher carbon prices may help to justify major investments like Pathways, many conventional oil and gas producers — most of which are not pursuing carbon-capture mega-projects — warn that tighter rules would translate to higher costs, with few practical options to reduce emissions.

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Even a modest cost increase, according to some industry leaders and analysts, could be enough to divert investment away from Canada.

“Any additional cost in this price environment, whether it’s 25 cents per barrel or 50 cents per barrel, will basically result in the investment going somewhere else, because there’s just better opportunities in other parts of the world,” Goodman said.