Coming into 2025, Canada’s environmental and energy regulatory continues to be dominated by disagreements between the provinces and the federal government over climate change initiatives and restrictions on energy production. This overarching theme closely parallels that of last year’s publication, which demonstrates that many of the fundamental issues and tensions confronting the Canadian energy industry have yet to be solved. Oil and gas development, changes to federal environmental assessment and the electricity market were the subject of regulatory headlines in 2024 and we expect that trend will continue in 2025. Fortunately, from the perspective of industry proponents who favour a reduction in federal oversight, many of those headlines were considered “wins,” signalling a shift back towards provincial autonomy and a business-friendly regulatory environment after years of uncertainty and frustration. Whether that trend continues will be the subject of debate in Canada’s 2025 federal election that must take place by October, but appears likely to occur in the spring to this year.

Regulatory developments to monitor in 2025

Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations

In November 2024, Canada announced the latest version of the proposed Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations (the Proposed Emissions Cap). The Proposed Emissions Cap aims to use a cap-and-trade system to reduce emissions by 35% below 2019 levels by 2030. If the Proposed Emissions Cap is approved and enacted, it will be phased in beginning in 2026. Producers would be required to reduce their emissions or purchase "allowances" from other facilities that have reduced their emissions. Emissions from refining and midstream and downstream distribution would not be subject to the Proposed Emissions Cap. The Government of Alberta and the oil and gas industry oppose the Proposed Emissions Cap and argue that it serves as a de facto production cap.¹ Moreover, opponents argue that the federal government lacks the constitutional jurisdiction to impose the Proposed Emissions Cap and would be in violation of Section 92A of the Constitution Act which states that energy production is under the control of the provinces. The Proposed Emissions Cap is currently undergoing a feedback period, and the final and binding regulations are not expected to be released until late 2025. If the Proposed Emissions Cap becomes law, the Canadian oil and gas industry is likely to be significantly harmed, given that Alberta aims to double crude oil production in coming years.² It is unlikely that the Proposed Emissions Cap would survive a change in government at the federal level. A long running legal dispute may find a quick political solution at the polls.

Clean Electricity Regulations

Electricity generation is also a significant source of regulatory uncertainty. In December 2024, the federal government released the finalized Clean Electricity Regulations that aim to create a net-zero electricity grid by 2050.³ The first draft of the Clean Electricity Regulations was released in 2023 and required all electricity to be generated by renewable sources (e.g., wind, hydro or solar) or by conventional sources equipped with carbon-capture technology by 2035. However, political and industry response to the first draft of the Clean Electricity Regulations was overwhelmingly critical and argued that creating a net-zero electricity grid by 2035 was too ambitious and would be irreparably expensive and damaging to business. The Government of Alberta threatened to invoke the Alberta Sovereignty Within a United Canada Act. In response to the political and industry pushback, the finalized Clean Electricity Regulations mark a significant shift in federal policy, pushing the goal to create a net-zero electricity grid back by 15 years to 2050. Moreover, the impactful sections of the Clean Electricity Regulations would not come into force until 2035 rather than 2025.⁴ Political and industry response welcomed the more realistic timeline but continued to argue that the federal government was an unconstitutional infringement on provincial powers. Much of the electricity generated in the coming years will power the numerous data centres that are popping up across Canada. Data centres are large facilities which house computer systems for many applications including cloud storage, cryptocurrency mining, and artificial intelligence. A 2024 report from the International Energy Agency predicts that global energy demand from data centres will double between 2022 and 2026.⁵ Canada (Alberta in particular) is becoming an attractive location for data centre investment because of the availability of a secure supply of low-cost natural gas to power data centers, a cooler climate (which helps reduce cooling costs), and the potential of carbon sequestration and storage to mitigate emissions risks if necessary. Again, a change in government at the federal level would likely see the repeal of these regulations in deference to provincial regulation of the electricity sector, ending the threats of constitutional litigation.

Federal Environmental Assessment and the Impact Assessment Act (IAA)

The federal government had just finished amending the IAA to address the Supreme Court of Canada’s declaration of invalidity. The changes had not satisfied the province which had challenged the legislation in court and the legal battle was set to continue. Again, a change in government will likely end the litigation. An outright repeal of the IAA is a possibility, but even if it were to survive a change in government, amendments are likely to result in far more federal deference to provincial environmental assessment and regulation.

Oil sands mining effluent and woodland caribou protections regulations

Other regulatory trends to keep an eye on in 2025 include the proposed oil sands mining effluent regulations and woodland caribou land-use regulations. Oil sands mines use hot water to separate bitumen from sand. Oil sands operators then store this process-affected water in large tailings ponds before it is then reused. However, despite reusing the process-affected water, oil sands operators still require additional fresh water, which is primarily sourced from the Athabasca River system. Regulations are being proposed to allow treated process-affected water to be released back into the Athabasca River system. Woodland caribou habitat covers large portions of several Canadian provinces. Regulations are being implemented across the country to protect the woodland caribou primarily by limiting the creation of surface disturbances and right-of-ways (e.g., pipelines, electricity transmission lines, seismic lines, logging cut blocks, etc.) that break up caribou habitat and provide predators like wolves and bears with easier access to caribou herds. Regulations protecting woodland caribou may affect many industries across Canada, including oil and gas, logging, mining and electricity generation and transmission.

The caribou protections are being driven by federal regulation under the Species at Risk Act (SARA) and are the subject of judicial directions as a result of litigation brought be environmental groups. Likewise, purported federal jurisdiction over fisheries forms the basis for establishment of water release criteria. In both instances greater cooperation between the federal and provincial governments may address uncertainty that industry faces in these areas. What we may see in response is litigation by environmental groups challenging what may be perceived as a retrenchment from the exercise of federal powers in relation to the environment. The result may be a new litigation trend starting in 2025 confronting changes in federal policy and regulation after the next election.

For more information on these topics, please reach out to the author, Bernard J. Roth.

The author would like to thank articling student Ben Kriwokon for his assistance with this article.

This article is part of the Dentons' Canadian Regulatory Trends to Watch in 2025 series. To read other articles in this series, click here.

Stay up-to-date with all insights and guidance from our regulatory team by visiting our Canada Regulatory Review blog.

1. Government of Alberta, “Proposed Federal Oil and Gas Emissions Cap Regulatory Framework: Government of Alberta Technical Submission” (5 February 2024), online (PDF): https://open.alberta.ca/dataset/3b91d1bc-2dd1-4b66-a9e5-81a716742969/resource/cc7e257a-1267-41f1-b0da-6cfd9d75baa5/download/epa-proposed-federal-oil-gas-emissions-cap-regulatory-framework-alberta-technical-submission-202.pdf.↩
2. Government of Alberta, “Taking action to double Alberta’s oil production” (6 January 2025), online: https://www.alberta.ca/release.cfm?xID=926075BE3672A-E622-1917-DEC78FF814EFCF09.↩
3. Environment and Climate Change Canada, “Powering Canada’s Future – Canada’s final Clean Electricity Regulations” (December 2024), online: https://www.canada.ca/en/environment-climate-change/news/2024/12/powering-canadas-futurecanadas-final-clean-electricity-regulations.html; Clean Electricity Regulations, SOR/2024-263.↩
4. Clean Electricity Regulations, SOR/2024-263, s 53.↩
5. International Energy Agency, “Electricity 2024: Analysis and forecast to 2026” (January 2024), online (PDF): https://iea.blob.core.windows.net/assets/18f3ed24-4b26-4c83-a3d2-8a1be51c8cc8/Electricity2024-Analysisandforecastto2026.pdf.↩