Imperial Oil (IMP) Risk Analysis

Government actions intended to reduce greenhouse gas emissions include adoption of carbon emissions pricing, cap and trade regimes, carbon taxes, emissions limits, increased mileage and other efficiency standards, low carbon fuels standards, mandates for sales of electrical vehicles, restrictions on sales of gasoline-only vehicles, mandates for disclosure of plans to reduce emissions or reduce the use or production of certain products, mandates for use of specific fuels or technologies, and other incentives or mandates designed to support certain technologies for transitioning to lower-emission energy sources. International accords and underlying regional and national regulations covering climate change and greenhouse gas emissions continue to evolve with uncertain timing and outcome, making it difficult to predict their business impact. Such laws and policies could make the company's products more expensive or less competitive, reduce or delay available business opportunities, reduce demand for hydrocarbons, and shift hydrocarbon demand toward lower greenhouse gas emission energy sources. Current, pending and potential greenhouse gas regulations or policies may also increase compliance costs (such as complying with increased or mandatory disclosure or due diligence requirements and government mandated energy transition plans), increase abatement costs including taxes and levies, increase abandonment and reclamation obligations and impact decommissioning timelines, lengthen project evaluation and implementation times, impact reserves evaluations and affect operations. Increased costs may not be recoverable in the marketplace, could negatively affect the company's returns and could reduce the global competitiveness of the company's crude oil, natural gas and refined products. In 2024, the Government of Canada updated its nationally determined contribution (NDC) under the Paris Agreement on climate change, to reduce greenhouse gas emissions economy-wide by 45 to 50 percent below 2005 levels by 2035, a substantial increase in ambition beyond its original and prior NDC. To implement these goals, the Government of Canada uses a number of policy tools including the Greenhouse Gas Pollution Pricing Act (GGPPA), which sets a federal backstop carbon price Canada-wide through a carbon levy applied to fossil fuels ($50 per tonne CO2 equivalent emissions starting in 2022 and increasing by $15 per tonne annually to $170 per tonne in 2030), and an output-based pricing system for large industrial emitters. Under the GGPPA, provinces are required to either adopt the GGPPA, or obtain equivalency by adopting a price-based system (with a minimum of the federal carbon pricing) or a cap and trade system. Further, in 2021 the Government of Canada enacted legislation to formalize Canada's target to achieve net-zero emissions by 2050 and establish interim emissions reductions targets at five year intervals. Under the Canadian Net-Zero Emissions Accountability Act, the Government of Canada is required to develop an emissions reduction plan for 2030 consistent with achieving net-zero emissions by 2050, and additional sector specific regulations may be developed to achieve this target. Under a November 2025 Memorandum of Understanding between the Government of Canada and the Government of Alberta, Canada and Alberta both confirmed they remain committed to achieving net zero greenhouse gas emissions by 2050. The Government of Alberta obtained federal equivalency for its Technology Innovation and Emissions Reduction Regulation (TIER) that came into effect in 2020 and applies to facilities with CO2 emissions in excess of 100,000 tonnes per year. TIER is designed to reduce emissions by putting a price on a nominal percentage of a facility's emissions, which percentage increases annually in accordance with TIER (for oil sands mining and upgrading facilities, the percentage has increased from 20% for 2020 to 26% for 2026, and is to continue to increase to 38% by 2030 under current regulations). In a November 2025 Memorandum of Understanding, the Government of Canada and the Government of Alberta committed to work collaboratively to design and commit to globally competitive, long-term carbon effective prices, carbon levy recycling protocols, and sector-specific stringency factors for Alberta emitters in the oil and gas and electricity sectors through Alberta's TIER system, which will ramp up to a minimum effective credit price of $130 per tonne, although the date for introduction of the effective price and the rate of price increases over time remain to be determined. In December 2025, the Government of Alberta introduced a compliance pathway under TIER allowing facilities to earn compliance credits though investments in approved emissions-reduction projects in Alberta. Further, the Alberta Oil Sands Emissions Limit Act sets a limit of 100 megatonnes of CO2 per year of emissions in the oil sands sector, but oil sands emissions remain below the limit and it is not yet possible to predict the impact of this act on the company's future oil sands operations in Alberta. With respect to other provinces, Ontario obtained federal equivalency for its Emissions Performance System, which put a price on 8 percent of a facility's emissions in 2022. The price increased by 2.4 percent in 2023 and 1.5 percent in 2024, and will increase by 1.5 percent per year thereafter. British Columbia has carbon pricing in place for all industrial emissions, with pricing that matches the federal carbon pricing schedule since 2022. Increases in carbon pricing could adversely impact the company's operations and financial results unless the company can adapt its operations through technological innovation and investment in a cost-effective manner or meet compliance through offset credits or other mechanisms. There are also various renewable and low carbon fuel standards being developed or already applicable to the company's products. In 2022, the Government of Canada finalized the Clean Fuel Regulations, which require the reduction in carbon intensity of liquid transportation fuels supplied in Canada starting in July 2023. The regulations require fuel suppliers to reduce the carbon intensity of gasoline and diesel by reducing the GHG emissions within the fossil fuel life cycle, blending in low carbon intensity renewables or fuel switching away from fossil fuels. Similarly, British Columbia introduced a Low Carbon Fuel Standard in 2013, which increased to a 10 percent carbon intensity reduction requirement in 2020. Beginning in 2023, the British Columbia government has further increased the carbon intensity reductions to a total of 30 percent by 2030 (compared to the 2010 baseline). Compliance can be achieved by either blending renewable fuels with low carbon intensity or by purchasing credits. In 2025, both Ontario and British Columbia introduced domestic (Canadian) renewable fuel content requirements into their provincial fuel regulations. The Government of Canada's Impact Assessment Act links environmental assessment approvals to climate change-related goals, and has also discussed a goal of establishing legally-binding policies for being carbon-neutral by 2050. Changes and policies related to this act could adversely impact the company's ability to progress new oil sands projects. Uncertainty exists regarding federal overreach into provincial jurisdiction to implement such changes and policies. In October 2023, the Supreme Court of Canada ruled that the Impact Assessment Act was unconstitutional in part. In November 2024, Alberta referred the constitutionality of the amended Impact Assessment Act to the Court of Appeal of Alberta. The impact of this legislation is not fully apparent. Governments may also impose restrictions on production of, or emissions from, oil and gas and electricity to the extent they view such measures as a viable approach for pursuing national and global energy and climate policies. For example, following the publication of a regulatory framework in December 2023, in November 2024, the Government of Canada released proposed regulations that will impose a cap on greenhouse gas emissions from upstream oil and gas activities by 2030, and in December 2024 the Government of Canada released final Clean Electricity Regulations that will require reductions in the carbon intensity of electricity provided to the grid between 2035 and 2050. Although the Government of Canada and Government of Alberta entered into a Memorandum of Understanding in November 2025, under which the Government of Canada committed to not implement the oil and gas emissions cap and to suspend the Clean Electricity Regulations in Alberta pending a new carbon pricing agreement with Alberta to be negotiated in 2026, many details remain to be determined and uncertainty about the future of these policies remains. Concern over the risks of climate change may lead governments to make laws applicable to the energy industry progressively more stringent over time. Political actors, non-governmental organizations, and their agents also seek to collectively advance climate change objectives indirectly, such as by seeking to reduce the availability or increase the cost of financing and investment in the oil and gas sector. These actions include delaying or blocking needed infrastructure, utilizing shareholder governance mechanisms against companies or their shareholders or financial institutions in an effort to deter investments in oil and gas activities, and taking other actions intended to promote changes in business strategy for oil and gas companies.