The goal of the system, which would be phased in over several years, would be to reduce emissions to 27 percent below 2026 levels or 35 percent below 2019 levels.

The Canadian sector is among the top four producers in the world and is the largest single source of CO2 pollution in Canada, responsible for 31 percent of local greenhouse gas emissions in 2022.

The government said tackling climate change and meeting its emissions reduction targets required action to curb emissions in the sector.

Oil-rich provinces such as Alberta and business groups have already balked at the measures they claim would limit oil and gas production -- which Ottawa rejects.

Canada's oil and gas sector accounts for "more than double the combined pollution from all other heavy and light industries," Environment Minister Steven Guilbeault told a news conference.

The government's plan "goes after pollution, not production", he said, adding that it incentivizes companies to invest in technically achievable decarbonization using technology such as carbon capture and sequestration.

Government modelling showed oil and gas production actually increasing 16 percent between 2019 and 2030-2032 under the proposed regulations.

"No other major oil and gas producer is doing what we're doing -- the United States, the United Kingdom, Norway, the Gulf states. We're the only large oil and gas producer in the world to do this," he said.

The proposed rules would apply to upstream oil and gas activities including offshore oil and gas production, Alberta oil sands production and upgrading, and natural gas production and processing, including liquefied natural gas (LNG).

Companies would be allocated emissions allowances and if they go over those thresholds they would be permitted to buy allowances from others that have reduced their greenhouse gas emissions.

Starting in 2027, large oil and gas sector emitters would be first to report their previous year's annual emissions, followed by smaller operators in 2029.

The emissions cap would apply in 2030.

The Canadian oil and gas sector, which accounts for 25 percent of exports and contributed Can$209 billion (US$150 billion) to the Canadian economy last year, posted record profits of Can$66 billion in 2022, but has also seen a drop in investment.

"At a time when Canada's economy is stalling, imposing an oil and gas emissions cap will only make Canadians poorer," the Business Council of Canada said in a statement. "Strong climate action requires a strong economy. This cap will leave us with neither."

In an advertising campaign, Alberta province slammed the federal proposal as "reckless and extreme."

Environmental groups including the Climate Action Network called the long-sought regulations "a historic first" and "good news."