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By Tegan Hill and Elmira Aliakbari
The Memorandum of Understanding (MOU) between Alberta Premier Danielle Smith and Prime Minister Mark Carney, which includes a new oil pipeline to BC’s northwest coast, offers some hope for Canada’s energy future. While this agreement is a step in the right direction, it puts Alberta’s energy sector on the hook to secure access to new markets while facing higher costs and reduced competitiveness.
Earlier this year, Smith demanded then-newly elected Prime Minister Carney repeal nine “bad laws” stifling oil and gas investment, which has collapsed by nearly 61 per cent in the province since 2014, falling from $64.7 billion to $25.4 billion in 2024 (inflation-adjusted).
One key policy on the list was the proposed federal emissions cap, which would have applied exclusively to the oil and gas sector. According to the MOU, Canada will not move forward with the cap, which is a welcome change. Indeed, multiple analyses showed that the cap would have inevitably resulted in a production cut, costing the economy billions and resulting in tens of thousands of job losses. And, with oil and gas demand continuing to climb, the cap would have shifted production to other countries with lower environmental and human rights standards such as Iran, Russia and Venezuela.
Scrapping the Clean Electricity Regulations (CER) was also one of Smith’s demands. While the MOU states that “Canada and Alberta remain committed to achieving net zero greenhouse gas emissions by 2050”, the CER as it applies to the province will be suspended for the time being. Again, this is a critical and positive change for a province where 85 per cent of its electricity comes from fossil fuels—a larger share than nearly any other province. (For perspective, in Quebec, over 85 per cent of its electricity comes from hydro.) The Alberta Electric System Operator (AESO) estimates it would cost $44 to $54 billion to decarbonize Alberta’s grid by 2041—a 30 to 36 per cent spending increase—costs that ultimately fall on consumers.
A third key policy on Smith’s list of nine bad laws was repealing Bill C-48, which banned large oil tankers off BC’s northern coast from docking in Canadian ports. According to the MOU, there may be a limited exemption to the ban. Specifically, it states that to enable the export of bitumen there may be an “appropriate adjustment.” The law effectively prevents Canadian producers from accessing Asia and other international markets. Crucially, the legislation applies only to tankers docking in Canadian ports—U.S. and foreign tankers continue to operate freely in the same waters accessing U.S. ports. In other words, the law exclusively hinders Canada’s competitiveness—creating a carve out for one pipeline will not fix this problem.
All of these policy changes or exemptions are conditional on stronger industrial carbon pricing and support for the massive multibillion-dollar Pathways project–a 400-kilometer pipeline transporting carbon trapped at oil facilities to an underground storage facility near Cold lake Alberta and led by a group of Canada’s five largest oil companies. Earlier this year, Alberta froze its industrial carbon tax at $95 per tonne through 2026, but the MOU states that the system will ramp up to a minimum price of $130/tonne. This will increase the cost of producing, processing and transporting oil, at a time when a surge in global oil production and downward pressure on oil prices is expected. Ultimately, this will widen the competitiveness gap between Alberta and many other jurisdictions, such as the United States, that do not have comparable carbon pricing in place.
The agreement is also conditional on the $16.5 billion (minimum estimate) Pathways project to capture, sequester and store carbon underground. Adding carbon capture technology would increase production costs by roughly US $1.2-$3 per barrel for oil sands mining operations and US $3.6-$4.8 for oil sands facilities that use steam. These higher costs further erode the province’s competitiveness and won’t help in attracting private sector investment.
The memorandum of understanding makes some important strides for Canada’s energy future and is certainly an improvement on the status quo, but it still leaves Alberta’s energy sector facing higher costs and weakened competitiveness, and more broadly doesn’t remove the many impediments to large-scale development of our oil sector.
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