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By Ron Wallace
In a three-part series, former National Energy Board Member, Dr. Ron Wallace, examines the history and factors that have led to the signing of the Canada-Alberta MoU.
PART 1
PART 2
Part 3 of 3: The “Ugly”
‘For more than a decade now, the Liberals’ misguided climate alarmism has done serious harm to Canadians both in costs borne and economic opportunities foregone. Their recent political about-faces, while welcome, need to be followed up with concrete results. Otherwise, Canadians will conclude Mark Carney’s newfound desire to exploit our immense energy treasures in the national interest is no more sincere than his predecessor’s many performative gestures.” Joe Oliver, December 16, 2025.
Premier Smith may yet face a pivotal moment in Alberta’s, and possibly Canadian, history. If Ottawa’s past performance in dealing with the western Canadian energy sector is a prologue, predictions of a happy outcome from the MoU may require much optimism. Nonetheless, one can only admire the tenacity of Premier Smith as she seeks, in the best economic interests of Alberta and Canada, to navigate the minefield of Acts and Regulations designed to reach an unattainable Net Zero sown by the previous Trudeau government. These policies, with massive costs required for compliance and subsidies, have hobbled the Canadian economy but have not significantly reduced national emissions. In sum, the Trudeau governments’ suite of Net Zero regulations, that ranged from carbon pricing to sector‑specific caps and fuel standards, have imposed material economic and fiscal costs on the Canadian economy with limited measurable reductions in national emissions.
Does the MoU advance Alberta’s aspirations to accelerate and deliver a new bitumen oil pipeline or is it a political distraction, nothing more than an overly hyped six-page agreement that cannot overcome provincial and Indigenous opposition?
As Joe Oliver noted:
“Despite her public enthusiasm for the MOU, Alberta Premier Danielle Smith must be galled by having to commit to net zero. She has to know it’s unachievable, would be prohibitively expensive to try to achieve, and, even if it were attained, would have a minuscule impact on global emissions and bring no measurable change in global temperatures. No serious person pretends Canada is able to lower global temperatures, no matter how much growth we sacrifice or cost we incur.”
Additionally, Andrew Roman captured the contradictory nature of the MoU:
“The MOU says that on or before next April 1 the Pathways Alliance consortium of the largest Canadian oilsands producers will have to enter into a trilateral MOU with Alberta and Ottawa to reduce emissions intensity. Again, that’s a precondition to starting the pipeline, assuming it is approved. So, this bilateral MOU requires a non-party to it to agree to a future trilateral MOU that will create the world’s largest carbon capture, utilization and storage (CCUS) project, estimated to cost $16-24 billion. CCUS technology does exist and has been used, though nowhere on this scale. Maybe the reason this will be the world’s largest CCUS project is that no other country has compelled such a risky upscaling of a costly and complex technology …. Pipeline construction is contingent on Pathways CCUS approvals and vice versa — a circular dependency that dramatically increases risk.”
Energy Minister Hodgson asserts that the MoU will allow clarity “on the trajectory of the price of carbon” until 2050 – clarity that would allow Pathways, and hence a new bitumen pipeline, to be constructed within a feasible business model. With ongoing negotiations between the parties that are apparently using a targeted carbon price of $130 per tonne, Hodgson recently stated:
“I’ve seen the math behind the benefits to producers of producing, and yes, it’s quite an economic endeavour. Part of the deal is that if Pathways gets built, the emissions cap is no longer required. That allows an increase in production; the economics of that increase in production are quite attractive to producers.”
It has also been argued that the MoU would allow for the export of world-class technologies from Canada. Also, suspension of the Clean Electricity Regulations could potentially open the door to major West‑wide transmission interties that some describe as “win‑win‑win scenario” for economic growth, emissions and national integration. However, these views make assumptions about the economic and technical feasibility of the Pathways project. Notably, competitive U.S., Saudi, Russian and Venezuelan producers appear unwilling to invest in such massive CCUS technologies – much less to make it a prime condition for their export pipelines. And who precisely are the customers who would be incentivised to buy Canadian “decarbonized oil” in an increasingly competitive international oil marketplace? Does it matter that at such enormous costs, Canada becomes the “most responsible global producer” of oil?
As Peter Flynn noted:
“The world needs our oil and gas, and we need the wealth from selling it. Carbon capture will mainly make us uncompetitive.”
Is the MoU a “grand bargain” to “decarbonize” Western Canadian oil or is yet another concession made to a federal government determined to re-shape Canada into a Net Zero, “decarbonized” economy?
The MoU risks dividing the Canadian economy into two, with western producers/exporters attempting to compete in international markets with expensive “decarbonized” domestic oil while eastern importers freely access cheaper imports from abroad. Canada would become two economic development zones – one zone based upon production of “decarbonized” Western Canadian and another that allows internationally imported “fully carbonized” oil to enter Eastern Canadian markets free of penalty. It could be argued that these decarbonization policies effectively render the One Canadian Economy Act moot by imposing significant economic penalties on Western Canadian producers while favouring offshore oil imported by eastern Canadian refiners. At a time of nascent discontent among advocates for independence in both Quebec and Alberta, is it possible that the MoU could exacerbate those sentiments?
The MoU also ignores a growing international opinion that attaining Net Zero is not only problematic but entirely unrealistic. Significantly, credible voices like Bill Gates and Bjorn Lomborg increasingly point to alternative methodologies that do not encourage aggressive elimination of fossil fuels, and that discount “doomsday” climate predictions while pointing to adaptive strategies to address climatic extremes. Senior U.S. officials have called into question timelines and aspirations for Net Zero. U.S. Energy Secretary Chris Wright termed Net Zero 2050 “a colossal train wreck” and that “there is no way it is going to happen.” Moreover, the OECD, while maintaining support for the concept of Net Zero has shifted its focus toward greater realism about the feasibility of attaining these goals.
Reflecting the emerging international narrative that the timelines and expectations embedded in Net Zero commitments are structurally misaligned with physical, economic and political reality many financial institutions, including the Canada Pension Plan Review Board (CPPIB), have quietly moved away from their 2050 “Net Zero Pledges.” This represents a policy shift away from the finance-based climate programs previously instituted by Carney and from new initiatives like those proposed by Senator Galvez. Senator Galvez’s Bill S-238 recently tabled to the Senate would force every federally regulated bank, insurer, pension fund and Crown financial corporation to treat the financing of oil, gas, and coal as an unacceptable systemic risk to be phased out. Hence, anyone who may think that the MoU will put an end to the aggressive measures instituted by Ottawa against Alberta’s oil and gas and pipeline sector needs to think again.
Does the MoU further propel Canada on a path as a potential global outlier by supporting restrictive emissions policies at a time when governments are beginning to recognize the immense costs and implausibility of implementing policies for Net Zero? While Canada may choose to make huge financial commitments to “decarbonize” its oil production, other international oil producers will simply meet the demands of the marketplace with cheaper oil that would otherwise have been exported from Canada. Hence, the MoU not only links a pipeline approval to the $16.5 billion Pathways Alliance carbon capture project (CCUS), which may require significant government (Ie. taxpayer) support but would effectively tie Alberta to the plethora of existing federal emissions reductions programs for net-zero-emissions-related initiatives across the country. In addition to the billions required for the CCUS projects, the agreement would require Alberta to increase its Industrial Carbon Tax (ICT) from the current $95 to $130 per tonne. This will undoubtedly add to the cost of producing western Canadian energy, costs that will arrive at a time of declining international oil prices and threaten the competitiveness of Alberta oil.
Economist Jack Mintz has calculated that the Industrial Carbon Tax would add more than $5 USD per barrel of Canadian crude to marginal production costs. There are other estimates that the CCUS requirements will add another $1.20–$3 per barrel for oil sands mining projects and $3.60–$4.80 for steam-assisted operations. These costs, that accrue solely and uniquely to Alberta oil producers, could add from US $6.40 and $10 per barrel. In addition to billions allocated for domestic Net Zero policies, there are other commitments for expenditures for programs such as a federal $5.3 billion “international climate finance commitment” designed to assist developing countries to “combat climate change.” At a time of financial stress, is Canada able to maintain these types of programs?
Although the Carney government has eliminated the consumer carbon tax and delayed the federal EV sales mandate, it is negotiating other regulations with the provinces and territories that include an industrial carbon tax. These programs will determine multi-decade industrial carbon price trajectories for net-zero 2050 goals. The Fraser Institute (2024) assessed federal plans to reduce greenhouse gas emissions (GHG’s) by 2030 and concluded that they would reduce Canada’s real GDP by 6.2 per cent. This economic impact should be considered against the minor role that Canada plays in global emissions.
At the end of the day, it must be recognised that private sector interests, not an MoU, will ultimately determine any investments in new Canadian export pipelines. Enbridge CEO Greg Ebel recently outlined requirements that his company and other investors would need from the Federal government before supporting the revival of new export pipelines by describing a need for “legal guarantees” and the removal of “various environmental policies:”
“For us to be willing to seriously consider reinvesting in a project like that, whether it’s east or west or just west, we need to see real change on numerous fronts….A lot of co-ordinated federal and pan-provincial legislative and regulatory action would be required before we think investors, management teams, or customers would be able to green light such projects.”
Similar thoughts were echoed by Keyera CEO Dean Setoguchi who, while expressing optimism that the MoU is “heading in the right direction”, nonetheless argues that attracting further investment to the Canadian pipeline sector will require permitting policy reform and clarity stating that: “No one is going to build a pipeline without that certainty. It’s just not going to happen.” In sum, the MoU should probably be viewed as a first step in resolving the long-standing structural, policy and legislative barriers to Canadian pipelines. However, while the MoU may not materially change the underlying regulatory, legal and political constraints that have caused significant capital to leave Canada it does signal a renewed spirit of good will between the parties. While the MoU could significantly increase costs for Alberta oil producers by requiring “decarbonization” (with material implications for Alberta taxpayers) there are potential significant, positive economic opportunities that would result from enhanced oil production (EOR) and from new gas-fired electricity generation facilities to power new data centres. Meanwhile, ongoing policy and political uncertainty associated with opposition from provinces or First Nations, represent a serious challenge to potential investors. However, as Mintz noted, the main challenge for a new oil pipeline is not obtaining approval from British Columbia or First Nations: “Rather, it’s smothering the industry’s competitiveness by layering on carbon pricing and decarbonization costs that most competing countries don’t charge.”
Those costs for “decarbonization” stem from commitments embedded within the MoU to achieving Net Zero greenhouse gas (GHG) emissions by 2050. This policy objective ignores advice from authorities like Vaclav Smil who noted in a recent study of Net-Zero that global fossil-fuel use has risen 55% since the 1997 Kyoto agreement, despite trillions spent on subsidies and regulations. Fossil fuels still supply 82% of the world’s energy. With these facts in mind, many would consider that policies that assume Canada can unilaterally and uniquely decarbonize its largest export industry in 25 years verges on the delusional in ways that risk trading international market access with self-inflicted capital, and operating, costs that may compromise the economic viability of any new pipeline. The MoU is not a regulatory approval, financing plan or a construction schedule. It remains to be seen whether it will prove sufficient to overcome long-standing policy and regulatory conflicts between Alberta and the federal government. At the end of the day, any future agreements sufficient to restore confidence, and investment, in the Canadian oil production and pipeline sector will depend on the good will between the parties-at-interest. Those negotiations will do more than shape Canada’s economy – they may very well determine its future.
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