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There are some basic economic laws that have stood the test of time and punished those who ignore them. One of those rules is that when prices rise, the demand for those goods almost always declines. Similarly, if profitability falls for companies and entrepreneurs, there will be less investors willing to part ways with their savings to invest. Ottawa has two incredibly successful people in charge of stewarding the country to being an “energy superpower” who believe higher costs lead to both higher demand and more investment, contradicting these basic economic laws.
Prime Minister Carney’s resume and experience in economics is substantial. He has an undergrad in economics from Harvard and master and doctoral degrees in economics from Oxford University, he was the governor of both the Bank of Canada and the Bank of England, worked at the federal department of finance, and had stints in the private sector including at Goldman Sachs and Canada’s Brookfield Asset Management.
Tim Hodgson, the Minister of Energy and Natural Resources, has a similarly impressive resume. He has an MBA from Western University and spent two decades with Goldman Sachs in global finance and served as the chair of Ontario’s Hydro One as well as the vice-chair of the investment committee for the Ontario Teachers’ Pension Plan.
Both the prime minister and his minister of energy and natural resources have argued that increasing costs through “carbon capture” and dramatically increasing the industrial carbon tax will result in Canada being more energy competitive. These statements defy basic economics and they know better.
For instance, responding to the possibility of increased oil from Venezuela, Prime Minister Carney emphatically stated that Canada’s “cleaner” and “low carbon” oil will be competitive and specifically linked to the Pathways project, which is a massive proposed $16.5 billion (minimum) carbon capture project in Alberta. Similarly, in a recent CTV interview, Minister Hodgson insisted that there will be great demand for Canada’s carbon-free oil and gas, and like the prime minister, he specifically mentioned carbon capture.
Understanding carbon capture in this context is important. Carbon capture is a relatively new technology that captures CO2 emissions and buries them deep underground. There is no good or service that results from carbon capture other than the reduction in CO2 emissions. Put differently, this is a pure cost to those involved in carbon capture.
RBC Economics recently calculated that the cost for “decarbonizing” oil in Alberta via carbon capture is between $17 and $23 per barrel for what’s called “in situ” bitumen. Bitumen is a type of hydrocarbon in Alberta and “in situ” refers to the process by which it is extracted. Bitumen in Alberta can be surface mined or when it’s located deeper underground, it’s removed using different techniques that apply pressure to force it out of the ground, which is referred to as “in situ”. According to the Alberta Energy Regulator (AER), in 2024, the most recent data available, 52 per cent of raw bitumen production was in situ.
This $17 to $23 per barrel for “decarbonizing” oil via carbon capture is an added cost to energy companies. They cannot pass that cost along to consumers since the prices for oil and natural gas are set internationally. Put differently, these costs companies’ profitability. Why would an investor, a pension fund or any other investment firm choose to allocate their funds to Alberta or Canada more broadly if our costs are higher, which means their returns (i.e. income) is lower?
But the economic nonsense doesn’t stop with the costs of carbon capture. The prime minister has also required that the industrial carbon tax be significantly increased as part of the Memorandum of Understanding with Alberta, which focuses on expediting a host of energy-related projects including more oil development and pipelines. The prime minister has advocated for an increase in the tax to $170 per tonne.
Professor Ian Brodie of the University of Calgary, a former chief of staff to former prime minister Stephen Harper, indicated that reports circulating in the oil patch estimate that a $120 per tonne industrial carbon tax would mean roughly $20 per barrel in added costs for the oil industry. Some or all of this cost could potentially be offset or mitigated by participation in carbon capture depending on the revised regulations, but again, carbon capture itself adds costs as explained above.
At the time of writing, Western Canadian Select oil was trading at $62 per barrel. Removing one-third of that revenue from firms for carbon capture and potentially more for the industrial carbon tax before any costs such as staff, production, transportation, financing and taxes are paid—let alone returns for owners and investors—makes it self-evident that Canada is less attractive for investment, not more.
The prime minister and his minister of energy and natural resources surely understand these basic economic laws and the implications for higher costs for Canada’s energy sector. It’s more than a little worrying and curious why two successful and knowledgeable leaders in Canada’s federal government would peddle economic nonsense like increased costs lead to more demand and competitiveness. Like so much else in this government’s history, the rhetoric is not matched with results and Canadians are paying a heavy price.
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