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By Ron Wallace
“The big problem for a new oil pipeline isn’t getting B.C. or First Nations acceptance. Rather it’s smothering the industry’s competitiveness by layering on carbon pricing and decarbonization costs that most competing countries don’t charge.” Jack Mintz.
Under the Memorandum of Understanding (MoU) signed November 27, 2025, Alberta agreed, among other things, to negotiate an industrial carbon price under its Technology, Innovation and Emissions Reduction (TIER) program. In return, Ottawa committed to designate, as of national interest, a proposed bitumen pipeline project to tidewater and to expedite a referral to the Major Projects Office. Initially, some considered the MoU to be a “seismic development”, one that attempted to advance national economic development interests while retaining alignment with Canada’s climate ambitions. Others framed the agreement as having:
“… delivered an unequivocal signal that the regulatory and political friction between these two levels of government that has long undermined investment in Canadian major energy infrastructure projects may have finally reached a resolution.”
We are about to see if those hopes and aspirations will be fulfilled. When the Carney government suspended the consumer carbon tax, proposing to replace it with an industrial carbon tax, those policy measures assumed economic costs that had not been fully unexamined. More recently, the Carney government has taken further steps to pivot away from Trudeau-era policies by proposing to reduce regulatory timelines for major projects. Those policy initiatives, especially in face of the adverse impact of excluding the participation of either B.C. or Indigenous groups in the MOU agreement, have fomented sharp divides within the federal cabinet and among some former Liberal Ministers. Notably, former Minister Stephen Guilbeault loudly considers that Canada is now at a crossroads and must choose between compromising its “climate commitments” or embracing the path to a “more sustainable” future.
In face of an international energy market that is undergoing momentous change, the Prime Minister and Energy Minister have also maintained, without any evidence, that Western Canadian “decarbonized” oil would be preferentially welcomed into offshore markets while Ottawa maintains inconsistent policies that allow imports into Canada from sources without any such restrictions.
The Canada-Alberta MoU sets out an ambitious vision with objectives that are mutually dependent: Proposing to expand Canada’s energy sector and oil sands production (while continuing to pursue net-zero emissions by 2050), provide for a Pacific pipeline (funded by the private sector with Indigenous co-ownership) and to construct a major carbon capture and sequestration project. Although a deal under the MoU now appears close, serious questions remain. The agreement is being negotiated entirely behind closed doors in the absence of public, parliamentary or legislative scrutiny. How much of Alberta’s economic future is at stake in the name of “co-operative federalism”? And, equally important, what are the consequences of the yet unquantified costs of the agreement that will be imposed on Alberta oil producers, and provincial and federal taxpayers?
How much of Alberta’s economic future is at stake in the name of “co-operative federalism” and what are the costs that will be imposed on Alberta oil producers and provincial and federal taxpayers?
Will the agreement lock Alberta into federal ambitions for an arguably unattainable, national net zero target? There are studies indicating that Canada’s net‑zero commitments will require massive, unprecedented transformations in energy supply with major reductions in oil and gas production, a tripling of nuclear capacity, several‑fold increases in renewables and large‑scale CCUS deployment. Meanwhile, governments and major Canadian financial institutions like the Canada Pension Plan Investments have abandoned those objectives, including BMO, TD Bank and CIBC who have also backtracked on climate commitments by leaving the UN-Net-Zero Banking Alliance. Meanwhile, while Canada appears committed to prior climate policies, the science community has entered a larger debate about the scientific basis for CO2’s role in climate change. The international committee responsible for the official scenarios for climate modeling has issued a new framework that has eliminated the most extreme scenarios that have dominated climate research over much of the past several decades, a significant development because it has been recognised since 2017 that upper end climate scenarios are fatally flawed.
The Smith-Carney net zero agenda in the MOU, calls for Alberta to reach net zero emissions by 2050 by significantly increasing the Alberta industrial carbon tax and building the Pathways CCS project. Reportedly, the key point of contention in current negotiations is the industrial carbon price, with Alberta reportedly wanting the agreed $130-per-tonne benchmark to remain capped until 2050 while Ottawa apparently views it as a minimum price to be increased. As St. Arnaud recently noted, the initial capital investment would include the cost of a West Coast pipeline at $35 billion, an expansion of oil sands mines at $30 billion and a Pathways carbon capture project at $25 billion: In short, $90 billion expended before one barrel of oil is produced. With an understatement he concluded:
“This will raise challenges to get public acceptance, especially given the high profitability of the oil industry, ongoing household affordability concerns, and continued struggles of industries affected by the US tariffs.”
While Prime Minister Carney and Alberta Premier Smith appear to be unabashed supporters of NZE, the Pathways partner companies will be obliged to do an extensive financial due diligence on NZE prior to making the massive capital investment in the Pathways CCS project in line with major increases in Alberta carbon taxes. In short, implementation of the MoU will require placing immense financial resources at risk, a situation highlighted by Kaplan:
“Not surprisingly, the Alberta government effectively boxed themselves in right at the start of negotiations with the Ottawa Liberals on implementation of the MOU by a ridiculous commitment to NZE. In fact, Premier Danielle Smith has been enthusiastically pitching her Alberta NZE agenda since July 2022, reaffirming it in the 2023 climate change strategy, talking about it extensively to Ottawa MPs, and officially signing on to it, along with the Carney federal Liberals, as the headline item of the Canada-Alberta MOU.”
Investors would not be remiss in questioning whether Canada can overcome its past regulatory excesses and provide a stable policy and regulatory environment for projects that require multi-decade commitments of capital. Meanwhile, industry is steadily working to secure supply chains and necessary procurement strategies, for alternative projects. TC Energy CEO Francois Poirier recently highlighted the flagging rate of energy development in Canada as it struggles to remain competitive:
“Canada is no longer competing only within its borders, or even just across North America. We are competing with the world under a very different set of expectations. In 2025, the United States sanctioned $56 billion of LNG-related projects. Canada made no sanctions in the same period. Capital goes where it’s welcome, and for too long it had not felt welcome here.”
Irrespective of any agreements reached between governments, it is certain that much remains to be done before private sector interests should, or will, consider financing these plans under the MoU. Highlighting a “myopic focus” on climate policies, Cenovus Energy CEO Jon McKenzie has argued that the national, climate-focussed dialogue on the oilsands has rendered the sector uncompetitive. Similarly, Murray Edwards of Canadian Natural Resources has highlighted the material fiscal and regulatory challenges to be overcome to achieve a massive decarbonization network in the oilsands:
“We’re saying, if we invest in Pathways, we think that should be sufficient investment in decarbonization of the sector. And then putting an additional carbon tax on it will make the sector uncompetitive and burdened with costs that are going to reduce the ability to make further investment.”
Recognizing that the Pathways CCUS project would require taxpayers, together with five major companies, to contribute billions of dollars through tax credits and cash for a project that will not generate revenue, only significant costs, CSPP head Martha Hall-Findlay recommended alternative support for more energy production and a major export pipeline:
“But as hard as it is, I am now recommending that Canada postpone the Pathways CCUS project. This is not the time. The world – and the facts – have changed dramatically.”
Others have long argued that the MoU imposes untenable costs on future hydrocarbon development in Alberta with carbon taxes on industrial emissions and the imposition of carbon capture and sequestration (CCS). Pathway partner companies would have to accept an NZE that carries a material risk of impaired or stranded assets down the road. Similarly, Lisa Baiton, CEO of the Canadian Association of Petroleum Producers (CAPP), commented that Ottawa is still “talking about a carbon tax when no other producing and exporting nation does that to their producers.”
These concerns, and others, were highlighted by Kaplan:
“Alberta taxpayers could well be required to “pony up” between $80 billion and $250 billion in financial support. This could include a combination of such measures as substantial enrichments to CCS and DAC tax credits; loans backstopped by the Alberta Indigenous Opportunities Corporation (AIOC); having the Alberta Petroleum Marketing Commission (APMC) physically take royalty barrels in kind and commit those volumes to a long-term take-or-pay contract at a toll above current market rates, effectively guaranteeing a return to pipeline owners; and having the Alberta Heritage Fund Opportunities Corporation (AHFOC) finance equity investment in projects even to the extent of partnering with other sovereign wealth funds.”
Alberta faces an assumed target carbon tax of $130 per tonne, perhaps extending through 2050, and a northwest B.C. pipeline at an estimated capital cost of about $30 billion that would require about $150 billion in new investment in the oil sands sector. Including other projects, $380 billion in upfront capital investment may be required for these projects, not including their ongoing operating. Hence, in addition to costly methane emissions rules derived from the 2026 Canada–Alberta Methane Equivalency Agreement, one that requires a 75% methane reduction by 2035 at an estimated cost of $14.6 billion, realization of the Alberta-Canada MoU will require acceptance of costly and unproven industrial decarbonization targets with project approvals that will ultimately hinge on Indigenous and provincial consent. This is a tall order indeed.
The Carney-Smith net zero emissions (NZE) agenda, as set out in the Canada-Alberta MOU, has significant economic implications for Canada. Canada’s net zero policies are estimated to reduce Canada’s economy by a cumulative $2.1 trillion between 2025 and 2050. Most notably, $559 billion, or 27% of the cumulative negative Gross Domestic Product (GDP) impact of this NZE agenda will occur in Alberta. Canadian policymakers ignore these economic realities at their peril. Western economies rely on energy-dense energy sources that are reliable and affordable. International events have highlighted the fragility of the global energy economy along with and the inadequacy of renewable energy to offset disruptions in hydrocarbon supply lines.
Most notably, $559 billion or 27% of the cumulative negative Gross Domestic Product (GDP) impact of this NZE agenda will occur in Alberta.
The Canada-Alberta MoU represents a continuation of policies that are fully committed to the unattainable dream of attaining a net zero economy while ignoring realities of the economic impacts from aggressive net‑zero implementation. Alberta’s Premier has argued that a rapid agreement would constitute an important signal for Alberta’s energy sector and act as a counter to a growing separatist sentiment in the province. It remains to be seen if those negotiations will allow Alberta, and Canada, to privately finance, competitively produce and export much-needed supplies of hydrocarbons into the international marketplace, especially at a time when no other producing and exporting nation has imposed such costs upon their producers.
Dr. Ron Wallace is a former member of the National Energy Board.
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