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By Lennie Kaplan
Based on some new modeling, I project that the Carney-Smith MOU Implementation Agreement (IA) will knock approximately $28 billion off the net present value (NPV) of oil sands projects between 2027 and 2040.
Net present value (NPV) is defined as “the cumulative value of all future cash flows (incomes, capital expenditures, operating expenditures, and tax payments) discounted to the present. It represents the value of the oil sands sector and is defined in relation to a particular discount rate. The discount rate is the rate at which the present value of future cash flows decreases for each year into the future at which they will occur. It reflects the fact that a dollar today is worth more than a dollar in the future, because it can be invested in the meantime and generate a return. The discount rate can thus be thought of as reflecting the cost of capital or the opportunity cost of not investing elsewhere.” In this analysis, we use an NPV with a 10% discount rate (i.e. NPV10).
The $28 billion reduction in oil sands NPV seems to align with recent comments from Cenovus CEO Jon McKenzie, at the recent Global Energy Show, suggesting that the Carney-Smith carbon tax will, in part, make the West Coast Oil Pipeline (WCOP) and the Pathways CCS Project uneconomic, uncompetitive, and unfinanceable.
In an earlier commentary, I estimated that the Carney-Smith MOU IA would add $33 billion in cumulative carbon costs (or an average of $1.26 per barrel) on the oil sands sector between 2030 and 2040. Modelling done for the Alberta government indicates the additional costs from the higher industrial carbon price would add between 80 cents to $1.10 per barrel, depending on the project, but the government still refuses to release any of this modeling work.
The Alberta government knows full well the negative impacts of the Carney-Smith MOU IA on industry competitiveness in terms of decreases to oil sands NPV and increases to oil sands industry average costs arising from the application of the $140 per tonne carbon tax; effectively the precursor to much higher net zero Alberta carbon taxes, between 2041 and 2050. Since December 2025, Alberta Environment and Protected Areas (AEPA) have been conducting extensive modeling of the impact of the Alberta carbon tax on TIER compliance cost levels. But the Smith government will not share these documents with Albertans. Now, maybe we know why?
Assuming the application of a $140 per tonne effective Alberta carbon tax by 2040, the West Coast Oil Pipeline (WCOP), with an initial upfront capital cost of about $30 billion, will require about $150 billion in supporting new investment in the oil sands sector, just over the next decade, including maintenance and sustaining capital, optimization, and expansions. Capital investment in the Pathways CCS Project is currently estimated at up to $30 billion, of which industry’s share is about $11.5 billion. That’s a grand sum of $190 billion in capital investment, and this does not even include ongoing operating costs.
Will the private sector fork out this full $190 billion price tag, given current uncertainty in federal and provincial policies and regulations, as well as the recent tendency toward improving efficiency of assets and returning cash to shareholders? Not likely.
In fact, I estimate that to effectively de-risk projects, Alberta taxpayers could well be required to “pony up” more financial support. This could include a combination of such measures as substantial enrichments to CCUS 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; having the Alberta Heritage Fund Opportunities Corporation (AHFOC) finance equity investment in projects even to the extent of partnering with other sovereign wealth funds; and new royalty incentives to support greenfield oil sands projects to fill expanded pipeline egress.
Could Alberta taxpayers effectively be on their way to owning WCOP, after Canada Day 2026? We will get some clues from the Alberta government, soon, with its impending submission to the Major Projects Office (MPO).
Lennie Kaplan was a senior manager in the fiscal and economic policy division of the Ministry of Treasury Board and Finance, where he worked on cross-ministry initiatives evaluating energy issues, including participating on the 2009-10 Alberta Competitiveness Review.
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