Prime Minister Mark Carney and Alberta Premier Danielle Smith shake hands in Calgary after finalizing a carbon-pricing agreement.Jeff McIntosh/The Canadian Press
Alberta and its energy industry moved closer to their goal of a major new oil pipeline to the Pacific Coast after the province and Ottawa signed a long-awaited deal on carbon pricing and emissions reductions.
Prime Minister Mark Carney and Premier Danielle Smith signed the agreement in Calgary on Friday, finalizing a key part of a memorandum of understanding they forged last year.
The pact ties Ottawa’s support for a potential one-million-barrel-a-day pipeline to Alberta’s commitment to increase the carbon price it imposes on oil producers and reduce greenhouse gas emissions through carbon capture and storage, also called CCS.
There are still a number of steps required before each gets what it wants – including agreement by oil sands producers to invest capital on the CCS project known as Pathways, as well as attracting a private-sector developer and route for a multibillion-dollar export pipeline.
But with the announcement, Mr. Carney said he is serious about bolstering the Canadian economy by developing its natural resources in the face of geopolitical uncertainty and trade friction, while Ms. Smith seeks to expand her province’s oil sector while facing a separatist backlash at home.
The two governments have agreed to an effective carbon price of $130 per tonne by 2040 by instituting annual benchmarks for the headline carbon price – or policy price – including $115 by 2030 and $130 by 2035.
As reported by The Globe and Mail this week, the carbon price is expected to be $130 by 2040. However, new details in the documents released Friday show that the guaranteed price that the governments will mandate is even lower, at $110 per tonne by 2040.
Officials at a technical briefing compared the $110-per-tonne fee to a government-regulated minimum wage and said while that is the floor, their models suggest that by 2030 the market will be willing to pay even more, which will push the price up further to about $130.
The officials also said they had no updated target for emissions reductions they expect to come from lowering the industrial carbon price in Alberta. The policy is the backbone of the Canadian climate plan, but when Justin Trudeau was Prime Minister, it was supposed to be much stricter, at $170 per tonne by 2030.
Ms. Smith, who has frequently pilloried the federal government for what she has called an anti-development approach to her province, said the deal is good for her province and the country.
“This gives industry the time and certainty needed to plan, invest, and deliver real emissions-reducing projects without undermining competitiveness,” she said.
“It means that we are much closer to attaining our joint ambition to make Canada into a global energy leader and a trusted supplier of responsibly-produced lower emissions energy in the world.”
Under Friday’s agreement, Alberta will submit an application for a new oil pipeline to the West Coast to Ottawa’s Major Projects Office on or before July 1. The federal government will then look to designate the pipeline as a project of national interest by Oct. 1.
If that designation is successful, Canada will assess the project under the Building Canada Act to determine the conditions required for construction and development of the pipeline.
“Provided that duty to consult obligations with Indigenous Peoples have been met, Canada intends to make best efforts to provide the conditions document by September 1, 2027 to enable commencement of construction of the pipeline,” it says.
Under the agreement, both governments will establish a trilateral discussion with British Columbia on the oil pipeline application, and Ottawa will continue working with B.C. “on other projects of national interest in their jurisdiction.”
The next steps for the MOU come as separatists in Alberta are seeking a referendum this fall on the province breaking away from Canada.
Even as Mr. Carney highlighted the deal’s finer points Friday, he also spoke of it in terms of national unity.
“Today is also about building trust in a Canada that works, a Canada rooted in co-operative federalism, where we build together pragmatically and ambitiously to achieve our shared ambitions,” he said.
“A Canada where our differences are strengths to be nurtured and respected, not risks to be managed. A Canada that’s strong but good, a Canada that’s not just prosperous but fair, not just for some most of the time, but for all, all of the time.”
A new oil pipeline to the West Coast also remains dependent on the construction of Pathways, a massive CCS project slated for Alberta’s oil sands. The 400-kilometre pipeline, to be funded largely by industry, would transport carbon trapped at oil-sands facilities to an underground hub near Cold Lake, Alta.
However, the agreement significantly lowers the volume of emissions that were to be removed by the CCS project.
The original aim of Pathways was to reduce emissions by 22 megatonnes, or Mt, a year. Friday’s agreement scales that down to 16 Mt per year, only 6 Mt of which has to removed by CCS by 2035. Companies must then reduce emissions by an additional 10 Mt through “a range of technologies” by 2045.
Those technologies include injecting solvents to reduce the amount of steam needed to extract oil. The oil sands sector has also undertaken studies on direct air capture, the viability of small modular nuclear reactors, and geothermal energy.
At the same time, the federal and provincial governments will work with the companies advancing Pathways – Canadian Natural Resources Ltd., Cenovus Energy Ltd., ConocoPhillips Canada, Imperial Oil Ltd. and Suncor Energy – to hammer out a memorandum of understanding as to how it will be funded and built.
Collectively, those companies make up the Oil Sands Alliance and produce roughly 95 per cent of oil in the northern Alberta region. They have pledged to bring their production emissions to net zero by 2050. Oil sands operations emit roughly 70 Mt each year, according to provincial data.
Earlier this month, the Oil Sands Alliance said its members are committed to continuing to reduce emissions intensity and advancing Pathways. But the massive project requires “supportive regulatory and fiscal frameworks, not an uncompetitive industrial carbon tax that no other major heavy oil producing jurisdiction faces, which would limit our industry’s ability to attract investment and grow,” it said.
Friday’s agreement also lays out how Alberta and Ottawa will facilitate lower carbon forms of energy development such as wind, solar, geothermal and nuclear electricity, while Alberta also expands natural gas generation that is both unabated and with reduced emissions through CCS.
The two governments will also launch a joint electricity working group to work toward net zero greenhouse gas emissions from the electricity sector by 2050.