Canada and Alberta reached a carbon pricing deal that opens the way for construction of a new oil pipeline starting as early as 2027, while scaling back an expensive project to capture greenhouse gas emissions.Prime Minister Mark Carney and Alberta Premier Danielle Smith announced the agreement on Friday. The deal builds on the memorandum of understanding they signed in November that outlined conditions for federal support of a crude pipeline to the west coast to serve Asian markets.Carney has staked his economic agenda on speeding up major infrastructure projects and lessening Canada’s reliance on exports to the US. Exploiting western Canada’s oil reserves, which are among the world’s largest, is part of that strategy.The agreement with Alberta is also a move to defuse political and business tensions that boiled up under former Prime Minister Justin Trudeau’s government, which introduced new regulations that slowed energy development.“We’re building trust of investors that Alberta and Canada are reliable and attractive destinations where opportunities are plentiful, the rules are clear and one project means one review — the trust of Asian countries who want our energy because they know that we are a safe, stable, reliable partner in a world that is anything but,” Carney said.The deal sets out scheduled annual increases for the headline carbon price, starting at C$95 ($69) per metric ton of CO2 equivalent this year and reaching C$140 in 2040.But it requires Alberta to target an “effective price” of C$130 by 2040, with a minimum floor price also increasing annually.The effective price is meant to reflect the market value of carbon credits and offsets, while setting a floor is intended to ensure the market price does not drop below that level over time. The point is to provide an economic incentive for industrial companies, including oil and gas producers, to invest in technologies that curb emissions.Trudeau had envisioned a much bigger carbon tax, sooner, with a headline price of C$170 per metric ton by 2030. Friday’s deal is aimed at fixing a malfunctioning carbon market where credits and offsets were trading at just C$40 per metric ton. Two trades at C$42.50 a metric ton happened on Friday, Albert Ho, head of carbon intelligence for Carbon Assessors, said by email.Alberta is doing the early-stage planning work on a pipeline that would cut through British Columbia, Canada’s west coast province, where the crude could be loaded onto oil tankers for shipment to energy-thirsty Asian countries. The agreement unveiled Friday says Alberta will submit its pipeline application to the federal Major Projects Office no later than July 1, while the federal government aims to designate it as a project of “national interest” by October — making it eligible for a faster review and approval process.The pipeline proposal does not yet have private sector investors. Smith said on Bloomberg Television that she believes Asian firms are interested, and Enbridge Inc. Chief Executive Officer Greg Ebel said the company “definitely would consider” getting involved.If the pipeline is designated as a project of national interest, the federal government said it will make “best efforts” to provide a conditions document by September 1, 2027 to allow for construction to begin.Still, the deal did not receive universal approval from the energy industry.“For Canada to have a regulatory and carbon framework competitive with the US, there is still much work to be done,” said Adam Waterous, executive chairman of oil producer Strathcona Resources Ltd. “If there is certainty on higher costs imposed by governments, then there needs to be certainty of higher revenues to industry.”Canada will ensure the federal carbon pricing benchmark is consistent with the Alberta agreement, meaning other provinces would get similar pricing timelines, Carney said. There are regional differences in provincial carbon markets, so consultations will be needed, he added.Crucially, the deal he signed with Smith downsizes the Pathways carbon capture project that is a condition of federal support for the new pipeline.The coalition of oil companies behind the carbon capture scheme originally promised to reduce emissions by about 22mn metric tonnes per year by 2030. The new agreement only requires the capture of 6mn metric tonnes annually by 2035, and 16mn metric tonnes a year by 2045.The lower carbon price still maintains “uncompetitive costs” on the industry, the group behind Pathways said in a statement. But Kendall Dilling, president of the Oil Sands Alliance, said it’s committed to advancing the project as long as “the necessary regulatory and fiscal terms are in place.”Tim Hodgson, Canada’s energy minister, said in an interview that formal negotiations have not begun on the Pathways project, but he believed they would reach a consensus after seeing the governments move ahead with a pipeline and carbon price.“Now that we’ve created certainty around what that price will be, capital allocators can allocate capital and with that unlock new production and new opportunities to sell that at a world price to world markets.”The deal also sets out stringency rates for high emitters, requiring large oil sands firms to reduce “carbon intensity” by 2% annually — either by trimming emissions, using carbon credits or paying the carbon price directly.Firms building and operating the Pathways project would only be required to reduce emissions intensity by 1% starting in 2030.Environmental groups decried the announcement. The Coastal First Nations, an alliance of several northern BC Indigenous groups, said: “Nothing has changed and a North Coast pipeline will never be built.” BC Premier David Eby reiterated that he opposes any repeal of a ban on oil tankers along the northern coast.
