The Canadian media and many in the oil and gas industry are optimistic that the federal government led by Prime Minister Mark Carney will facilitate the future growth and prosperity of the Alberta oil and gas industry by removing some or most of the barriers to that development. It is important to understand what those barriers are.
Carbon Dioxide Pricing
As “major industrial emitters” of carbon dioxide, Alberta’s oil and gas companies are subject to carbon dioxide taxation. This is now done under the framework of the Alberta Technology Innovation and Emissions Reduction (TIER) system. The Alberta and federal governments agreed in principle in a November 2025 Memorandum of Understanding (MOU) that in future the TIER system should be amended so as to be similar in costs and effects to the federal government’s Output-Based Pricing System. The result is that the rate of the carbon tax will rise over time to at least $130 per tonne of carbon dioxide equivalent by about 2030. It will then go on rising to as-yet unspecified levels over time.
The governments have also agreed in principle that a “financial mechanism” must be put in place that will provide certainty to industry as to the continuation of and rate of the carbon dioxide tax over time. This may include establishment of a system of “predictable tax trajectories” and/or the negotiation of “contracts for differences”. Contracts for differences can include government guarantees of financial benefits to a firm even if a future government choses to eliminate carbon taxes.
If implemented as agreed in the November MOU, this system will impose high costs on oil and gas producers that will not be matched by taxes or charges imposed on the oil and gas industry in other countries. It will reduce the profitability of current production and future investments. As the tax rises, it may make investment in the Canadian industry uncompetitive with investments elsewhere.
Construction of New Oil Sands Projects or Pipelines
All proposals to construct major new oil and gas projects and pipelines are subject to environmental review under the federal Impact Assessment Act (IAA). The Impact Assessment Agency of Canada (IAAC) must take into consideration eleven factors in conducting its assessment; these include “the extent to which the designated project contributes to sustainability” and “the extent to which the effects of the designated project hinder or contribute to the Government of Canada’s ability to meet its environmental obligations and its commitments in respect of climate change”. The commitments with respect to climate change are to work towards the attainment of “net-zero” greenhouse gas emissions by 2050. It is difficult to understand how construction of a major new production facility or new oil pipeline (both emissions-intensive projects) will meet this requirement. An Impact Assessment Report from the IAAC to the Minister of Environment and Climate Change must include a recommendation as to whether or not the project should be approved. If the Minister agrees, and if the other concerned Ministers agree, the report of the IAAC goes for final approval by Cabinet. If the Minister does not agree, the project cannot proceed.
It should be noted that the November 2025 MOU provided only for avoiding duplication of impact assessment functions and accelerating the assessment process. It did not remove or lighten the requirement under Canadian legislation that federal approvals support attainment of the net-zero goal.
Construction of a new Oil Pipeline to the West Coast
Most industry observers agree that, while there is room to expand the current oil pipelines that deliver Canadian crude oil to markets in the United States, adding the pipeline capacity to meet significant expansion of oil sands production in future and attain access to non-US markets will require construction of a new pipeline to the Pacific (west) coast. Construction of such a pipeline would require many approvals, including notably that of the federal Impact Assessment Agency (and the federal Minister of Environment and Climate Change), approval of the Canada Energy Regulator (and the federal Minister of Natural Resources), and a large number of permits within Alberta and British Columbia. In addition to the barrier represented by the Impact Assessment Act process previously described, the Canada Energy Regulator must also assess the impact of any new pipeline on Canada’s ability to attain the net-zero objective. Again, it is not clear how this barrier can be overcome.
If the proposed pipeline were to a port on the northern British Columbia coast, its acceptance would run counter to the federal Oil Tanker Moratorium Act, which received Royal Assent on June 21, 2019. This Act prohibits oil tankers carrying more than 12,500 metric tons of crude or persistent oil from stopping, loading, or unloading at ports along British Columbia’s northern coast. This law covers tanker movements in areas from northern Vancouver Island to the Alaska border, including Haida Gwaii.
Prime Minister Mark Carney has left the door open to potentially repealing the Oil Tanker Moratorium Act to facilitate a new Alberta-to-BC pipeline, stating that his government is focused on “results” rather than rigid objectives. While engaging with Coastal First Nations who oppose the move, Carney has commented on the potential for “alternative routes” to Asian markets, which implies a willingness in principle to endorse a west coast pipeline. When asked about repealing the tanker ban or emissions caps, Carney said “it depends”, and he was focusing on “lower carbon” results rather than prohibiting projects. This statement leaves unclear which actions to lower carbon dioxide emissions could possibly satisfy the federal government enough to revise the legislation.
Both the British Columbia government and most indigenous groups in British Columbia have expressed their strong opposition to a new west coast oil pipeline. No federal government has previously sought to override the opposition of a province to construction of a transit pipeline or transit electricity transmission line. It simply is not credible that the Carney government would do so now.
The first test of whether a new pipeline to the west coast is feasible will be whether private sponsors come forward that are willing to take the financial risks involved. So far none has done so, and it would be very surprising if one did so in future.
The Pathways Project
The Pathways project, sponsored by by an alliance of oil sands producers, involves the capture, transmission and geological storage of large volumes of carbon dioxide produced mainly by the oil sands industry. The projected capital costs are in the range of $16.5 billion to $20 billion. This project would not be financially viable without large government subsidies, possibly at the initial capital cost and then later operating cost stages. The project is eligible for federal government investment tax credits that cover up to 50% of capital costs for equipment. Under Alberta’s Carbon Capture Incentive Program, the province has agreed to provide a grant of up to 12% of new eligible capital costs of the project. So, federal and provincial taxpayers are already on the hook to cover up to 62 per cent of the capital costs of the project. The sponsoring companies have said this is not enough and have requested that governments cover roughly 70% to 75% of the capital costs.
The November MOU committed Alberta in principle to conclude an agreement with the federal government and the companies that are sponsoring the Pathways project that will allow the project to move ahead. In addition to resolving the financing/subsidy issues, the agreement must “ensure that all parties will be held to account for all phases of the project, including effective enforcement mechanisms to ensure the completion of all phases of the infrastructure and the associated emissions reduction by the Pathways companies, including the related tax and regulatory measures”. The tri-partite agreement also must set out a “multi-phased approach to delivering a set of emissions savings projects, focused predominantly on carbon capture and storage, solvent-based replacements or other actions taken by Pathways that reduce emissions intensity”.
The November agreement specifies that the trilateral MOU and the approval and commencement of the initial Phase 1 Pathways Project will be preconditions to the commencement of the proposed oil pipeline to the west coast. So, Alberta will have to make large financial commitments before it will be assured that the Major Projects Office and the federal Cabinet will agree to authorize a west coast oil pipeline. This creates an almost impossible situation for the province.
The Bottom Line
The climate policy-related legislation, regulations and other measures taken by the federal government present virtually insurmountable barriers to the continued growth and prosperity of the oil and gas industry based in Alberta. The claims by Liberal Party politicians and their apologists that they are pursuing “Canada Strong” energy policies are bogus. The public, especially in Alberta, needs to be informed of this.
Thank you for this summary of the situation being faced by the Alberta Government. Very difficult to believe that the pipeline in question will be built. BUT there is always hope of success–there are many smart people in Alberta!!!
Eric.