From the Fraser Institute

By Tegan Hill and Elmira Aliakbari

The Memorandum of Understanding (MOU) between Alberta Premier Danielle Smith and Prime Minister Mark Carney, which includes a new oil pipeline to BC’s northwest coast, offers some hope for Canada’s energy future. While this agreement is a step in the right direction, it puts Alberta’s energy sector on the hook to secure access to new markets while facing higher costs and reduced competitiveness.

Earlier this year, Smith demanded then-newly elected Prime Minister Carney repeal nine “bad laws” stifling oil and gas investment, which has collapsed by nearly 61 per cent in the province since 2014, falling from $64.7 billion to $25.4 billion in 2024 (inflation-adjusted).

One key policy on the list was the proposed federal emissions cap, which would have applied exclusively to the oil and gas sector. According to the MOU, Canada will not move forward with the cap, which is a welcome change. Indeed, multiple analyses showed that the cap would have inevitably resulted in a production cut, costing the economy billions and resulting in tens of thousands of job losses. And, with oil and gas demand continuing to climb, the cap would have shifted production to other countries with lower environmental and human rights standards such as Iran, Russia and Venezuela.

Scrapping the Clean Electricity Regulations (CER) was also one of Smith’s demands. While the MOU states that “Canada and Alberta remain committed to achieving net zero greenhouse gas emissions by 2050”, the CER as it applies to the province will be suspended for the time being. Again, this is a critical and positive change for a province where 85 per cent of its electricity comes from fossil fuels—a larger share than nearly any other province. (For perspective, in Quebec, over 85 per cent of its electricity comes from hydro.) The Alberta Electric System Operator (AESO) estimates it would cost $44 to $54 billion to decarbonize Alberta’s grid by 2041—a 30 to 36 per cent spending increase—costs that ultimately fall on consumers.

A third key policy on Smith’s list of nine bad laws was repealing Bill C-48, which banned large oil tankers off BC’s northern coast from docking in Canadian ports. According to the MOU, there may be a limited exemption to the ban. Specifically, it states that to enable the export of bitumen there may be an “appropriate adjustment.” The law effectively prevents Canadian producers from accessing Asia and other international markets. Crucially, the legislation applies only to tankers docking in Canadian ports—U.S. and foreign tankers continue to operate freely in the same waters accessing U.S. ports. In other words, the law exclusively hinders Canada’s competitiveness—creating a carve out for one pipeline will not fix this problem.

All of these policy changes or exemptions are conditional on stronger industrial carbon pricing and support for the massive multibillion-dollar Pathways project–a 400-kilometer pipeline transporting carbon trapped at oil facilities to an underground storage facility near Cold lake Alberta and led by a group of Canada’s five largest oil companies. Earlier this year, Alberta froze its industrial carbon tax at $95 per tonne through 2026, but the MOU states that the system will ramp up to a minimum price of $130/tonne. This will increase the cost of producing, processing and transporting oil, at a time when a surge in global oil production and downward pressure on oil prices is expected. Ultimately, this will widen the competitiveness gap between Alberta and many other jurisdictions, such as the United States, that do not have comparable carbon pricing in place.

The agreement is also conditional on the $16.5 billion (minimum estimate) Pathways project to capture, sequester and store carbon underground. Adding carbon capture technology would increase production costs by roughly US $1.2-$3 per barrel for oil sands mining operations and US $3.6-$4.8 for oil sands facilities that use steam. These higher costs further erode the province’s competitiveness and won’t help in attracting private sector investment.

The memorandum of understanding makes some important strides for Canada’s energy future and is certainly an improvement on the status quo, but it still leaves Alberta’s energy sector facing higher costs and weakened competitiveness, and more broadly doesn’t remove the many impediments to large-scale development of our oil sector.

Tegan Hill

Director, Alberta Policy, Fraser Institute

Elmira Aliakbari

Director, Natural Resource Studies, Fraser Institute

From the Fraser Institute

By Kenneth P. Green

The stiffer carbon tax will make Alberta’s oil sector more expensive and thus less competitive at a time when many analysts expect a surge in oil production. The costs of mandated carbon capture will similarly increase costs in the oilsands and make the province less cost competitive.

As we enter the final days of 2025, a “deal” has been struck between Carney government and the Alberta government over the province’s ability to produce and interprovincially transport its massive oil reserves (the world’s 4th-largest). The agreement is a step forward and likely a net positive for Alberta and its citizens. However, it’s not a second- or even third-best option, but rather a fourth-best option.

The agreement is deeply rooted in the development of a particular technology—the Pathways carbon capture, utilization and storage (CCUS) project, in exchange for relief from the counterproductive regulations and rules put in place by the Trudeau government. That relief, however, is attached to a requirement that Alberta commit to significant spending and support for Ottawa’s activist industrial policies. Also, on the critical issue of a new pipeline from Alberta to British Columbia’s coast, there are commitments but nothing approaching a guarantee.

Specifically, the agreement—or Memorandum of Understanding (MOU)—between the two parties gives Alberta exemptions from certain federal environmental laws and offers the prospect of a potential pathway to a new oil pipeline to the B.C. coast. The federal cap on greenhouse gas (GHG) emissions from the oil and gas sector will not be instituted; Alberta will be exempt from the federal “Clean Electricity Regulations”; a path to a million-barrel-per day pipeline to the BC coast for export to Asia will be facilitated and established as a priority of both governments, and the B.C. tanker ban may be adjusted to allow for limited oil transportation. Alberta’s energy sector will also likely gain some relief from the “greenwashing” speech controls emplaced by the Trudeau government.

In exchange, Alberta has agreed to implement a stricter (higher) industrial carbon-pricing regime; contribute to new infrastructure for electricity transmission to both B.C. and Saskatchewan; support through tax measures the building of a massive “sovereign” data centre; significantly increase collaboration and profit-sharing with Alberta’s Indigenous peoples; and support the massive multibillion-dollar Pathways project. Underpinning the entire MOU is an explicit agreement by Alberta with the federal government’s “net-zero 2050” GHG emissions agenda.

The MOU is probably good for Alberta and Canada’s oil industry. However, Alberta’s oil sector will be required to go to significantly greater—and much more expensive—lengths than it has in the past to meet the MOU’s conditions so Ottawa supports a west coast pipeline.

The stiffer carbon tax will make Alberta’s oil sector more expensive and thus less competitive at a time when many analysts expect a surge in oil production. The costs of mandated carbon capture will similarly increase costs in the oilsands and make the province less cost competitive. There’s additional complexity with respect to carbon capture since it’s very feasibility at the scale and time-frame stipulated in the MOU is questionable, as the historical experience with carbon capture, utilization and storage for storing GHG gases sustainably has not been promising.

These additional costs and requirements are why the agreement is the not the best possible solution. The ideal would have been for the federal government to genuinely review existing laws and regulations on a cost-benefit basis to help achieve its goal to become an “energy superpower.” If that had been done, the government would have eliminated a host of Trudeau-era regulations and laws, or at least massively overhauled them.

Instead, the Carney government, and now with the Alberta government, has chosen workarounds and special exemptions to the laws and regulations that still apply to everyone else.

Again, it’s very likely the MOU will benefit Alberta and the rest of the country economically. It’s no panacea, however, and will leave Alberta’s oil sector (and Alberta energy consumers) on the hook to pay more for the right to move its export products across Canada to reach other non-U.S. markets. It also forces Alberta to align itself with Ottawa’s activist industrial policy—picking winning and losing technologies in the oil-production marketplace, and cementing them in place for decades. A very mixed bag indeed.

Kenneth P. Green

Senior Fellow, Fraser Institute