Canada Strikes Deal That Sees 2027 Start to Build Pipeline
(Bloomberg) -- Canada and Alberta have reached a carbon pricing deal that would pave the way for construction of a new oil pipeline starting as early as 2027, while scaling back a carbon capture project that Ottawa tied to the plan.
Prime Minister Mark Carney and Alberta Premier Danielle Smith announced the agreement on Friday, which builds on the memorandum of understanding signed in November that outlined conditions for federal support of a crude pipeline to the west coast to serve Asian markets.
It hammers out commitments on industrial carbon pricing, while a trilateral pact between the two governments and a coalition of oil sands companies on the Pathways carbon capture project remains outstanding.
Carney has staked his economic agenda on speeding up major infrastructure projects and lessening Canada’s economic reliance on exports to the US. 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 put in new regulations on 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 on Friday.
The deal sets out scheduled annual increases for the headline carbon price, starting at C$95 ($69) per metric ton this year and reaching C$140 in 2040. But it requires Alberta to target an effective price $130 by 2040, with a minimum floor price increasing annually and reaching C$110 in 2040.
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.
While the headline price falls short of the C$170 benchmark Trudeau had envisioned by 2030, the deal is aimed at fixing a malfunctioning carbon market where credits are traded well below the nominal headline price.
Friday’s agreement tries to shore up an Alberta carbon trading system that has become dysfunctional in recent years with credits and offsets currently trading at about C$40 per metric ton, less than half the current carbon price.
The discrepancy has hindered Canada and Alberta from offering contracts that guarantee the price for carbon needed to incentivize carbon capture and other emissions reduction efforts. Under the agreement, such so-called contracts for difference will be offered by Alberta and Canada for as much as C$600 million each.
The agreement says Canada will ensure the updated federal carbon pricing benchmark is consistent with the one being implemented in Alberta.
However, the deal downsizes the scale of the Pathways project that Carney made a condition of federal support for an oil pipeline to British Columbia.
The coalition of oil sands companies behind the project initially promised they would reduce greenhouse gas emissions by about 22 million metric tons per year by 2030. The new agreement only requires the project to capture 6 million metric tons annually by 2035, hitting 16 million metric tons a year by 2045.
The agreement says Alberta will submit its pipeline application to the federal Major Projects Office on or before July 1, while the federal government aims to designate the pipeline as a project of national interest, allowing for a faster review and approval process.
The pipeline proposal does not yet have a private sector proponent, leaving the Alberta government responsible for finding one as it prepares its application for the project.
If the pipeline is designated as a project of national interest, the federal government is committing to providing the conditions document by Sept. 1, 2027 to allow for construction to begin.
“This agreement delivers long-term certainty for industry,” Candace Laing, CEO of the Canadian Chamber of Commerce, said in a statement. “Canada must turn its attention to the broader competitiveness of its economy,” she added, such as pursuing regulatory and tax reform.
The deal also sets out stringency rates for high emitters, requiring large oil sands firms to reduce their carbon intensities by 2% annually — either by trimming emissions, using carbon credits or paying the carbon price directly.
Firms building and operating the Pathways carbon capture project would only be required to reduce emission intensity by 1% starting in 2030.
Environmental groups decried the longer carbon price timeline, with Sierra Club Canada saying it “effectively guts” the policy’s impact. The Coastal First Nations, an alliance of several Indigenous groups along the BC coast, said: “Nothing has changed and a North Coast pipeline will never be built.”
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