Pathways Alliance president Kendall Dilling, left, says he's optimistic because of renewed interest in breaking down barriers to creating infrastructure in Canada.Jeff McIntosh/The Canadian Press
A massive investment in carbon capture technology in Alberta’s oil sands, to which Prime Minister Mark Carney has tied his support for new fossil-fuel export infrastructure, still faces an uphill battle.
The proposed series of emissions-reducing commitments by the Pathways Alliance – a group that represents the six companies that dominate oil-sands production – has recently gained new life from Mr. Carney’s focus on fast-tracking nation-building projects, while trying to balance resource-sector growth with sustainability goals.
Despite talks with Ottawa stalling out late last year, Pathways president Kendall Dilling told The Globe and Mail this week that he’s now feeling optimistic, because of a “real, renewed interest in getting past some of the barriers that have been slowing infrastructure down in this country.”
But based on recent interviews with people privy to the current state of play, including industry and government officials, the two sides are not yet much closer to overcoming the barriers to this particular project.
And potential solutions being proposed by carbon capture advocates, many of them relying on new forms of co-operation between Ottawa and an Alberta government that has run hot and cold on oil-sands emissions reduction, will test both how badly Mr. Carney wants what he has controversially called “decarbonized oil,” and how adept he is at forging compromise.
Alberta working with oil companies on proposal for pipeline to B.C.
The Pathways project would undeniably be massive. It would make a huge dent in oil-sands emissions if built, which makes it such an attractive prospect for a federal government eyeing a greener economy while showing renewed interest in what Mr. Carney calls conventional energy.
At the heart of it lies a planned 400-kilometre-long pipeline that would transport carbon captured at oil-sands facilities to an underground hub near Cold Lake, Alta. The alliance says that would reduce emissions from oil-sands production by 22 megatonnes a year.
Roughly a dozen oil-sands facilities spread across the Lower Athabasca Region would participate. Each would capture CO2 onsite, and ship it via pipeline to the main transportation line.
Canadian Natural Resources Ltd. has already submitted a swath of applications on behalf of Pathways – 61 in all – as it takes the first steps in getting required approvals from the Alberta Energy Regulator.
But while Mr. Carney’s infrastructure focus thus far has primarily involved accelerating federal regulatory processes, the obstacles to Pathways are chiefly financial.
Prime Minister Mark Carney holds a meeting with representatives of Canada’s energy sector in Calgary on June 1.Jeff McIntosh/The Canadian Press
It’s not so much a matter of capital costs, despite Pathways carrying an estimated $16.5-billion price tag if all of its component projects were built. Under former prime minister Justin Trudeau, Ottawa already put in place an investment tax credit that would cover up to 50 per cent of those costs, and Alberta has topped that up with an additional 12-per-cent subsidy.
The impasse, rather, has been around high operational costs, and an unwillingness of either government or industry to take on a high degree of revenue risk.
Since carbon capture will not add to oil’s sale price, its financial value would likely have to come from generating carbon credits. In theory, oil-sands producers would be able to reduce their compliance costs under Canada’s industrial carbon pricing regime, and – after exceeding their regulatory requirements – sell their credits to other companies.
Pathways members have argued that they can’t proceed in confidence, because the credit market has yet to really take shape, and is clouded in too much uncertainty, including around the extent to which governments will continue to maintain and strengthen the industrial-pricing regime.
Mr. Trudeau’s government tried to get past that hurdle by offering a rather complex form of revenue certainty generally known as carbon contracts for differences (CCfDs), in which the government would effectively guarantee or prepurchase carbon credits from companies investing in carbon capture − either profiting or suffer a loss depending on what the credits wound up trading for.
Carney lays out federal criteria for fast-tracking infrastructure projects
And it designated the Canada Growth Fund (CGF), a $15-billion federal agency launched in 2023, as the vehicle for providing those deals.
But while the CGF has managed to strike a couple of smaller agreements to secure other carbon capture commitments − including with Strathcona Resources Ltd., an oil-sands producer that does not belong to Pathways – it has yet to come close to a Pathways deal.
That’s because the CGF has balked at the high level of credit-price certainty that Pathways is seeking. Combined with the size of Pathways’ proposed projects, it would likely require the agency to take on well north of $10-billion, eating up most of a budget also meant to support other forms of clean tech. And the CGF’s negotiators have surmised that the level of risk would be inconsistent with their mandate to stay capitalized by earning back their total investments.
Under Mr. Trudeau, the government seemingly agreed with that assessment.
Alberta, Saskatchewan premiers push for port-to-port corridor as Carney touts energy security at G7
So far, Mr. Carney’s government has not directed the CGF to provide the level of assurance that Pathways is seeking, according to two sources familiar with the negotiations; nor has it indicated willingness to take on that level of risk elsewhere on the government’s books. The Globe and Mail is not identifying the sources because they were not authorized to speak publicly about the talks.
And if anything, the math has actually gotten worse in recent months. That’s because Alberta Premier Danielle Smith has frozen the provincial carbon price (which it administers under an equivalency agreement with Ottawa) rather than applying a scheduled annual increase, while casting some doubt over its future – further contributing to long-term credit-value uncertainty.
That means Mr. Carney may have to pull several levers, if he wants to try to get Pathways across the finish line without forcing an unpalatable degree of risk onto federal taxpayers.
One of those would be to get Alberta, which previously embraced industrial carbon pricing, to recommit to it. An obvious trade-off for doing so would be Ottawa dropping its separate regulatory cap on oil-and-gas sector emissions, which was planned under Mr. Trudeau but has not yet taken effect.
(While the emissions cap should theoretically incentivize carbon capture investments as well, it has been extremely contentious, and there is confusion around how it will interact with existing credit markets.)
Alberta Premier Danielle Smith has frozen the provincial carbon price rather than applying a scheduled annual increase, further contributing to long-term credit-value uncertainty.Liam Richards/The Canadian Press
Ottawa could also wield the stick of otherwise imposing the federal industrial-pricing backstop if Alberta’s system is not strengthened.
In addition, Mr. Carney’s government could encourage or incentivize Alberta to link its carbon market with other provinces, potentially strengthening demand for credits generated through carbon capture, which Natural Resources Minister Tim Hodgson identified as a priority during his first speech to an Alberta audience last month.
Michael Bernstein, who heads the think tank Clean Prosperity – which advocates for carbon capture, and CCfDs to enable it – suggested that it may also be necessary to get Alberta to share some of the revenue risk with Ottawa.
“The best path forward is for Alberta to commit to strengthening its industrial carbon pricing system and prove its commitment by offering carbon contracts in partnership with the federal government,” Mr. Bernstein said, suggesting that could also enable other carbon capture projects in the energy-rich province outside the oil sands.
Clark: Should Canada build a pipeline to the West or the East?
Exactly what would be required of Ottawa to entice Alberta into that arrangement is unclear. Possibly it could be part of a compromise around Alberta’s wish for new oil and gas pipelines, although no such proposals are currently awaiting approval.
Asked about the Alberta government’s willingness to potentially join Ottawa in taking on revenue risk, the office of provincial Energy and Minerals Minister Brian Jean provided a statement that called carbon capture a priority for the province, and said it is “waiting on more information on what is needed to support further advancement in the sector such as contracts for difference.”
Ultimately, the prospects could depend largely on the extent to which Pathways wants to work with both governments.
A common perception in Ottawa, during the fruitless negotiations that happened during Mr. Trudeau’s final months in office, was that the industry was not motivated to reach a deal, because it was counting on this year’s election putting in place a Conservative government that would welcome increased fossil-fuel production regardless of its emissions profile.
That the election instead resulted in the Liberals likely being in power for years longer, under a Prime Minister seemingly more committed to working with the sector, is thus far the one development that has improved Pathways’ odds since the previous round of talks.
But Mr. Carney has choices to make about how much he’s willing to put on the table, and whether he can find a way to reconcile financial fundamentals that deterred Mr. Trudeau.