Ottawa, Alberta agree on carbon pricing to advance plan for new oil pipeline

Open this photo in gallery:

Alberta and its energy industry moved closer to their goal of a major new oil pipeline to the Pacific Coast after the province and Ottawa signed a long-awaited deal on carbon pricing and emissions reductions.

Prime Minister Mark Carney and Premier Danielle Smith finalized on Friday a key part of a memorandum of understanding they signed last year.

The pact ties Ottawa’s support for a potential one-million-barrel-a-day pipeline to Alberta’s commitment to increase the carbon price it imposes on oil producers and reduce greenhouse gas emissions through carbon capture and storage, also called CCS.

The plan, though, is rife with potential pitfalls. The coalition of oil sands companies that are expected to build the carbon capture project are opposed to the carbon price. There is no private-sector proponent yet for the building and financing of the pipeline. There is no agreed-to route through British Columbia, where Premier David Eby on Friday sounded a sour note on the plan. And the potential for challenges from Indigenous groups looms large.

But with the announcement, Mr. Carney is emphasizing his intent to bolster the Canadian economy by developing its natural resources in the face of geopolitical uncertainty and trade friction, while Ms. Smith seeks to expand her province’s oil sector as she faces a separatist backlash at home.

The agreement delays and waters down the policies brought in by former prime minister Justin Trudeau to dramatically cut emissions. On Friday Mr. Carney said that plan was not practically workable and he insisted his own environmental credentials remain intact.

The Prime Minister said the agreement knits together economic growth, emissions reductions, energy security and affordability.

“Everything has to fit together and the combination here does, which is why we’re very proud to have this agreement and we will do everything to implement it,” Mr. Carney said.

The government said that by 2040, the carbon price paid by the market will be $130 per tonne. However, the floor price, which is the fee enforced by the government, will be set at only $110 per tonne for 2040.

Officials at a technical briefing compared the $110 price point to a minimum wage, and said that their modelling shows the fee that is actually paid will be higher. Alberta will start regulating a floor price in 2030, at $60 per tonne.

The officials also said they had no updated numbers to release on the impact the new carbon pricing scheme will have on overall emissions. The policy is considered the backbone of the federal climate plan, but when Mr. Trudeau was prime minister, it was much stricter, at $170 per tonne by 2030.

Mr. Carney said the lower carbon price will apply across the country pending consultations with other provinces.

Alberta’s Premier said the deal gives industry the certainty it needs to invest and does not undermine competitiveness.

“It means that we are much closer to attaining our joint ambition to make Canada into a global energy leader and a trusted supplier of responsibly produced lower-emissions energy in the world,” Ms. Smith said.

Climate advocacy groups were unsparing in their criticism of Friday’s announcement, accusing the Carney and Smith governments of betraying the country, undercutting national ambition on industrial carbon pricing and taking a sledgehammer to plans to combat climate change.

The Canadian Climate Institute, which is partly government funded, said rather than ensuring Canada is on track to hit net-zero emissions, the new accord between Alberta and Ottawa unravels the plan.

It will “put Canada’s target of net zero by 2050 well out of reach,“ said the group’s president, Rick Smith. ”It also means that Canada will be on path to achieve its 2030 target at a much later date, creating more than a decade of delay.”

Others disagreed with detractors. Clean Prosperity, a Canadian climate policy advocacy group, said the deal represents an important break with policy that wasn’t working for the environment or for business. And the Business Council of Canada and the Chamber of Commerce lauded the deal for delivering certainty to business and the oil and gas industry.

Alberta will submit an application for a new oil pipeline to the West Coast to Ottawa’s Major Projects Office on or before July 1. The federal government will then look to designate the pipeline as a project of national interest by Oct. 1.

If that designation is made, the government will assess the project under the Building Canada Act to determine the conditions required for construction and development. While acknowledging that it needs to meet its obligations to consult with Indigenous Peoples, the agreement says Ottawa will make “best efforts” to provide a conditions document for the pipeline by Sept. 1, 2027.

Alberta officials said oil could flow in a new pipeline by 2033 or 2034. First Nations with territories on B.C.’s Northern Coast are staunchly opposed to the plan. However, a potential alternative route, running largely adjacent to the Trans Mountain pipeline to Burnaby, B.C., is being discussed.

Alberta and Ottawa say they are in talks with British Columbia on the oil pipeline application and Mr. Carney will meet with Mr. Eby next week. The B.C. Premier has been adamant in his opposition to any repeal of the federal North Coast tanker ban and accused Ottawa of caving to threats from Alberta.

“As a country, it’s time to stop rewarding bad behaviour,” Mr. Eby said in a statement. “It cannot be the case that the projects that get prioritized in Canada are those where a Premier threatens to leave the country.”

For the Prime Minister, though, the pipeline is a key plank in his arguments to Albertans that they are better off in Canada than outside of it.

“Today is also about building trust in a Canada that works,” he said.

In a joint letter to Mr. Carney on Friday, the chiefs of Alberta’s Sturgeon Lake Cree Nation and Mikisew Cree First Nation vehemently panned the agreement. They urged the Prime Minister to withhold federal support until Ms. Smith commits to keeping the separatist referendum off the ballot this fall.

A new oil pipeline to the West Coast remains dependent on the construction of Pathways, a massive carbon-capture and storage project in Alberta’s oil sands. However, the finalized agreement significantly waters down the scale of the project by reducing the expected emissions cuts from it.

The original aim of Pathways was to reduce emissions by 22 megatonnes per year. Friday’s agreement scales that down to 16 megatonnes per year. And it sets the in-service date at 2035, rather than the previously stated 2030.

A memorandum of understanding between the Oil Sands Alliance behind Pathways, Alberta and Ottawa was supposed to be struck by April 1, but remains unfinished. In a Friday press release the alliance said it would work with the two governments but also argued against any carbon price at all.

Canadian Natural Resources Ltd., Cenovus Energy Ltd., ConocoPhillips Canada, Imperial Oil Ltd. and Suncor Energy are the companies that make up the alliance.

Conservative Leader Pierre Poilievre saluted Ms. Smith for reaching a deal but said the industrial carbon tax still needs to go, while NDP Leader Avi Lewis said the agreement marks the Carney government’s surrender to the oil and gas lobby.