A pipeline to B.C.’s northern coast has become the perceived centrepiece of Prime Minister Mark Carney’s negotiations with Alberta Premier Danielle Smith to reset federal-provincial relations.Adrian Wyld/The Canadian Press
The pipeline discourse has gotten away from Mark Carney.
What began as a new Prime Minister simply opening the door to new oil infrastructure – seemingly an attempt to avoid being accused, as his predecessor was, of standing in the way of Western Canadian ambitions – has taken on a life of its own.
Despite nobody yet proposing to build it, and uncertain demand even from the fossil-fuel industry, a pipeline to British Columbia’s northern coast has become the perceived centrepiece of Mr. Carney’s negotiations with Alberta Premier Danielle Smith to reset federal-provincial relations.
It has also, perhaps inevitably, stirred up heretofore dormant interprovincial tensions, with B.C. Premier David Eby unhappy about being excluded from talks concerning a project that would run through his province. Meanwhile, Albertans’ ire is being raised toward their neighbours – Mr. Eby, and much of B.C.’s electorate – for opposing it.
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It’s a dangerous turn of events as Canada tries to row in one direction in the face of trade wars and geopolitical reordering. As is the risk of a hypothetical pipeline, which would have a long and bumpy and legally fraught trajectory at best, becoming the most high-profile litmus test of whether this country can build new things to assert economic sovereignty.
So if it’s not already too late, this would be a good time – for Mr. Carney, Ms. Smith and everyone else – to take a step back and refocus on what is supposed to be the actual substance of the talks between Ottawa and Alberta.
Despite all the current noise, it is not actually within the governments’ power to make a pipeline happen now. The same goes for the massive investment in carbon capture in the oil sands (generally known as the Pathways project), which Mr. Carney’s government has held up as a necessary companion piece. Both are contingent on private-sector enthusiasm and commitment that has yet to materialize, and the tone or rhetoric of an intergovernmental agreement won’t really change that.
What the negotiations can achieve, and what seemed to be the initial purpose, is to set clear, predictable policy conditions that open the door to those sorts of investments.
Some of those policy discussions are pipeline-specific. That applies in particular to how much, if at all, Ottawa is willing to lift its ban on large oil tankers on the B.C. coast. There is also the possibility of the pipeline being referred to the fledgling Major Projects Office for feasibility consideration, which has already happened with the carbon-capture ambitions.
But at the heart of the talks are policy trade-offs that affect not only those two potential projects, but a much wider swath of more realizable investments as Mr. Carney tries to strike a balance between increasing resource extraction and participating in the global energy transition.
The most consequential of those bargaining chips – and the one that involves the most complexity, far beyond the current public posturing – is the future of the industrial carbon pricing system for heavy emitters of greenhouse gases.
Mr. Carney’s government has already telegraphed that it’s prepared to drop the proposed federal cap on oil and gas emissions, which was put forward under former prime minister Justin Trudeau but has not yet been implemented, in return for a stronger provincial commitment to industrial pricing.
That’s because Ottawa sees the pricing system as the backbone of its efforts to align economic and environmental interests. If it works properly, companies’ ability to earn tradeable credits in return for reducing emissions could provide revenue streams for all sorts of clean-technology investments that wouldn’t otherwise be financially viable. That includes, but is certainly not limited to, the Pathways project that’s supposed to be a pipeline prerequisite.
As it stands, the system is very much not working properly. Administered by Alberta under an agreement in which the province is supposed to meet federal benchmarks, it’s grown so weak - including through a softening of the rules earlier this year - that credits are trading for nowhere near what would be required to incentivize investments. And there is no clear sense of the policy or credit market’s trajectory in the coming years, which is the sort of uncertainty that impedes all manner of capital decisions.
Fixing it is not simple, nor the sort of thing that can be easily landed upon in high-level talks. Merely agreeing to resume increases to the price per tonne of industrial emissions, which Alberta recently paused and would be the most obvious way of publicly signalling recommitment, won’t cut it.
The real heavy lifting, if there is any, will be in more nitty-gritty considerations such as how much to increase the share of each facility’s emissions that are priced (which, in most cases, are currently a very small portion, ostensibly for reasons of trade exposure). And what size of facility is subject to its emissions being priced at all, which is a matter of some dispute between Alberta’s oil-sands giants and some of its smaller conventional oil and gas producers.
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As well, there is the matter of how to ensure that the province will maintain whatever stringency it might promise now. That could be addressed, for instance, through Alberta agreeing to join Ottawa in offering carbon contracts for difference – in which governments effectively guarantee a long-term floor value for carbon credits that companies earn from spending on carbon capture or other clean tech.
Not that industrial pricing is the only complicated form of condition-setting where the two orders of government are supposed to be trying to find common ground. Another is the federal Clean Electricity Regulations, aimed at forcing a phase-out of natural gas for power generation (unless gas plants have carbon-capture technology) starting in 2035. That’s another Trudeau-era policy that Mr. Carney has committed to keeping, but expressed openness to tweaking to add more provincial flexibility.
This is all much less sexy than merely announcing theoretical support for (or opposition to) a pipeline. But it’s what many in industry, as well as environmental groups struggling to get a handle on Mr. Carney’s commitment to climate policy, are waiting to see.
Whether anyone will be able to learn anything specific, based on the agreement that Ottawa and Alberta are currently working toward, is unclear.
The fact that the federal government is describing the potential deal as a memorandum of understanding, which usually means something relatively brief and broad, suggests it may be light on details of new policy underpinnings.
If so, that will just mean that the hard work needed to secure any grand bargain is still yet to come.