Ottawa-Alberta deal is the best outcome climate advocates could have hoped for

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Michael Bernstein is president and chief executive of Clean Prosperity.

The carbon pricing deal between Alberta and Ottawa turned out to be more modest in its climate ambition than many climate advocates had hoped – including me.

I still think Canadians should encourage the two governments to build on their agreement from last week in a way that will make it endure. Because if both sides stick to their commitments, this deal could still be a significant win for climate over the long term.

Let’s start with why climate advocates are disappointed. Instead of the industrial carbon price rising to $170 per tonne in 2030, it will now only reach $140 in 2040. And even the floor price for carbon credits – which is more indicative of the actual price firms pay – will rise only gradually, from $60 in 2030 to $110 in 2040.

But what seems like backsliding should actually be viewed as incremental progress. How is that possible?

It’s because we were never actually going to achieve a $170 carbon price in Alberta in 2030. And a climate plan that doesn’t work in Alberta, the source of more than half of Canada’s industrial emissions, isn’t worth much.

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For more than a decade, the federal government and the government of Alberta have been fighting over climate policy. During that time, we’ve made little progress on reducing emissions, outside the electricity sector. Uncertainty about the future of policy has made companies reluctant to commit to massive investments in decarbonization.

This deal breaks the logjam, providing much-needed certainty for investors. True, the deal’s carbon pricing schedule will only incentivize modest emissions reductions in the short term. That’s disappointing. But in the long term, the deal does have the potential to unlock significant investment.

There’s also an underappreciated but powerful decarbonization signal being sent to the oil sector, where carbon credit revenue can now be combined with new incentives for carbon capture through Canada’s Clean Fuel Regulations. The combined incentives should be sufficient to move forward now on the first stage of the Pathways project to decarbonize the oil sands. And over the long term, my organization estimates that tens of billions in other low-carbon investment opportunities will become economically viable if carbon prices continue to rise through the 2030s.

So how do we make the deal stick?

Enter joint carbon contracts for difference – a pledge by both Alberta and the federal government to incur financial penalties if they don’t follow through on their commitments to strengthen the carbon pricing system. The governments have agreed to jointly underwrite 75 million tonnes of Alberta emissions reductions between 2030 and 2040 – equivalent to pulling more than 2.5 million cars off the road. By giving investors the confidence they need to move ahead with large projects, these contracts could be a game-changer for decarbonization.

To ensure that contracts for difference live up to their potential, Alberta and Ottawa need to commit to incurring large enough penalties in the event that either reneges on the deal, in order to convince investors that they’ll uphold industrial carbon pricing over the long term. And they must work out the design of the program quickly, before the end of the year. Firms need clear signals that both levels of government are fully committed to the agreement in order to move forward with low-carbon investments. For complex decarbonization projects, 2030 is just around the corner.

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If we get the details right, the Ottawa-Alberta grand bargain can offer a durable framework – anchored by contracts for difference – that can also be extended to other parts of the country in need of carbon market reform. Case in point: Saskatchewan, where carbon pricing has been paused for more than a year. After last week’s announcement, Premier Scott Moe now says he’s willing to consider a carbon pricing deal based on the Alberta blueprint.

Extending the Alberta deal across the country also offers a golden opportunity to finally link Canada’s carbon markets. An integrated national carbon market would stimulate greater investment in decarbonization at a lower cost, making carbon pricing stickier in the process. Linking carbon markets ticks multiple boxes.

Premier Danielle Smith and Prime Minister Mark Carney have opened a potential path for us to travel together as a country, after decades of disagreement. They’ve done it during one of the most challenging moments in Canada’s history, balancing climate action with the imperative to grow and diversify our energy exports and strengthen national unity.

I understand why climate advocates are disappointed, but I’m cautiously optimistic that this deal can produce real gains for Canadian climate action over the long term. What’s critical now is ensuring that the deal sticks.