Prime Minister Mark Carney signs an MOU with Alberta Premier Danielle Smith in Calgary, in November, 2025.Jeff McIntosh/The Canadian Press
The federal government’s pipeline deal with Alberta includes a cancellation fee that critics say is too low to ensure the province holds up its end of the bargain once the new oil infrastructure to the West Coast is built.
The implementation agreement, released on May 15, sets out the conditions under which a new pipeline will be constructed. It stems from a November memorandum of understanding, struck between Prime Minister Mark Carney and Alberta Premier Danielle Smith, that made an industrial carbon price and a major carbon capture and sequestration project conditions for the new oil conduit.
In the fine print of the deal are two clauses that say if Canada or Alberta cancel their carbon pricing regimes, or renege on an insurance policy built into the deal (called carbon contracts for difference), they “assume sole liability.” The contracts are partly meant to give companies a guarantee that a future government won’t rip up the policy, thereby wiping out costly investments they would need to make to abide by the new rules.
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That total liability is not explicitly detailed in the agreement but is capped at $1.2-billion, according to the Alberta government. While federal Energy Minister Tim Hodgson appeared to confirm the cap in an interview with The Globe and Mail after the plan’s release, requests for clarification and more information were not directly addressed over four days last week.
The capped liability acts as an exit ramp for any government that would prefer to pay the fee rather than expose industry to the higher costs it must bear through the new climate plan.
Ryan Fournier, a spokesperson for the provincial Environment Minister, said the cap is meant to protect either Alberta or Ottawa in the event of a change in government or a change in policy.
In his interview, Mr. Hodgson argued it was a large enough sum to keep Alberta in the plan.
“They have 1.2 billion reasons not to renege on their obligations,” Mr. Hodgson said. “By the same token, the federal government has the same obligations.”
The capped liability surprised many energy and climate observers, some of whom told The Globe they thought it was a mistake. One of the concerns was that the cap isn’t high enough to dissuade a future government from ripping up the climate plan after a pipeline is in place.
Another concern is that the capped liability could undermine the certainty companies need to make costly emissions-reducing investments, because it will be too easy for a future federal or provincial government to change policy and kill their business case.
A massive carbon-capture project in the oil sands, known as Pathways, will be predicated on the carbon-pricing scheme.
The Globe sent repeated e-mails to the federal government last week, seeking clarity on the liability. The federal energy and environment departments punted the questions to the Privy Council Office, which is the bureaucratic arm of the Prime Minister’s Office.
To a question first sent on Tuesday, the Privy Council Office on Friday still did not have an answer to share.
In a statement that didn’t address The Globe’s questions, spokesperson Pierre-Alain Bujold said the plan represents “a joint commitment to strong and predictable carbon markets.”
Critics argue the capped liability undercuts the entire premise of the plan and risks a repeat of what happened with the Trans Mountain Pipeline expansion. In 2016, then-prime-minister Justin Trudeau approved the pipeline on the express conditions of an Alberta carbon price and a cap on oil sands emissions.
The pipeline got built but the cap was later scrapped, along with the consumer carbon price, after Alberta’s NDP government was defeated by the United Conservative Party. The industrial carbon price was never fully implemented.
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The new deal between Ottawa and Alberta slows down the pace at which the industrial carbon price will go up, but beginning in 2030 creates a more reliable carbon market by imposing a price floor.
“It’s just not a big enough liability,” said University of Ottawa professor Nicholas Rivers. A $1.2-billion price tag to end a deal is not a strong enough incentive to stay in it when compared against the multibillion-dollar costs of a pipeline, Prof. Rivers said.
“The big concern that this doesn’t properly address is that pipelines are irreversible and policy is very reversible,” he said.
The Alberta government did not send a response addressing these concerns. However, an official said the province is motivated to keep the deal in place because it gives it control over the management of the carbon-pricing system.
The Globe is not identifying the official, who was not permitted to disclose internal deliberations.
The $1.2-billion total liability for scrapping the deal matches the $600-million liability that Ottawa and Alberta will each incur to create the carbon contracts for difference. The system is supposed to act as a guarantee – or insurance policy – for companies that are worried a future government could cancel carbon pricing and make their emissions-reducing investments worthless.
Fear of policy reversals is especially pronounced in the climate field, where companies have regularly seen governments dramatically change the rules of the game, said Michael Bernstein with the non-profit Clean Prosperity.
He said he is worried the capped liability will cause companies to wait on the sidelines instead of making prompt investments in emissions-reducing technology.
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Given the expected multibillion-dollar capital cost of Pathways, for instance, it is surprising that the contracts aren’t larger to give companies and their investors comfort, said Robert Johnston, director of energy and natural resources policy at the University of Calgary’s School of Public Policy.
He gave a hypothetical: If companies spend $10-billion by 2029 on a CO2 capture project, and the plug gets pulled on carbon pricing by a new government after an election, does $1.2-billion represent enough insurance?
“I would have expected it to be more. I don’t know how much more, but more than that.”
Tyson Dyck, partner with the law firm Torys, is willing to take a rosier view. While the capped liability could be used as an escape hatch, he doesn’t see that as the intention, in part because future governments always have an option to legislate away the liability.
“I would veer in that more optimistic direction,” he said, “rather than predicting one of the parties finds a way to get out of this agreement as soon as possible.”