By Paul Vieira
OTTAWA--Canada's oil-rich province of Alberta agreed Friday to a stringent levy on carbon from its energy producers, the first of a series of conditions it has to meet before Prime Minister Mark Carney backs a new crude-carrying pipeline to the Pacific Coast.
The higher industrial carbon tax is the latest development in Alberta Premier Danielle Smith's bid to build a new pipeline aimed at meeting the energy demands from the faster-growing economies in Asia. With a deal on an industrial carbon tax now settled, Canadian officials will now focus on talks with energy producers in Alberta about the construction of a carbon-capture storage project that Carney has repeatedly said is required before pipeline construction can start.
The steps by Canada and Alberta are an attempt to capitalize on demand for energy from sources other than the Middle East, given the geopolitical uncertainty exposed by the U.S.-Iran conflict. Furthermore, Carney is pushing for the construction of new trade corridors and the development of resources to restore economic resilience and reduce dependence on trade with the U.S. to restore growth.
Alberta said it would raise its levy on carbon emitted by industry from its current per-tonne level of 95 Canadian dollars, or the equivalent of about $70, to C$140 by 2040. Officials from Alberta said the staggered increases would save its energy sector up to C$250 billion in compliance costs, and provide certainty to investors about the regulatory landscape. Under a previous policy from former Prime Minister Justin Trudeau, the industrial carbon tax was set to climb to C$170 by the end of the decade.
Alberta has also agreed to compel producers to annually improve their emissions intensity, or carbon output per facility.
Carney said the agreement is about positioning Alberta and Canada as reliable and attractive investment destinations. Building a pipeline, while protecting the environment, "will make the country more independent, more resilient, more sustainable."
Alberta now has until July 1 to submit a proposed pipeline project for federal backing. Should the proposal pass muster while other conditions are met, Carney could declare the pipeline project to be of national interest--thereby accelerating the approval process. Construction could begin as early as September 2027.
Smith said the two levels of government "have agreed to targeted policy changes that create the conditions necessary for Alberta to significantly increase its energy production and exports to Asian and other global markets." She added Canada is now on a path to become "a global energy superpower at a time when energy security has become a top priority around the world."
Progress toward federal approval of a new pipeline marks a sea-change in relations between Alberta and Ottawa under Trudeau. Alberta and the federal government were largely at odds for roughly a decade about environmental policy, with Smith and oil-industry leaders arguing Trudeau's measures to fight climate change threaten to upend the province's livelihood and economic potential. Some of that frustration is reflected in an upstart movement in Alberta to champion secession from Canada.
Environmental groups, however, expressed disappointment. Allowing Alberta to raise its industrial-carbon tax at a sharply slower pace "means there will be no effective action to reduce oilsands [carbon] emissions for a generation," said Chris Severson-Baker, head of the Pembina Institute, a think tank focused on climate-change policy. "This decision guarantees that oilsands emissions will continue to rise year over year."
The energy sector is Canada's largest source of carbon emissions, government data indicate, accounting for about 30% of total greenhouse gases. Carney said the industrial-carbon tax alongside other changes to Alberta's carbon-credit market "that are going to move the province, the country toward lower emissions, and toward net zero."
Alberta's proposed pipeline still faces a number of hurdles, and some energy-sector watchers remain skeptical the project gets built. At the moment, there is no pipeline operator or consortium of investors willing to back the project--likely reflecting concern about the political risk involved. Smith has said she is hoping a private-sector investor comes aboard.
In 2016, Trudeau blocked a proposed Alberta-to-Pacific Coast pipeline spearheaded by Enbridge. Enbridge's Chief Executive, Greg Ebel, said earlier this year that the company is not keen to take on the financial risk of developing a new Canadian crude corridor.
The existing Trans Mountain pipeline recently expanded its capacity, due in part because the Canadian government took over ownership. Kinder Morgan, which originally led the expansion, abandoned the project, citing regulatory risk.
"I have not been able to speak with any entity that will write a check for the project," said Eric Nuttall, a senior portfolio manager at Ninepoint Partners, and in charge of the asset manager's energy-equity fund. Without significant, taxpayer-backed financing, a new pipeline project "is dead-on-arrival," he added.
Meanwhile, Carney said the pipeline is dependent on the construction of a carbon-capture storage project known as Pathways. The text of the agreement calls for an annual reduction in carbon emissions of roughly 16 million metric ton--or the equivalent of removing 90% of the combustion-engine vehicles from Alberta's roads--per year, through the Pathways project and the deployment of other technologies.
Canada, Alberta and five major energy producers--Canadian Natural Resources, Cenovus, ConoccoPhillips's Canadian unit, Imperial Oil and Suncor Energy--are to begin talks on Pathways. Officials said they hope for a Pathways deal by as early as July 1, or around the same time Alberta submits a pipeline application.
The Oil Sands Alliance, the group behind the Pathways project, did not immediately respond to a request for comment. Some political and industry observers said that both the federal and Alberta governments might be required to step up with additional funding to kickstart construction.
Furthermore, Carney said the pipeline is contingent on appropriate consultation with affected indigenous communities, and that the Pacific-coast province of British Columbia securing economic benefits from the project. British Columbia Premier David Eby has opposed the new project, arguing it poses a risk to the northwestern Pacific coast and would disrupt the livelihood of the region's residents.
Write to Paul Vieira at paul.vieira@wsj.com
(END) Dow Jones Newswires
05-15-26 1651ET
