Canada, Alberta Strike Carbon Deal Tied to New Oil Pipeline

Canada and Alberta reached a new industrial carbon pricing agreement tied to plans for a proposed 1 million-barrel-per-day crude oil pipeline to the country’s northwest coast.

(Reuters) — Canada's Prime Minister Mark Carney and Alberta's premier on May 15 signed a deal on industrial carbon pricing, part of a broader agreement meant to pave the way for construction of a 1-million-barrel-per-day crude oil pipeline to British Columbia's northwest coast to start by September 2027.

The deal in Calgary will increase the effective carbon credit cost in Alberta's industrial carbon market to C$130 ($94.59) a metric ton by 2040 from C$95, a measure meant to provide oil companies with a financial incentive to cut pollution. But it is unlikely to satisfy oil executives who fear any industrial carbon price puts the industry at a disadvantage to the United States, which does not have a national carbon price, or environmentalists.

It was Carney's first visit to the oil-and-gas city since November, when he and Alberta Premier Danielle Smith agreed to work together to boost investment in energy production, including a new oil pipeline that does not yet have a private sector proponent.

Carney predicted Canada's carbon market and its incentives for boosting low-carbon oil production will entice the private sector.

"I think there'll be a lot of interest here," he said.

U.S. Competition Concern

Alberta froze its headline industrial carbon price in May 2025, citing the need to keep its companies competitive in light of the economic threat posed by U.S. President Donald Trump's tariffs.

Credits in Alberta's carbon market trade between C$20 and C$40 a metric ton, which environmental experts say is too low to incentivize polluters to invest in emissions-reduction technology.

Friday's plan includes escalating carbon price floors to ensure Canada's heavy emitters continue to have incentives to reduce emissions every year. The deal will see Alberta's official carbon price increase to C$100 per ton next year, to C$130 in 2036, and then escalate by 1.5% per year starting in 2036.

Environmentalists had argued for a swifter time frame.

"2040 is obviously a weakening of where we're supposed to be," said Tim Weis, director of industrial decarbonization at the think-tank Pembina Institute.

But the deal ensures Alberta raises its carbon price over time as other provinces are required to do, satisfying a condition Carney set before his government would consider fast-tracking a new crude export pipeline. The agreement for the first time provides a project start date if the governments' legal obligation to consult Indigenous people is met.

Canadian oil companies are keen to expand production, and Alberta has said it plans to bring a proposal for the country's second West Coast oil export pipeline before July 1.

Hurdles Remain

Carney and Alberta have agreed a new pipeline is contingent on the oil industry building a carbon capture and storage project, though under the deal, the project can be phased in over time and would result in less emissions reduction than what the companies behind the proposal first pledged in 2022.

The Oil Sands Alliance - made up of Canada's five largest oil sands producers - has balked at the cost of building the carbon capture project. The group made it clear on Friday it does not support the changes to Alberta's carbon tax system.

Any pipeline to the West Coast would also have to be endorsed by British Columbia and any First Nations whose territories might be affected by the route.

B.C. Premier David Eby said his government will oppose any attempt to repeal the ban on oil tankers off the province's northwest coast.

($1 = 1.3743 Canadian dollars)