Natasha Bulowski, Local Journalism Initiative Reporter, Canada's National Observer

Alberta Premier Danielle Smith has long demanded the federal government roll back climate policies, further support its highly polluting fossil fuel sector, and threatened a constitutional unity crisis if she doesn’t get her way. 

On Thursday, Prime Minister Mark Carney blinked. 

The two leaders signed a memorandum of understanding that immediately exempts Alberta from clean electricity regulations and abandons the proposed cap on oil and gas emissions, while offering federal support to build a new bitumen pipeline from the oilsands, through the Rockies and dense forests of Indigenous nations, until it reaches the BC coast where the oil would be loaded onto tankers and shipped through a marine protected area. 

The MOU states a new “bitumen pipeline to Asian markets” is a priority for Canada, and that if a new pipeline is ultimately approved under the Building Canada Act, the federal government will exempt it from the oil tanker moratorium. 

In exchange for this, Alberta will commit to industrial carbon pricing — a prerequisite for a viable carbon capture utilization and storage (CCUS) industry — and offer subsidies for the Pathways Alliance CCUS project. 

The truce between Alberta and the federal government has lit a political firestorm for Carney and revealed a preference for governance by fiat. 

In response, Steven Guilbeault quit Carney’s cabinet. Under former prime minister Justin Trudeau, Guilbeault served as environment minister and helped create many of the laws and regulations dismantled in Carney’s deal with Smith. Until Thursday, Guilbeault served as minister of Canadian identity and heritage.

“[O]ver the past few months, several elements of the climate action plan I worked on as Minister of the Environment have been, or are about to be, dismantled,” Guilbeault wrote in a statement, listing many of the climate measures traded off in Carney’s deal with Alberta.

Despite Carney previously promising any major project would require the consent of affected provinces and Indigenous groups, rhetoric has proven separate from action. 

Many impacted First Nations, including the powerful Coastal First Nations alliance, remain fiercely opposed to the plan. Council of the Haida Nation president Gaagwiis told Canada’s National Observer the federal government did not speak with him — despite the Haida Nation currently negotiating its title to the waters oil tankers would threaten. BC Premier David Eby was not consulted on the agreement, and reportedly told Carney on a phone call it was “unacceptable” to not be included in the negotiations. 

Even the Liberal cabinet was not briefed on the deal until days before it was publicly unveiled. 

The MOU is the result of months of closed-door negotiations. Privy Council Clerk Michael Sabia, who Carney poached from Hydro-Quebec, stickhandled the terms from the federal side. 

A briefing note prepared for federal Natural Resources Minister Tim Hodgson Canada’s National Observer received through an access to information request described Alberta’s “special negotiating team” was angling for a binding agreement across a number of issues reflected in Thursday’s MOU.

Alberta wanted “guaranteed” access to the Pacific, Arctic and Atlantic coasts, as well as the repeal of the oil tanker moratorium, clean electricity regulations, the oil and gas emissions cap, the electric vehicle sales mandate and any federal policies directed at industrial carbon emissions. 

The MOU covers access to the Pacific and carves out exemptions for Alberta for the oil tanker moratorium and clean electricity regulations. The federal budget signalled the oil and gas cap would not proceed, and in September Carney paused the electric vehicle sales mandate. The only climate plank the federal government defended was industrial carbon pricing. 

The MOU does not appear to prevent Alberta from double crossing Ottawa on this pact if a pipeline is built. 

But the last time Ottawa agreed to a “grand bargain” with Alberta in exchange for a pipeline, the province and its oil industry turned their back on the agreement — fighting the regulations they had agreed to. Catherine McKenna, the environment minister whose government made the deal, said this week she regretted it. 

“I would never trust them,” she told Canada’s National Observer, referring to the oil companies.

Carney told reporters that the MOU does not guarantee a pipeline will be built. Among the requirements will be a private sector proponent, equity ownership with First Nations, and “substantial economic benefits” for British Columbians. 

“If there’s not [a] private sector component, there won’t be a pipeline,” Carney said. But for him, the agreement is about “much more” than a pipeline, he said. 

“It’s also the Pathways Project — the world’s largest carbon capture storage project — a project that will make Alberta energy, specifically oil and gas, competitive for the long term, because it’ll make it low-carbon.”

Carney said the deal will benefit the Canadian economy for decades to come.

“In effect it creates an energy transition … but really sets the stage for an industrial transformation,” he said. “At the core of the agreement is of course a priority to have a pipeline to Asia, that’s going to make Canada stronger, more independent, more resilient, more sustainable.”

But climate experts disagree that the pipeline agreement helps the Canadian economy in the long run.

“At a time when Canadian climate change policy needed increased certainty, today’s MOU does the opposite,” said Rick Smith, president of the Canadian Climate Institute in a statement. 

He said the effects will spill over to other provinces and industries that face regulation from Ottawa.

“Investor certainty drops when rules become negotiable. Carve-outs for Alberta invite copycat demands from other provinces and territories, and could trigger more policy fragmentation across Canada. 

“With this agreement, the federal government risks doing significant damage to minimum national standards that will have broader impacts on Canada’s climate change efforts,” he said. “Such standards are essential to maintain economic cohesion and avoid a dysfunctional patchwork of provincial policies with conflicting market signals.”

The MOU specifically says Alberta and Canada are aiming to reduce the emissions intensity of heavy oil to “best in class” by 2050 — the year Canada has committed to reach net-zero emissions. 

According to research published this month by the UK-based Carbon Tracker think tank, government revenues from oil and gas are extremely vulnerable in a world that is quickly decarbonizing. 

“Clean energy deployment and transport electrification continue apace, bringing the global economy close to a peak in oil and gas demand. In a world of declining demand, prices are likely to be lower than many forecasts suggest,” Carbon Tracker found. “Canada’s high-cost production is particularly at risk, with provincial governments facing substantially lower tax-take in the coming decades, placing pressure on budgets.”

Alberta’s revenues from oil and gas would fall from $153 billion to $23 billion — a staggering 85 per cent drop — if governments can limit global warming to 2 degrees Celsius. 

Carney said before the signing that the Pathways Alliance carbon capture project would ensure that Canada is able to export lower emissions intensive oil as a way to remain globally competitive through the energy transition, but Carbon Tracker poured cold water on the idea. 

“CCUS investments risk delivering poor value for money and absorbing public subsidies that could be better used elsewhere,” the report found. “While capturing a certain proportion of operational emissions could allay some importers’ concerns around the oil sands’ high carbon intensity, it would not insulate Canadian producers from demand substitution from the energy transition.”

The Pathways Alliance’s $16.5-billion plan involves capturing carbon dioxide from oilsands sites in northern Alberta and transporting them to an underground storage site south of Cold Lake, using 600 kilometres of pipelines. 

Smith said the Alberta government has already begun negotiating with the Pathways Alliance, made up of oil companies that collectively represent 95 per cent of oilsands production, to build the megaproject.

She said she was hopeful the project will be built because the CO2 captured from oilsands sites would be used for enhanced oil recovery — industry jargon for ​​pumping the carbon underground to extract more oil than would otherwise be possible. 

Smith said she wasn’t initially a fan of carbon capture technology, but using it for enhanced oil recovery “changed my mind.” 

Kelsey Jacko, chief of Cold Lake First Nations, said his nation has raised concerns since 2023 but have not been included in key discussions between Ottawa, Alberta and industry. Speaking to Canada’s National Observer he said he feels railroaded. 

“They’re pushing it through, ramming [it] down our throats, harder than they did before,” he said.

Jacko said Cold Lake’s shoreline has changed dramatically and water levels are dropping. Industrial activity has long dictated how water is used, he said, leaving their people with unanswered questions that are often dismissed about safety and environmental impacts.

The project would pass through an already stressed region, raising concerns among Cold Lake communities about worsening water shortages, since carbon capture demands large amounts of water from the Lower Athabasca watershed.

Thursday’s MOU does not commit Alberta or Canada to negotiating with First Nations affected by the Pathways project. Instead, it commits to negotiating a “tri-lateral” MOU between Canada, Alberta and the Pathways companies. 

— With files from Sonal Gupta

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