The future of Canada's six-year-old carbon pricing system is uncertain after 14 oil and gas CEOs and the opposition leader called for its repeal. Abolishing the system, which incentivizes heavy industry to reduce carbon emissions, poses risks to the viability of the Pathways Alliance carbon capture project.
Canada faces shifting priorities as discussions about finding new energy markets intensify. This political shift has encouraged some Canadians to argue that the country has prioritized climate goals over economic growth for too long.
Conservative Leader Pierre Poilievre has declared carbon pricing a potential election issue, promising to repeal the federal system if elected. Established in 2019, this system aims to reduce pollution by financially incentivizing heavy industries to cut emissions.
Poilievre plans to replace the federal rules with expanded federal incentives, such as tax credits, to encourage companies to lower their pollution. Decisions about carbon pricing would revert to individual provinces.
Currently, industrial operations that exceed emissions thresholds must pay the government or purchase carbon credits. The system is designed to tighten over time, with carbon prices increasing at set intervals.
Newly appointed Liberal Prime Minister Mark Carney, who holds a narrow lead in polls against Poilievre's Conservatives, emphasized the need for industrial carbon pricing to boost trade with allies. For instance, Britain intends to implement tariffs on products imported from countries with less stringent climate policies.
In an open letter, the 14 Canadian oil and gas CEOs argue for repealing the federal scheme to enable provincial governments to establish more appropriate carbon regulations.
The Pathways Alliance, consisting of Canada’s six largest oil sands producers, criticized the current system and emphasized the need for federal policies that support the growth of Canada’s oil sands. They described the existing carbon pricing framework as "uncompetitive."
Several provinces, including Alberta, already have their own industrial carbon pricing systems, which must align with the federal standard.
The CEOs contend that the national scheme places Canada at a competitive disadvantage compared to regions without such a system, such as the U.S. However, many analysts argue that large-scale corporate investments in decarbonization require the financial motivation of carbon pricing.
“Until there is clarity on the future of policy, we are unlikely to see the investment in Pathways materialize,” said Michael Bernstein, CEO of the think tank Clean Prosperity.
The oil sands industry is Canada’s largest carbon emitter, and the proposed Pathways project could become one of the most significant carbon capture and storage developments globally if realized. While Pathways filed regulatory applications for a carbon transport pipeline last March, a final investment decision has yet to be made.
Five of the Alliance's six member companies—Canadian Natural Resources, Suncor Energy, Imperial Oil, Cenovus Energy, and MEG Energy—signed the CEO letter advocating for the repeal of the industrial carbon price, but did not respond to requests for comment. ConocoPhillips Canada, the sixth member, did not sign the letter but reaffirmed its commitment to the Pathways Alliance.
The letter also garnered support from the CEOs of ARC Resources, Veren, Pembina Pipeline, Enbridge, Whitecap Resources, TC Energy, Tourmaline Oil, Strathcona Resources, and South Bow Corp.
In an interview, the CEO of Canadian Natural Resources acknowledged challenges linked to the upcoming election and uncertainty surrounding energy and climate policy. "Those discussions on Pathways have slowed somewhat," Scott Stauth said, referring to U.S. administration views on tariffs.
In recent months, Pathways has been negotiating with the federal government for a backstop to the industrial carbon price, seeking to mitigate risks if carbon pricing is eliminated. No agreement has been reached.
A weakened carbon pricing framework would limit government incentives for projects like Pathways, leaving direct subsidization as a likely alternative, according to Chris Severson-Baker, executive director of the Pembina Institute. “Pathways might just end up becoming another burden for taxpayers.”