Prime Minister Mark Carney and Alberta Premier Danielle Smith sign a Memorandum of Understanding before Carney’s energy-related announcement on Thursday.Todd Korol/Reuters
With the unveiling of his government’s much-anticipated new deal with Alberta, Prime Minister Mark Carney’s approach to fighting climate change – and how he intends to balance it with an economic agenda embracing traditional energy industries – has finally come into full view.
And it turns out to be dramatically different from the strategy he inherited from Justin Trudeau, much more so than indicated even in the federal budget a few weeks ago.
That’s not entirely because of Ottawa’s new embrace of a potential oil pipeline to British Columbia’s north coast. Nor its renewed emphasis on a massive oil sands investment in carbon capture that’s supposed to come with it. Both of those projects remain notional, despite the inevitable emphasis placed on them during Thursday’s announcement.
The really big shift, in substantive policy with nationwide implications, is that Mr. Carney is scrapping or weakening most climate-related regulations implemented by Mr. Trudeau, in favour of putting almost all his eggs in the basket of industrial carbon pricing.
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Industrial pricing, targeting the greenhouse gas emissions of large polluters in oil-and-gas and other heavy industries, was put in place at the national level under Mr. Trudeau as well. In fact, it was projected by climate-policy modellers to have the greatest emissions-reducing impact of any government policy if made to work properly, which has not been the case to date.
But industrial pricing was treated by Ottawa as one piece of the puzzle, with other measures reinforcing it or filling gaps on the path toward hitting national emissions-reduction targets and competing in a decarbonizing global economy.
It was obvious before Thursday that Mr. Carney was ready to remove some of those puzzle pieces, in the name of both federal-provincial relations and economic competitiveness. In particular the proposed (but not yet implemented) cap on oil-and-gas sectoral emissions, which even some environmental organizations found clunky and unnecessary, was doomed and is now officially off the table.
With the energy deal, the downgrading of climate relative to other priorities is something that Carney now owns.Todd Korol/Reuters
Less expected was the suspension and likely elimination of the federal Clean Electricity Regulations. That policy, which the budget suggested would remain in place, effectively required provinces to start phasing out gas-fuelled power plants starting in 2035, unless facilities were outfitted with carbon-capture technology. For now it’s being lifted only in Alberta, but that surely opens the door to doing likewise for other provinces that have chafed at it.
The deal also commits to pushing back from 2030 to 2035 a regulated 75-per-cent cut to methane leaks from oil and gas production, generally seen even within the industry as the low-hanging fruit of emissions reduction. Plus there is the pullback from the ban on large oil tankers on the B.C. coast, if the pipeline happens.
Take into account other pullbacks announced earlier this year, including the end of the troubled consumer carbon price and the suspension of the federal mandate requiring electric vehicles to make up a growing share of personal vehicle sales, and it adds up to Alberta Premier Danielle Smith getting her wish on most of the policy items she enumerated as irritants when Mr. Carney took office.
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All this means Thursday’s cabinet resignation by Steven Guilbeault, the former environment minister who shepherded many policies being dismantled, was possibly inevitable.
But whether others can defend the shift from an environmental and even a long-term economic perspective hinges on the one major concession Mr. Carney received in return: that rather than continuing to oppose federal involvement in industrial pricing, Ms. Smith’s government will work with Ottawa to make it effective.
The market-based policy’s relative appeal, in the current economic context, is clear. Its heretofore unrealized potential is not only to curb pollution, but to do so by making industrial spending on clean technology – including carbon capture, in the oil sands and elsewhere – financially appealing.
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But there is a very long way to go from where the system is now to what would be needed to spur those investments – and it requires some leap of faith that Ottawa and Alberta will successfully negotiate that pathway by an April 1, 2026, deadline now set.
The central, rather ambitious objective of those further talks will be to get to what the agreement calls a “minimum effective credit price” of $130 per tonne of emissions. Not to be confused with the nominal carbon price (which is currently $95 in Alberta), the effective price refers to the amount at which carbon credits generated through emissions reductions actually trade.
That level would likely be high enough to make it worth companies’ while to invest heavily in reducing their pollution, to reduce compliance costs or earn revenues by selling credits to other companies to meet theirs. But it’s a far cry from what credits currently trade for, which is well below $30 because of systemic laxness that means too much supply and not enough demand.
Increasing stringency enough to cause the effective price to increase roughly five-fold won’t be easy. It requires finding common ground on thorny questions such as how much to increase the portion of each facility’s emissions that are subject to being priced, whether to include more relatively small polluters in the system to increase credit demand, and whether to set a floor price at which credits can be traded.
The two sides also need to decide when they intend to reach the $130 target, which the deal doesn’t specify.
Then there is the question of how Ottawa can ensure Alberta’s government doesn’t later weaken the system again. The agreement hints at “a financial mechanism to ensure both parties maintain their respective commitments” – which might mean a version of contracts for differences, in which governments take on risk by guaranteeing future credit values – but again the devil will be in the details.
Carney’s remarks about powering AI data centres is a sign that he’s fine with burning more fossil fuels in return for digital sovereignty.JASON FRANSON/The Canadian Press
Wherever it all lands, there is little chance it will achieve the same volume of emissions cuts that the existing regulatory regime would have – in Alberta, or in other provinces for which some of the negotiated policies will form a template.
Leaning on the industrial pricing system to cover electricity, for instance – which the deal vaguely suggests as well – could by no available estimates cut pollution to the extent that the Clean Electricity Regulations would have.
But that seems to be by design, and not just Alberta’s. Both the agreement’s text and Mr. Carney’s remarks the same day were loaded with references to powering AI data centres – an indication that he’s fine with more fossil fuel use in the name of digital sovereignty.
It’s now clearer what Mr. Carney has meant with his repeated references to Canada using both conventional and clean energy to reassert itself globally. And the downgrading of climate relative to other priorities is something that he now owns.
Just how much of a deprioritization it really is will be determined as negotiators get back to the table in the coming months.