The governments of Canada and Alberta have agreed to establish a carbon pricing system and agreed on a start date for a new oil pipeline that will be used to export energy to Asian markets, Prime Minister Mark Carney and Alberta Premier Danielle Smith said.
The agreements are part of a broader energy memorandum of understanding signed by Smith and Carney in November.
Under the new agreement, Alberta will agree to increase its headline industrial carbon price to $140 per tonne by 2040. Currently, Alberta’s headline industrial carbon price is $95 per tonne.
The headline carbon price will increase to $100 per tonne next year, $115 in 2030, $118 in 2031, $121 in 2032, $124 in 2033, $127 in 2034 and $130 in 2035.
Thereafter, it will increase 1.5 per cent every year to $140 by 2040.
While the headline price is what governments set, this is different from an “effective” carbon price. Polluters can buy carbon credits from low-emitters and use them to offset the amount they owe to the government.
Alberta’s effective industrial carbon price is expected to be $130 by 2030.
This will be significantly lower than the $170 per tonne carbon price target for 2030, that the federal government set in 2023 for all provinces and territory.
British Columbia Premier David Eby has voiced concern about the increase, saying it gives Alberta an unfair advantage.
“We will not be in a competitive position if Alberta has a special federal carbon price the rest of us don’t have access to in the rest of Canada,” Eby said earlier this week.
The Canadian Climate Institute has argued that Alberta has introduced measures to flood the carbon market with carbon credits, which the institute says would reduce the price for the credits that polluters have to pay.
Under the memorandum of understanding, Alberta will agree to set a minimum floor price for Technology Innovation and Emissions Reduction (TIER) credits.
The federal government said this was an “insurance policy” that would protect against an oversupply of cheap carbon credits in the carbon market.
Alberta will also be exempt from Canada’s Clean Electricity Regulations under the memorandum’s terms. The suspension of the regulations in the province is not contingent on the pipeline being approved.
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The regulations, which are to come into effect in 2035, would set limits on emissions from power generation using fossil fuels. Alberta has long criticized the regulations, as its grid is predominantly powered by natural gas.
The memorandum says Alberta will aim to “achieve net-zero emissions by 2050,” which the province said it will do by working on a new industrial carbon pricing agreement with the federal government.
Also in the memorandum are “multiple ambitious clean energy projects,” Carney’s office said, adding that Alberta’s industrial carbon pricing strategy will be aimed at reducing methane emissions by 75 per cent over the next decade.
Smith said Friday’s deal is around an industrial carbon price, which is different from the consumer carbon price.
“This is not a retail carbon tax. You will not see this on your diesel or gasoline or any of your fill-up bills. You will not see it on your home heating bill,” she said.
B.C. Premier David Eby said it was time for Canada as a country to “stop rewarding bad behaviour.”
“It cannot be the case that the projects that get prioritized in Canada are those where a Premier threatens to leave the country,” Eby said.
NDP Leader Avi Lewis said the deal marked “the Carney government’s official surrender to the oil and gas lobby.”
“By gutting carbon pricing to the point of irrelevance, it has dismantled the last federal climate measure standing. We now have a federal government that no longer even pretends to rein in big corporate polluters,” he said.
Conservative Leader Pierre Poilievre said while he supports the construction of a pipeline, he does not support the hiking of the industrial carbon price.
“Conservatives want a pipeline without a carbon tax, not a carbon tax without a pipeline,” Poilievre said.
“I want to recognize the hard work that Premier Smith is putting in to fight for the good people of Alberta. After 11 years of Liberal anti-resource development policies, she is working to minimize the damage federal policies are doing to her province,” he added.
Friday’s carbon pricing deal puts Canada’s commitment to reach net zero emissions by 2050 “well out of reach,” said Rick Smith, president of the Canadian Climate Institute.
“Alberta is home to the biggest carbon market in the country, covering roughly a quarter of all national emissions. While the changes to the province’s industrial carbon market may improve on the status quo there, this is the lowest of bars,” he said.
“Ultimately, 2040 is too late to reach a market carbon credit price of $130 a tonne in Alberta,” he added.
Analysis from the Canadian Climate Institute shows that the current industrial carbon pricing system costs the oil sands less than 10 cents a barrel as of 2026 and will cost less than 50 cents a barrel by 2030.
The Canadian Chamber of Commerce said the deal was “historic” and would provide “long-term certainty for industry.” However, Candace Laing, the chamber’s president and CEO added that Canada must now turn its attention to the “broader competitiveness” of its economy.”
“That means advancing one-project one-review, reducing red tape, pursuing regulatory and tax reform, and getting businesses focused less on paperwork and more on growing, investing and competing on the world stage,” Laing said.
The federal government and Alberta also agreed on a start date for construction of an oil pipeline from Alberta to Canada’s West Coast, supplying oil to Asian markets.
The pipeline will be built privately and finding a private sector proponent for the project is the “responsibility of the province of Alberta,” Carney said.
“The proposed West Coast oil pipeline would transport more than one million barrels of oil per day. This landmark agreement builds on the collaboration between the federal and provincial governments Following the signing of the Alberta Canada Energy Agreement, which was signed in November of 2025,” Smith said.
The pipeline is the flagship proposal of the agreement.
“The Alberta and Canadian governments have agreed on a pathway to the construction of a new oil pipeline to Asian markets commencing as early as Sept. 1, 2027,” the Alberta government said in a statement.
If Alberta is able to submit a proposal by Canada Day this year, the federal government will submit the proposal to the Major Projects Office, with an aim to have it designated a “project of national interest” for approval under the Building Canada Act by Oct. 1.
Under section 35 of the Constitution Act, the federal government would have a duty to consult with Indigenous group before a project such as this could be approved.
If the project receives that designation by Oct. 1, construction is expected to begin by Sept. 1, 2027.
The memorandum doesn’t say what route the pipeline will take but says Alberta is expected to submit a proposal for the pipeline to the federal government on or before July 1, 2026.
In addition to the pipeline, Alberta will also be exempt from Canada’s Clean Electricity Regulations under the memorandum terms. The suspension of the regulations in the province is not contingent on the pipeline being approved.
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