Prime Minister Mark Carney and Alberta Premier Danielle Smith have signed an energy agreement that could usher in a new oil pipeline as both representatives from both governments and industry are sharing their expectations on what comes next, and what this means in regard to carbon pricing in Alberta.
The agreement sets out a plan for Alberta to increase its effective industrial carbon emissions price in Alberta to $130 per tonne by 2040, and the headline price to $140 by that time. The current price was frozen at $95 per tonne. In exchange for this, the Alberta government will submit a proposal for a new oil pipeline, to which the federal government says it will “pursue” to designate the pipeline as a project of interest by October 1st. If these two projects ultimately go ahead, they would go ahead together, as the construction of a pipeline is contingent on going ahead with the Pathways project – the government has stated that they’ve been clear since the beginning that they would be going ahead together. It will be up to the Alberta’s Department of Energy as well whether a private proponent by the July or October deadlines.
The new carbon pricing agreement provides stability to the industry and industry players, who can assess the impact of the carbon price, though it will most likely mean higher costs for those companies. The government has said that after Alberta submits its proposal, they will look at the details and make a decision in the fall whether it meets the criteria of a project in Canada’s national interest. There are many considerations that go into these decisions, including consulting with Indigenous rights holders, which is very much part of the process.
What is the TIER system and what does it affect?
The Technology Innovation and Emissions Reduction Regulation (TIER) is at the core of emissions management in Alberta. The TIER system implements Alberta’s industrial carbon pricing and emissions trading system, and it helps industrial facilities find innovative ways to reduce emissions and invest in clean technology to stay competitive and it helps save money across the board.
TIER regulated facilities include those that emitted 100,000 tonnes or more of carbon dioxide equivalent (tonnes CO2e) per year in 2016 or any subsequent year, or those that import more than 10,000 tonnes of hydrogen annually. Facilities with emissions less than this threshold may opt-in to the regulation if the facility competes directly with another regulated facility, emits 2,000 tonnes CO2e or more, and belongs to an emissions-intensive, trade exposed sector.
Conventional oil and gas aggregates are also included, as the owner or operator of 2 or more conventional oil and gas facilities may apply to have those facilities regulated under the TIER regulation by applying to form a conventional oil and gas aggregate. More information for conventional oil and gas facilities is available on the TIER conventional oil and gas sector website, if you’d like to learn more.
Under the TIER system, compliance obligations are determined based on a facility’s benchmark(s), which establishes allowable emissions. Facilities can meet compliance obligations in the following ways:
- reduce on-site emissions including application of capture recognition tonnes
- submit emission offset credits
- submit emissions performance credits
- purchase fund credits by paying into the TIER Fund at the prescribed TIER Fund Price
Large emitters or opted in facilities experiencing economic hardship may be able to receive economic relief through the Cost Containment Program.
The Alberta Emission Offset System enables the generation of Emission Offsets Credits that may be used by regulated facilities to meet their compliance obligation under the TIER regulation.
TIER was amended in 2025, and these updates to the system will drive investment at large industrial facilities, helping companies stay competitive and to protect jobs. These changes will help to empower Alberta industries to invest in on-site emissions reduction technologies that works for their specific businesses. Making Alberta’s TIER system even more effective and flexible as well will make industries more globally competitive while maintaining Alberta’s leadership in emissions reductions.
How can lower carbon prices affect the Alberta market?
Industrial carbon pricing is a market based policy designed to deliver least cost emissions reductions in heavy industry like cement, steel, oil, and gas. At the same time, it’s also designed to protect the competitiveness of those sectors, given they compete in international markets. It’s an approach that was actually pioneered in Alberta with Canada’s first industrial carbon pricing system all the way back in 2007.
Creating incentives to reduce emissions, but not production, is a win for heavy industry while also being a smart way to drive private investment into emissions reducing projects like the Pathways carbon capture and storage project. Without an effective carbon credit market, Pathways doesn’t generate revenue. When the LETS works properly, carbon credit sales can generate money flow. Mobilizing private dollars using markets is a much more cost-effective and more fiscally sound approach to unlock carbon capture rather than just only government subsidies.
How do these prices compare to previous targets?
The trajectory of the prices in comparison to previous targets isn’t as drastic as it might seem. It will be rising from the current fixed provincial level to $100/tonne by the end of the decade and then rising by $3 per year until it hits the $130/tonnes target. Alberta’s previous system froze the industrial carbon price at $95 per tonne, and the former federal carbon benchmark targeted $170 per tonne by 2030, as they were aiming that it would be much higher as time went on. These are all different since the carbon tax was removed last year and has not been replaced as of yet.
Why is the pricing changing?
The price for Alberta’s industrial carbon is increasing because the provincial and federal governments agreed to a new, structured timeline to raise the baseline carbon price as mentioned previously so that they can have federal support for major oil pipeline projects. Essentially, it’s an agreement that the prices will rise to ensure that their pipeline projects can go ahead down the line once they’re finalized and approved. The price is changing to get other projects going and to ensure that everything works out favourably without damaging the environment further or without more regulation down the line.
