KAPLAN: Carney and Smith’s net zero gamble could cost Alberta billions

A devastating combination of higher Alberta carbon taxes after 2040 and more taxpayer financial support are on the way to meet the Carney-Smith net zero emission (NZE) agenda. Prime Minister Mark Carney and Alberta Premier Danielle Smith are expected to ink a deal later this week to increase Alberta’s industrial carbon tax through 2040. The Alberta carbon tax is expected to rise to an effective price of $130 per tonne by 2040, facilitated partly through increases in emissions intensity tightening benchmarks, and possibly the use of carbon contracts for difference, designed to stabilize Alberta’s soft carbon credit trading market..UPDATED: Carney, Smith reach tentative deal on carbon tax hike to $130 by 2040.But it is important to look at the deeper math beyond government-generated headlines when confronted with Carney-Smith NZE. Based on major elements expected to be in the agreement on Alberta carbon taxes, I estimate that greenhouse (GHG) emissions in Alberta will be about 250 Mt by 2040, including around 95 Mt in the oil sands sector alone, under the Alberta government’s preferred high oil production scenario. This represents about a 20 Mt or 7.5% reduction from the 270 Mt in GHG emissions recorded in Alberta back in 2020. This leaves Alberta just a decade to reduce GHG emissions by the 250 Mt needed to meet Carney-Smith NZE by 2050. Closing the 250 Mt gap will require a mixture of increased carbon taxes and even more taxpayer financial assistance; a troubling brew which could harm the Alberta economy and Alberta’s finances for years to come. The major headline item of the Carney-Smith NZE Memorandum of Understanding (MOU) is reaching NZE in Alberta by 2050. The NZE foundation is built on significant increases in Alberta carbon taxes and taxpayer-backed financial support for NZE-inspired projects. Key elements are the construction and operation of the Pathways CCS project; building a one million barrels per day (bpd) northwest BC pipeline; and effectively doubling Alberta’s oil production to 8 million bpd by 2035. Premier Smith has been enthusiastically pitching the Alberta net zero agenda since July 2022, reaffirming it in the 2023 Alberta climate change plan, talking about it extensively in Ottawa with MPs, and officially signing on to it, along with the Carney federal Liberals, in the NZE MOU..In the NZE MOU, the federal Liberals and the Alberta government agreed to work on a long-term (presumably to 2050) effective carbon price path for Alberta. I have estimated that to reach NZE by 2050, Alberta’s overall carbon tax rate would have to reach at least $371 per tonne by 2050. Ramping up the Alberta carbon tax to that level could add an average of US$5.30 per barrel in costs across all oil sands production. So faced with these numbers, the Alberta government will likely reduce Alberta's carbon tax “sticker shock” by substituting it with more taxpayer-backed financial support over time.In an earlier commentary, I estimated that the major elements of the NZE MOU could require about $380 billion in upfront capital investment, with Alberta taxpayers effectively de-risking various NZE-inspired projects by between $80 billion and $250 billion of that $380 billion through 2050. This will include a combination of such measures as enrichments to Carbon Capture and Storage (CCS) and Direct Air Capture investment tax credits; the use of carbon contracts for difference, loans backstopped by the Alberta Indigenous Opportunities Corporation; having the Alberta Petroleum Marketing Commission physically take royalty barrels in kind and commit those volumes to a long-term take-or-pay contract at a toll above current market rates, effectively guaranteeing a return to pipeline owners; and having the Alberta Heritage Fund Opportunities Corporation finance an equity investment in NZE MOU projects, even to the extent of partnering with other sovereign wealth funds, such as the newly established sovereign wealth fund announced by the federal government.I have been informed that the Alberta government has been doing a lot of economic modelling since January 2026 based on various scenarios, including three based on MOU proposals. Policy levers pulled in the Alberta modelling include adjustments to the TIER price, TIER tightening rates, the Alberta Carbon Capture Incentive Program (ACCIP), and the direct investment option (revenue recycling) under TIER. The Alberta government has been looking at the impact of these MOU scenarios on driving uptake of such emissions reduction technologies as CCS and hydrogen. The modelling also examined the impact of these scenarios on Alberta GHG emission levels, TIER compliance, and electricity generation and capacity through 2050. The scenarios were modelled to assess: how much additional CCS does ACCIP incentivize? How important is the TIER credit price to CCS? What other key technologies are incentivized by the MOU proposal? What are the TIER compliance and emission outcomes under each scenario? However, the Alberta government still refuses to release the detailed results of its economic modelling to Albertans. Why? So, when the MOU agreement on the Alberta carbon tax is signed later this week, don’t focus on the Carney-Smith-generated headline of a $130 per tonne in 2040. Instead, examine the deeper math associated with even higher Alberta carbon taxes and even more taxpayer subsidies needed to reach Carney-Smith NZE by 2050. And demand that Carney-Smith NZE be brought before Albertans for approval in a provincial referendum later this fall. I am very confident that, presented with full impact analysis information, Albertans will tell the Smith government to scrap its commitment to NZE.Lennie Kaplan was a senior manager in the fiscal and economic policy division of the Ministry of Treasury Board and Finance, where he worked on the development of energy and environment policy.

KAPLAN: Carney and Smith’s net zero gamble could cost Alberta billions

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