WALLACE: A regulatory ‘House of Cards’ — the hidden costs of Canada’s climate agenda

“Few major oil-producing countries pair high carbon prices with ambitious decarbonization requirements at levels comparable to our country … Premier Smith’s deal with Prime Minister Carney may make a bad investment problem even worse."Julio Mejía and Elmira Aliakbari.Dr. Ron Wallace is a former Member of the National Energy Board.The Trudeau government’s “lost decade” came at a significant cost to Canadians. Real GDP per capita was the worst in the G7, having grown roughly 0.3% per year. By 2024, it was lower than in 2018 — meaning that Canadians had become poorer. Although the Carney government claims that it has the will and the means to reverse that decline, that is far from assured. The “Grand Bargain” Memorandum of Understanding (MoU), trumpeted as a reset of federal-provincial relations, faces a looming deadline of April 1. In an attempt to conform with the federal 2025 "Climate Competitiveness Strategy" designed to make Canada a “clean energy superpower”, the MoU repositions climate policy away from a regulatory/cap-and-trade narrative toward a mix of industrial carbon pricing and investment tax credits. The central pillar of that strategy requires provinces and territories to reach net-zero by 2050 through established carbon prices rising by $15 per year to perhaps $170 per tonne in 2030. It remains to be seen if these ambitious goals are attainable. The Pathways Alliance CCUS project (now the Oil Sands Alliance) is the linchpin of the MoU, with measures solely aimed at Alberta’s heavy oil production sector. It is the only plan capable of delivering the emissions reductions required to preserve or expand oil sands production. However, it is monumentally expensive, technologically complex, and dependent on sustained government support. Its success will determine whether the MoU’s emissions goals are achievable. In short, there is an MoU that is, in turn, predicated upon a CCUS megaproject that is ultimately predicated upon an agreement for an Industrial Carbon Price. The MOU is also predicated on achieving partnerships with indigenous rights-holders, many of whom have expressed opposition to the deal. As the complex negotiations proceed, one could rightfully question if the MoU could become a “regulatory house of cards” with little chance of improving any prospects for a new pipeline. .By imposing ambitious emissions-intensity requirements on Alberta’s oil sector, the MoU does not address the economic or technological challenges of producing and exporting “decarbonized oil.” Instead, it leaves those burdens to producers, midstream operators, and pipelines without offering a coherent federal-provincial framework for cost-sharing or risk mitigation. CCUS megaprojects and requirements for electrification, methane abatement and low-carbon hydrogen integration would require tens of billions in capital investment that may require guaranteed terms for long-term carbon pricing and investment tax credits. Those terms are of significance for investors, especially given the extreme volatility of Alberta’s compliance credit market, where TIER credit prices collapsed from C$39 to C$17 in 2025.Questions about the feasibility and marketability of “decarbonized” oil bring into question the viability of Alberta’s “Grand Bargain.” Can Alberta, or Canada, much less the industry, afford this? Although the federal government has asserted that low-emission oil will be competitive in a “net-zero world,” it does not claim that such oil would obtain a price premium, asserting instead, without evidence, that decarbonization is necessary to avoid “a loss of market share.” Over the past two decades, Canada has consistently contributed between 1.4% and 2% of global emissions. While the federal government remains committed to achieving "global climate leadership," largely and selectively on the back of Alberta’s oil and gas sector, Canada is projected to fall well short of its 2030 emissions target. The MoU requires Alberta to accept monumental costs to “decarbonize” its oil while other Canadian producers and importers escape those measures. Understandably, representatives of the Western Canadian oil and gas sector have begun to question assumptions behind industrial carbon pricing. These and related announcements underscore the dual-track, seemingly contradictory approach that Ottawa has taken to meeting national climate commitments with brave words which, without the participation of Alberta, are empty promises. Moreover, these policies are increasingly in marked contrast to those of competitive jurisdictions, as Canada pursues policies like those to reduce methane emissions that would impose further material costs on the industry.Canada continues a headlong rush into policies for Net Zero, moving faster and more comprehensively than peer jurisdictions with measures far more prescriptive than many G7 peers, even as economic and political conditions suggest a more cautious approach. By attempting to align Alberta with unattainable federal aspirations for Net Zero, the MoU may yet become a regulatory house of cards — an outcome in which Alberta stands to gain none of the promised benefits but risks continued investment capital flight. Negotiations with the federal government should not be regarded as a liability to be managed but as a responsibility to achieve better outcomes for Albertans — one in which we do inadvertently create a regulatory and economic “demon of our own design.”Dr. Ron Wallace is a former Member of the National Energy Board.

WALLACE: A regulatory ‘House of Cards’ — the hidden costs of Canada’s climate agenda

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