WIECHNIK: Steel worries and carbon taxes could sink Alberta's pipeline dream

As the days go by, it’s becoming more apparent that the recently signed Carney–Smith memorandum of understanding on energy is less a roadmap to prospective prosperity and more a masterclass in how to complicate something like building a pipeline beyond belief.At the recent unveiling of the Enserva State of the Industry report in Calgary, oil and gas sector leaders such as John Gorman, Halliburton’s vice-president for Canada and the US west coast, said the mood among the bigwigs after the signing of the MOU was “skeptically optimistic.”I’m just skeptical.It seems the more people dig into the fine print of the agreement, the more they find roadblocks to actually getting anything like a pipeline even built.For example, let’s take the possibility of Canadian steel being used in the construction of a potential project.Carney’s recent Buy Canadian Policy sounds great in principle: use Canadian steel, Canadian aluminum, Canadian lumber, etc., on any major project.Build Canadian, employ Canadians, try to keep everything in-house. Fantastic.Now, to be fair, the MOU doesn’t overtly specify Canadian steel for the pipeline. It states that Canada and Alberta will agree to work collaboratively with other provinces (when appropriate) to “develop domestic carbon capture supply chains and Canadian steel and pipe production supply chains.”That’s political-speak for we’d like to encourage investment in domestic steel and pipe manufacturing, if it’s convenient. There’s no guarantee or concrete assurance.Back in June, Canada tightened the tariff rate quota levels for steel products from non-FTA (free trade agreement) countries from 100% to 50% of 2024 volumes. Above those levels, a 50% tariff would be applied.Carney’s government also introduced a tariff rate quota level for steel products at 100% of 2024 volumes and applied a 50% tariff on steel imports above those levels for non-US partners with which Canada has an FTA..Then, a Nov. 26 memo from the Prime Minister’s office reiterated Ottawa’s stance on further limiting foreign steel imports to “ensure that Canadian steel producers have better access to the domestic market,” by slapping 25% tariffs on steel derivatives and “reducing tariff-free access for most foreign suppliers.”This sounds like it should open up the domestic market to Canadian steel mills.However, it may turn the steel market on its head right at the moment Alberta is going to potentially need a massive supply source.Before Trump decided to whip out the 50% tariffs, Canadian primary steel producers traditionally exported over half their output — 90% of which went to the US.Those exports have fallen 24% year-over-year, revenues are down, and since the tariffs, employment in an industry that supported roughly 23,000 direct jobs and a large share of 172,000 jobs in fabricated metals has fallen too.Algoma Steel announced on Monday that it is laying off 1,000 workers due to the tariffs and is closing its blast furnace and coke-making operations. This comes less than a month after the Sault Ste. Marie-based company stated it had completed a $500 million financing transaction with the federal and provincial governments.Also, pipeline steel isn’t generic steel. According to an anonymous source who reached out to the Western Standard, Canada would need to expand domestic pipe-making capacity — at a cost of around $600–700 million officially, and likely over $1 billion when all is said and done..Advocates say Alberta independence sentiment remains strong despite Carney-Smith energy agreement.And where does a lot of steel come from? Metallurgical coal, which is used in producing 71% of the nearly 1.9 billion tonnes of steel made annually.The Coal Association of Canada (CAC) has recently called on Ottawa to formally designate metallurgical coal as a critical mineral, saying the move is essential to safeguarding Canada’s role as a dependable supplier in global steelmaking and to protecting thousands of jobs.We’ll see how much red tape needs to be waded through before that happens.Then there’s the pipeline cost estimate, which, if what happened with the Trans-Mountain expansion is anything to go by, would be around $40 billion, give or take.We haven’t even talked about the cost of the Pathways carbon capture project, the implications that come with mandatory indigenous co-ownership, or the carbon tax.Cue the carbon tax; cue the real trouble.Funnily enough, Carney visited the Algoma Steel mill in Sault Ste. Marie back in late April, where he was asked about the looming trade war with the US, the industrial carbon tax in place, and if he would consider exempting companies — like Algoma — who were working towards having greener technologies in place for the future..Carney responded by saying there was a value to the industrial carbon tax, that predictability encourages investment, and that the tax would help companies like Algoma “leapfrog” competitors from the US and across the globe.Whoops.In a recent interview with the Canadian Taxpayers Federation’s Kris Sims, economist Dr. Jack Mintz now estimates the MOU’s industrial carbon tax increases — combined with carbon-capture obligations — will jack up oil production costs by US$6.40 to US$10 per barrel.Alberta can’t pass those costs to potential buyers, nor should we. Only two other countries demand carbon capture like this — Norway and the UK — Foreign competitors don’t impose anything similar.“You can’t build a pipeline if people are not willing to produce more oil,” Mintz said.If the carbon tax and carbon capture and storage (CCS) eats $10 per barrel, if steel costs rise under new tariffs, and if pipeline construction costs are rising toward $40 billion (or higher) — the economics collapse long before the first shovel hits the ground.So what exactly did Alberta sign up for? That is the question more and more people are asking, and rightly so.The MOU looks impressive, but there’s no guarantee that the conditions — capacity, private investment, regulatory approvals, supply-chain readiness — translate into an actual project.None of the essential pieces are set in stone yet and Smith has said the minimum industrial carbon tax under the MOU — at least $130/tonne through the TIER system, up from its current rate of $95, is still up for negotiation. The cost trajectory for steel is set though and so is the loss of Canadian steelmaking capacity.If you try to build a project to BC’s west coast with Canadian steel, costs will go up, supplies will tighten, and potential investors will give the pipeline the old side-eye and say, “no thanks.”Maybe this MOU was supposed to be a grand bargain with Alberta giving in to some of Ottawa’s green demands and Ottawa giving Alberta a pipeline.However, the costs attached to it make the whole plan look less like a bargain and more like a poisoned chalice.

WIECHNIK: Steel worries and carbon taxes could sink Alberta's pipeline dream

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