Does a Carbon-Capture Project Offset Canada's Energy Ambitions?

Oil represents one of Canada's most important economic resources. Canada is the fourth-largest oil producer in the world, and it has the fourth-largest proven oil reserves. Fossil fuels represent 7.2% of Canada's nominal GDP (gross domestic product), and 60% of U.S. crude oil imports and 23% of U.S. refinery crude oil intake come from Canada. By all accounts, Canada is already an oil superpower.

As geopolitical turmoil and a tense relationship with the U.S. make Canadians think about recalibrating their economy, Prime Minister Mark Carney is moving quickly to increase Canadian fossil fuel production. Carney is also working hard to strike a delicate balance between his aggressive pursuit of a fossil-fuel-based economy and the sustainability agenda that has long been an integral component of Canadian national identity.

“Nobody knows how long the global economy will rely on conventional energy,” said Carney in a June 30, 2026, video address. “But while it does, as much of that energy as possible should come from Canada, produced responsibly and with a clear focus on lowering emissions over time.”

On July 2, 2026, Carney announced two major projects dedicated to growing Canada's fossil-fuel industry: an energy corridor through the province of British Columbia (B.C.) and a proposed pipeline to transport 1 million barrels of oil a day from Alberta to the coast of B.C. for shipment to global markets. That was not, however, the only significant development of the day.

The governments of Canada and Alberta also signed a memorandum of understanding (MOU) with major oil producers to transport and store greenhouse gas (GHG) emissions from the production processes that will be part of the proposed pipeline.

While the MOU was signed at the same time as the announcement of the pipeline proposal, it was not announced until July 13, 2026.

MOU Spells Out Roles and Responsibilities

The trilateral MOU between Alberta, the federal government, and the five companies that make up the Oil Sands Alliance (OSA) - Canadian Natural Resources Limited, Suncor Energy Inc., Cenovus Energy Inc., Imperial Oil Resources Limited, and ConocoPhillips Canada - outlines four key objectives:

• Expanded market access for Canadian oil, including through the west coast pipeline
• Growing fiscal and regulatory frameworks for oil sands development and production
• Reducing emissions by 16 million tonnes per annum (MTPA)
• Respecting the obligation of consultation with Indigenous Peoples and advancing their economic opportunities.

The OSA companies will reduce their emissions by 6 MTPA by means of the Pathways Project for carbon capture and storage (CCS) by January 1, 2035, with shared transportation and storage infrastructure in operation by January 1, 2032. They will achieve further reductions of 5 MTPA by 2040 and an additional 5 MTPA by 2045 by expanding existing CCS or incorporating new technology as it arises.

Alberta's Technology Innovation and Emissions Reduction (TIER) regulation - an industrial carbon pricing program - will be used to tighten GHG emissions intensity benchmarks each year in a process known as “stringency.” Annual increases in stringency require facilities to reduce emissions, purchase more carbon credits, or contribute increased payments to the TIER fund. Companies that achieve these reductions are rewarded by slowed stringency, which also lowers carbon compliance costs. Stringency will increase for companies that fail to achieve their benchmarks.

Each party to the MOU will have commitments to ensure the project's success. Among them, the OSA will prioritize Canadian technologies along its supply chains, the Government of Canada will finance operating costs for CCS projects and improve regulatory efficiency for oil sands development, and the Government of Alberta will extend its Carbon Capture Incentive Program to 2035 and issue a carbon sequestration agreement to the Pathways Project.

In a press release, Alberta Premier Danielle Smith said that the Pathways project exemplifies the way in which partnerships can contribute to building a stronger nation.

“This agreement shows what can be achieved when governments and industry work together to grow our economy, strengthen our energy security and unlock new opportunities for people across Canada,” said Smith. “The West Coast oil pipeline and Pathways Project are two critical steps towards making Canada an energy superpower and ensuring Alberta remains a destination of choice for investment, innovation and responsible energy development.”

Is Canadian Oil Investment a Cash Cow or a Lame Duck?

On the surface, Canada's investment in developing its plentiful fossil fuel reserves makes sense: develop more than we do now, sell more of it to existing markets, and make more money.

Digging deeper, however, reveals a serious crack in the foundation of this premise: Where is all that extra oil going to come from?

Smith said that she wants to double Alberta's oil production to 8 million barrels a day in a decade. In December 2018, Alberta produced 3.9 million barrels a day, which had increased to 4.8 million barrels by December 2025, marking an increase of 119,000 barrels each year. To reach 8 million barrels in a decade, that number would have to increase by at least 323,000 barrels each year. The recently announced MOU for a west coast pipeline from Alberta to B.C. is intended to facilitate transporting another 1 million barrels of oil per day beyond current rates of production.

In a recent analysis, Peter Nicholson, chair of the Board at the Canadian Climate Institute, said that more pipelines will require more production from new sites. According to Nicholson, production from existing pipelines is already set to expand over the next 25 years by at least 1.2 million barrels a day simply through optimization. Missing, therefore, from the public rhetoric around the new pipelines is a sufficient justification for the investment.

“The acid test is straightforward,” said Nicholson. “Before committing tens of billions of dollars to another west coast pipeline, investors - and ultimately governments - should be able to point to producers prepared to commit very substantial volumes under long-term shipping contracts. Expressions of interest, conceptual proposals and political endorsements are not enough. Without committed production, there is no commercial foundation for the project.”

So what justifies a new pipeline? According to Nicholson, that's a question that has not yet been answered. If optimizations to existing infrastructure will produce an extra million barrels a day, there is no proven case to build a new pipeline capable of carrying 1 million barrels of oil unless someone taps into new oil prospects, which private producers are currently reluctant to invest in.

Nicholson pointed out that through a combination of increased emphasis on sustainable energy in Asia, a preference in industry to optimize existing infrastructure over investing in new developments, and overall moderate increases in global oil demand, the glory days of oil-field booms seem largely to be over. While the oil industry in Alberta has frequently pointed to regulatory constraints imposed by Ottawa as the primary impediment to growing oil wealth, Nicholson noted that removing regulatory barriers will not magically create a market for more oil.

“The commercial case for those investments ultimately depends not on regulation but on expectations regarding future demand, future prices and future profitability,” he said. “If those expectations remain unconvincing, removing regulatory barriers cannot by itself transform an unattractive investment into an attractive one.”

On the other hand, Nicholson said, liquefied natural gas (LNG) could provide a much stronger opportunity. Canada has plentiful formations of LNG, and there is sufficient demand to attract significant private investment in Canadian LNG projects. The market for LNG, Nicholson said, has the potential to pull infrastructure into existence. In the case of oil, however, it is oil infrastructure trying to pull production into existence, which has much bleaker prospects.

Oil will remain a critical component of the global economy for decades to come, and Alberta's existing infrastructure will continue to be a profitable contributor to that. However, there is, as yet, no evidence that Canada requires additional oil infrastructure to make that happen, calling into question the justification for the recent announcements of major oil pipelines and infrastructure expansion as anything other than political theater.

“Canada needs urgently to improve its capacity to build major projects quickly and competently,” said Nicholson. “Energy infrastructure is an essential part of that agenda. But national ambition does not eliminate the need for commercial discipline. The purpose of strengthening Canada's project-building capacity is to support investments justified by long-run economic value, not by political symbolism.”