The MOU is a vision; Canada still needs the pathway

The recent Alberta–Canada memorandum of understanding (MOU) on industrial carbon pricing has generated both optimism and concern. Some view it as an important step toward reconciling economic growth with emissions reduction, while others remain skeptical.

Portions of Alberta's energy sector, particularly the oilsands industry, are concerned that industrial carbon pricing could undermine competitiveness unless the other components of the MOU — including carbon capture, utilization and storage (CCUS), active carbon-credit markets, and supporting regulatory and financial frameworks — operate in an integrated and efficient manner. CCUS involves capturing carbon dioxide from industrial processes and either using it in commercial applications or permanently storing it in deep geological formations.

If a CCUS project captures and permanently stores a tonne of carbon dioxide, an industrial producer could pay a CCUS provider to remove that tonne from its emissions footprint. If the resulting carbon credit has a market value close to the carbon price, the credit can effectively fund the carbon removal service. In this way, the carbon market becomes more than a compliance mechanism; it becomes a financing mechanism for emissions reductions.

Investors considering multibillion-dollar CCUS projects require greater certainty regarding carbon-credit values, revenue mechanisms, and the long-term rules governing carbon management before committing capital. At the same time, some environmental advocates view the MOU as a retreat from effective climate action, questioning whether it will deliver emissions reductions at the scale and pace required to meet Canada's international commitments. While these perspectives differ, they point to the same underlying issue: the MOU establishes a vision, but the implementation pathway needed to achieve that vision has yet to be developed.

Industrial carbon pricing is intended to encourage investment in technologies and practices that reduce carbon emissions. These efforts support Canada's climate commitments and seek to mitigate the risks associated with rising global temperatures, including increasingly frequent and severe floods, wildfires, droughts, and other climate-related impacts.

The success of the MOU will depend on the policy framework and implementation pathway needed to turn that vision into reality.

The framework must extend beyond the oilsands and consider the Canadian economy as a whole. It should examine emissions-reduction opportunities across multiple sectors, including oil and gas, electricity generation, cement, steel, and fertilizer production. It must also assess the role of current and emerging technologies, including CCUS, hydrogen, nuclear power, electrification, methane reduction, energy efficiency, and process innovation. The objective should not be to favour a particular technology, but to facilitate the most effective and cost-efficient solutions in each application through long-term planning.

An integrated approach is necessary to understand the future supply and demand for carbon credits — the key ingredients of an efficient carbon market capable of supporting CCUS investment. CCUS may play a particularly important role over the next decade by enabling large-scale emissions reductions while other technologies mature and become commercially viable. Given the scale of emissions from the oilsands and other hard-to-abate industries, CCUS may be one of the most practical near-term options available.

Equally important is establishing a policy framework capable of attracting investment for efficient deployment and operation of CCUS. This includes carbon credit-market design and, for CCUS, monitoring and verification standards, infrastructure planning, regulatory certainty, and accountability for public spending.

Long-term aspirations such as net zero by 2050 alone are not enough. Canadians need to understand what emissions reductions are expected by 2030, 2040, and 2050, and how those reductions align with Canada's climate commitments. A credible pathway requires measurable milestones as well as long-term goals.

An integrated pathway that connects long-term economic growth, emissions reduction, industrial competitiveness, carbon-credit markets, technological innovation, and public support into one coherent framework is necessary if the MOU's vision is to be realized.

Raj Retnanandan is an energy and utilities consultant in Calgary.