When it was first announced in 2022, the Pathways Alliance was a way to thread the needle between continuing Canadian oil production and Justin Trudeau’s ambitious carbon emissions targets.
The initiative — now called the Oil Sands Alliance — brought together five major companies that account for almost all production in Alberta’s oilsands in an effort to tackle emissions. Their major carbon capture project aimed to transport CO2 from about 20 oilsands facilities and store it permanently underground in a new hub near Cold Lake, Alta.
It was a social licence of sorts — the oilsands could keep pumping oil but put some money toward capturing the carbon they were emitting in the process.
But four years later, the carbon capture project (which is still called Pathways) has become increasingly nebulous in terms of both environmental impact and who is even paying for it.
“When millions of Canadians are suffering from poor air quality [from wildfires], we’re throwing more money at the oil and gas industry for a pipeline that industry won’t fund for itself,” said Tom Green, senior manager for climate solutions at the David Suzuki Foundation.
“And then we’re adding on this Pathways project, which I would describe as the incredible shrinking fig leaf to pretend that the oilsands industry actually cares about their emissions.”
Earlier this month, the federal and Alberta governments, along with the five Oil Sands Alliance companies, signed an agreement on proceeding with the carbon capture project, which would transport and store about six millions tonnes of CO2 per year by the mid-2030s.
An additional 10 million tonnes of reductions would be sought by 2045.
Prime Minister Mark Carney and Alberta Premier Danielle Smith have reached a climate and energy agreement that opens the door to work on a new pipeline to the B.C. coast as early as Sept. 1, 2027. It includes increasing Alberta’s industrial carbon emissions prices to $130 per tonne by 2040.
That’s a significant climbdown from the oil companies’ initial proposal to capture 22 million tonnes of carbon by 2030. The oilsands emit over 90 million tonnes of CO2 every year.
As part of the agreement, the federal government committed to investment tax credits of 50 per cent on carbon capture equipment and 37.5 per cent on associated equipment for transport and storage. They extended these credits to 2035.
But more significantly, the federal government has committed to offering further financing and support to cover the operating costs for Pathways even after it’s built.
This seems like “a very significant … public support package for the oilsands, which are an extremely profitable industry and probably not the type of industry or sector that Canadians would maybe look at and think needs a hand,” said Janetta McKenzie, director of oil and gas at the Pembina Institute, the energy policy think-tank.
McKenzie pointed out that in addition to the support for Pathways, the new West Coast oil pipeline was set to be 90 per cent publicly funded. On top of that, the Alberta government has indicated it will consider financial incentives to increase oil production itself, to help fill the new pipeline.
Help from carbon credits
A major issue with the current market for carbon storage is the price of carbon credits in Alberta — which are generated by companies that outperform their emissions targets or implement their own carbon storage. The idea is that those companies can sell their carbon credits to companies that go over their emissions limits, creating a financial incentive to cut emissions or invest in carbon storage.
McKenzie said that was how oil companies could have made back the money they spent on a carbon capture project.
“Theoretically, one could generate carbon credits because of the carbon capture project that was built and then sell those credits on the carbon credit market,” she said.
The problem is that carbon credits in Alberta (called TIER credits) were trading at around $35 per tonne at the beginning of this year, far below the official carbon price in Alberta of $95 per tonne.
Alberta is expected to announce new details about its proposed West Coast oil pipeline later this week. Former Alberta Petroleum Marketing Commission CEO Richard Masson discusses what’s still unclear, including the route and private backing.
Kendall Dilling, president of the Oil Sands Alliance, told CBC Calgary’s Eyopener radio show that carbon capture projects don’t make money on their own.
“They’re solely done for the purpose of reducing emissions and improving environmental outcomes. So governments and industry have to work together to figure out that right fiscal sharing in order to make something like this viable.”
Dilling said that for the alliance members, the Pathways project made sense primarily because it would get a new pipeline built and allow oilsands companies to “meaningfully grow production again.”
He added that he expects “some offsetting” of the operating cost of Pathways from carbon credits.
An alternative to more subsidies
Eric Chi, a professor of economics at the University of Guelph, said that current carbon pricing is a market failure that has created an oversupply of credits, which in turn makes emissions reduction projects — including carbon capture — unprofitable.
He said that to help carbon capture projects survive, the government could offer subsidies to keep them running — like what’s been proposed in the latest agreement — or increase the requirements on companies to reduce their emissions.
“For example, if initially you were required to reduce CO2 emissions by 100 tonnes, but now if we raise the requirement to 200 tonnes, let’s say, then they will need to spend more money to buy these carbon credits,” which will go up in price due to increased demand, Chi said.
He acknowledged there are “some forces” that “will say, ‘Hey, we can’t do that. And the forces that I should highlight are essentially the oil companies that will say no to such policies.”
That’s not far off from what actually happened. In 2021, the federal government announced its first tax credits for carbon storage. Oil companies responded by saying it wasn’t enough to get Pathways built, despite record oil industry profits.
Alex Pourbaix, the former CEO of oilsands company Cenovus, said at the time that Pathways would need additional government support over the long term for companies to move forward.
In their recent agreement, Alberta and the federal government have committed to try to bring the price of those carbon credits back up — to a “minimum effective credit price of $130/tonne.” But it still may not be high enough to incentivize a project the size of Pathways, which could cost up to $30 billion.
Mackenzie says that oil companies should be footing some of the bill to reduce their pollution.
Otherwise, “oilsands companies emit and release pollution into the air, the Canadian taxpayer pays for it and there’s no incentive for the oilsands companies to emit less or pollute less.”
“So we just get into kind of a vicious cycle.”
