Pathways Alliance CCUS Project: Assessing the Financial Burden on Alberta Taxpayers

Pathways Alliance CCUS Project: Assessing the Financial Burden on Alberta Taxpayers

With the Canada-Alberta Memorandum of Understanding now finalized and intensive implementation talks scheduled for the coming months, many residents of Alberta are questioning the extent of additional provincial financial support that will be directed toward the Pathways Alliance Carbon Capture, Utilization and Storage initiative.

Approaching Deadlines and Funding Uncertainties

The April 1st deadline for an agreement between the federal government, Alberta, and Pathways partners is rapidly approaching. This agreement is a critical prerequisite for the approval of the bitumen pipeline to the British Columbia coast that Alberta strongly desires. However, a central question remains: how much funding will be sufficient to move the project forward?

Over recent years, both Ottawa and Alberta have offered generous investment tax credits for CCUS development. The federal budget from November even proposed extending Ottawa's tax credit program for an additional five years beyond 2030. Despite these fiscal incentives, they appear inadequate to push the Pathways Alliance toward a final investment decision.

Escalating Costs and Economic Considerations

There is growing concern that both capital and operational expenses for Phase 1 of the Pathways project may now exceed initial estimates from 2023. One significant economic factor involves how private-sector investment in CCUS technology might help companies mitigate carbon costs under Alberta's industrial carbon pricing system, known as TIER.

While the MOU suggested Alberta would work on establishing a definitive schedule to increase the TIER minimum effective carbon price to at least $130 per tonne, Premier Danielle Smith has recently indicated reservations. She expressed concern that too high a TIER price could disadvantage Alberta competitively against the United States, emphasizing it must remain at "a level that the industry can afford."

This creates a fundamental tension: a lower carbon price inherently reduces the profitability of carbon capture initiatives, potentially widening the funding gap for the Pathways project.

Potential Provincial Funding Mechanisms

If carbon pricing adjustments prove insufficient, what alternative strategies might the Smith government consider to bridge the Pathways funding shortfall? Several possibilities have emerged:

• Enhanced Investment Tax Credits: Alberta could increase the maximum grant level for new eligible CCUS capital costs under its provincial investment tax credit from the current 12 percent to 15 or even 20 percent. Financial projections suggest a boost to 15 percent could cost between $800 million and $1.3 billion through 2035, while a 20 percent credit might require an additional $2.1 to $3.5 billion.
• Indigenous Investment Backstop: The MOU references utilizing the Alberta Indigenous Opportunities Corporation to support Pathways. This could involve an Indigenous equity stake in the project, backed by an AIOC loan guarantee that effectively places the Alberta government as the ultimate backstop. A 10 percent equity stake in Pathways Phase 1 might necessitate approximately $2 billion in support.
• Heritage Fund Involvement: The recently established Heritage Fund Opportunities Corporation, designed to attract investment partners to Alberta, represents another potential funding avenue. The government could potentially use this mechanism to finance an equity investment in Pathways, possibly even partnering with other sovereign wealth funds.

Ongoing Financial Analysis and Transparency Questions

The possibility of additional funding for Pathways has been under consideration for some time. In March 2024, Alberta's Ministry of Energy and Minerals entered into a sole-source contract with TD Securities to act as its financial adviser for evaluating potential provincial fiscal support. This contract was initially set to conclude on October 31, 2024, but was later extended to March 31, 2025.

A subsequent contract with TD Securities for further Pathways financial modeling continued through October 31 of last year. However, questions remain about what additional work has been conducted since then. A recent Access to Information request for recommendations from TD Securities regarding possible Pathways financial support yielded 224 blank pages from the Ministry of Energy and Minerals, raising concerns about transparency in the evaluation process.

As discussions intensify in the lead-up to the April deadline, Albertans await clearer answers about the financial commitments their provincial government is prepared to make, and what the ultimate cost of the Pathways CCUS project will mean for taxpayers.