The Alberta and Canadian federal governments are finalizing an agreement to raise the province's industrial carbon price to $130 per metric ton by 2040, a critical step toward securing federal backing for a new crude oil pipeline to the Pacific coast.
Details of the Agreement
The terms were discussed at a federal cabinet meeting on Wednesday, and Prime Minister Mark Carney and Alberta Premier Danielle Smith are expected to announce the deal on Friday, according to a person familiar with the discussions. This agreement removes a major obstacle for Ottawa's support of Alberta's pipeline proposal, which is expected to be submitted next month. However, negotiations on a carbon capture system for the oilsands remain ongoing.
Carbon Market Fix
The deal aims to address a malfunctioning carbon market where credits currently trade well below the nominal headline price. It also represents the latest move by Carney to roll back environmental regulations introduced by his predecessor, Justin Trudeau, who had planned for the price to reach $170 per metric ton by 2030.
The $130 figure is an "effective" price, reflecting the actual cost for companies to comply with the industrial carbon tax regime, which applies only to the heaviest-emitting businesses. The agreement includes escalating price floors between 2027 and 2040, the source said.
Environmental and Industry Reactions
Environmental advocates had urged a 2030 target for the $130 price. While the deal reduces the near-term burden on industry, some oil producers have called for the carbon tax to be eliminated entirely, arguing it makes them uncompetitive internationally, especially as countries scramble for supply amid the Iran war.
Broader Context
This agreement marks the third issue settled between Alberta and Canada since they reached a broader memorandum of understanding on energy and environmental policy in November. Deals were reached in March on methane emission cuts and on jurisdiction for impact assessments.
Last year's MOU, called a "grand bargain" at the time, signaled a thaw in relations between the oil-producing province and Ottawa under Carney, who was elected in April 2025. Relations had soured under Trudeau's stricter climate policies, and a simmering separatist movement appears to be moving closer to a provincewide vote.
Exchange for Pipeline Support
As part of the MOU, Alberta agreed to raise its carbon price to ensure it hit $130, but left the timeline to be determined through negotiations. In exchange, Carney's government agreed to suspend clean electricity regulations and support Alberta's plan to build a new million-barrel-a-day oil pipeline to the British Columbia coast. Canada exports most of its oil to the United States, and a new conduit would reduce the country's economic dependence on its southern neighbor.
Current Carbon Prices
Although Alberta currently has a headline carbon price of $95, credits and offsets are actually trading at $40 per metric ton on Wednesday, up from $36 on May 5, according to Albert Ho, manager of the TIER business line at Carbon Assessors, a price tracker. These prices are at their highest since January.
The MOU also promised that the province, federal government, and oil sands firms would develop a framework for the construction of the massive Pathways carbon capture project. No announcement has been made on that topic yet.
