The taxpayer-funded megaproject hanging over Danielle Smith's energy deal with Ottawa

As Alberta Premier Danielle Smith and Prime Minister Mark Carney look to finalize their proposed energy “grand bargain,” a $20-billion albatross hangs around their necks.

The pair first signed their memorandum of understanding in November of last year, and promised to finalize its details by April 1. The agreement , which is built on a series of complex environmental policies, was viewed by some as the most significant effort in a generation to mend Alberta’s fractured energy relationship with Ottawa, and a major step toward finally realizing energy’s oil and gas potential.

But finalizing the deal would require taxpayers to shoulder a massive financial burden, likely totalling many billions of dollars.

That’s because one of the key promises in the Smith-Carney deal is to build the Pathways carbon capture network, which proposes to gather CO2 from up to 13 oilsands sites in northern Alberta and store the resulting emissions underground. Oilsands companies say the cost to build the project — likely upward of $20 billion — is too big for the private sector to carry, and have called on governments to cover an eye-watering 75 per cent of the construction cost.

While still early in its planning phase, the Pathways project is a massive undertaking, unlike any similar carbon-capture scheme attempted around the world.

If completed, oilsands firms would collect up to 12 million tonnes a year of CO2 from various well sites in the Fort McMurray, Alta., region, according to Pathway’s project description . From there, the carbon would be transported 400 kilometres south via pipeline and injected into deep underground rock formations near Cold Lake, Alta., thereby eliminating the emissions associated with the oil they produce.

“The scale of this is much, much larger than anything that’s been proposed in any other jurisdiction,” said Keith McLaughlin, partner at New West Public Affairs in Calgary.

Due largely to the steep costs associated with Pathways, observers have long doubted whether it would ever actually get built. (Pathways was initially expected to cost around $16 billion, but the group behind the project has more recently estimated capital costs at $20 billion.)

Smith last week suggested that an MOU deal on the Pathways project is unlikely to happen before Wednesday’s deadline, but said she hoped to have a final agreement “in the next few weeks.” Carney confirmed those doubts on Tuesday afternoon, saying he didn’t expect a final deal on Wednesday.

While completing the Alberta-Ottawa MOU doesn’t necessarily depend on pushing the Pathways project ahead, the carbon capture scheme is likely critical to Smith’s hopes for a new oil pipeline to the West coast. The prime minister, for his part, has supported the idea of a new pipeline through B.C., but the MOU clearly states that getting Pathways into its first phase of development is a “precondition to the commencement of the approved bitumen pipeline.”

Completing the MOU with Ottawa is therefore of major importance to Smith, McLaughlin said, as she faces pressure from voters and from within her own caucus to prove that her decision to engage with the feds can yield results.

“There’s a lot of political benefit here for the premier,” he said. “They’ve put a lot on the line here, for sure, but they’re confident they’re going to be able to get it done,” he said.

Far from being loud proponents of Pathways, the consortium of oilsands companies behind the project has itself seemed lukewarm on its benefits, regularly pointing out that pursuing emissions-reduction schemes like carbon capture would add costs and make them less competitive with non-Canadian oil producers. Unlike the oil they produce, carbon dioxide currently has little market value, meaning they can’t generate revenue from the CO2 they sequester.

In February, the group — which is made up of five oilsands companies including Suncor Energy, Cenovus Energy and others — dropped its previous “Pathways Alliance” name in favour of the “Oil Sands Alliance” moniker.

The Oil Sands Alliance did not respond directly to the National Post’s questions, but said in a general statement that the Pathways project would help make Canada a “ global supplier of choice to meet forecasted ongoing oil demand.”

The project, which was officially proposed shortly after the formation of the Oil Sands Alliance in 2021, was proposed during the Trudeau era, when the government had introduced a suite of tightening regulations like carbon taxes and a cap on oilsands emissions. Pathways was seen as a key way to expand oilsands production under Canada’s new environmental regime while also cutting emissions.

Heather Exner-Pirot, special adviser to the Business Council of Canada, said a series of geopolitical and other events in recent years has changed the calculus for many governments, however, including for the federal Liberal government. The MOU, for example, proposes cutting certain environmental policies like a proposed oilsands emissions cap and clean electricity regulations while deepening Canada’s oil export capacity.

“Pathways was created at a time when (climate policy) was an existential threat,” she said. “And now, it’s obviously not a topline issue for voters. Now, it’s very much: build, expand, produce more, be an energy superpower.”

As for the Pathways project, Exner-Pirot said the project remains unpopular for many segments of the public who would ultimately have to pay for its development.

“Who is the demographic that wants that?” she said. “On the right, they won’t be impressed with the $20 billion government spending on carbon capture. And on the left, they also think it’s a waste of money because it supports fossil fuel production.”

The federal government has already introduced tax credits for companies developing carbon capture projects that would let them write off up to 50 per cent of capital costs needed for construction. Alberta has pitched in its own 12 per cent tax credit, raising the total support on eligible costs to 62 per cent. (The oilsands industry has said the offering isn’t enough.)

On top of that, the federal government has created other subsidies that would help oil producers cover operating costs for their carbon capture capabilities after they are built. Primarily, this is likely to come in the form of financial instruments called “carbon contracts for difference,” which essentially ensure that companies receive a set price for every tonne of CO2 they successfully store underground, backed by government guarantees.

Ottawa has already set aside $7 billion for carbon contracts under its Canada Growth Fund, and observers say governments will have to spend many billions more if they are to help cover the day-to-day operating losses tied to carbon capture developments.

• Carney says deadlines under energy deal with Alberta will be missed
• Alberta and Ottawa tout a grand bargain on 'decarbonized' oil but some are skeptical

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