On November 27, 2025, the Governments of Canada and Alberta signed a memorandum of understanding (“MOU”) in which they agreed to collaborate, alongside Indigenous peoples, to develop energy infrastructure that supports resource production, export growth and clean energy innovation – all while remaining committed to achieving net zero greenhouse gas emissions by 2050. This agreement will hopefully turn the page on years of political, legislative and regulatory impediments to further development of Western Canada’s vast resources.
Highlights
- Support for the construction of one or more privately financed pipelines transporting at least 1,000,000 bpd of bitumen to British Columbia’s coastline for export to Asian markets as a priority:
- Support for the concurrent construction of the Pathways Alliance carbon capture, utilization and storage (CCUS) project in order to decarbonize Canada’s bitumen.
- Suspension of the Clean Electricity Regulations (“CER”) in Alberta specifically, which regulations would have restricted the operations of existing gas-fired power generation by way of emissions limitations and hamstrung significant commercial developments:
- Paves the way for the construction of thousands of megawatts of power generation to power the development of petroleum, CCUS, AI data centres, critical mineral, agricultural and other commercial activities throughout Western Canada;
- Recognizes Alberta’s approach to regulating heavy electricity generation emitters through its Technology Innovation and Emissions Reduction Program (TIER), which is expected to ramp up to an effective credit price of at least $130/tonne, with a further agreement on future carbon pricing to follow in Q2 2026 and a path to achieve net-zero power grid generation by 2050.
- Agreement not to implement the proposed Canadian oil and gas emissions cap (i.e. production cap), which would have required the phased reduction of emissions from oil and gas to 35% below 2019 levels by 2030-2032:
- Removes a regulatory disincentive to further exploration and development and may be expected to stimulate significant upstream investment.
- Agreement to adjust the ban on oil tankers imposed by the Oil Tanker Moratorium Act should a bitumen pipeline come to fruition.
- Reduction of regulatory overlap and streamlining of approval processes to ensure a maximum 2-year timeframe for permitting and approvals (and shorter where feasible).
Potential Implications of the MOU
Advancement of a pipeline project
While the oft-repeated refrain of pipeline opponents has been, prior to the release of the MOU, that there is “no proponent”, “no money” and “no project”, the promise of the MOU is that each statement will be proven wrong.
Even prior to the MOU (though presumably in anticipation of it), in October the Government of Alberta had indicated that it would act as proponent to develop and submit an application to the Major Projects Office for a pipeline to the British Columbia coast as a project of national significance. That submission was to be aided by the advice and technical support of three major Canadian pipeline companies (Enbridge, South Bow and Trans Mountain) as well as a technical advisory committee comprised of energy industry senior executives and Indigenous leaders.
With the release of the MOU we now know that the application is to be submitted on or before July 1, 2026 at which point there will also be a “project” in existence. Given Canada’s legacy of pipeline opposition, regulatory challenge and political obstructionism, the Alberta Government would presumably de-risk the early phases of the process before a true private sector proponent would emerge to carry the project through to completion. Indeed, perhaps due to Canada’s experience with the Trans Mountain Expansion, where it purchased the project from Kinder Morgan in August 2018 for $4.5 Billion mid-flight in project development and with an anticipated $9.3 Billion budget to completion and proceeded to spend over $34 Billion, the MOU is very clear that any such pipelines could not be government financed.
Whether an industry proponent will emerge is very much the multi-billion dollar question, but the MOU goes a long way towards addressing what Alberta Premier Danielle Smith had proclaimed as the “nine bad laws” that would prevent such a proponent, including the:
- Oil and gas emissions cap – No longer to be implemented under the MOU;
- Project approval process under the Impact Assessment Act (sometimes derogatorily referred to as the “No More Pipelines Act”) – With the pipeline being considered a project of national significance, the Major Projects Office will review and approve;
- Oil Tanker Moratorium Act – To be adjusted under the MOU to permit west coast export;
- Clean Electricity Regulations – To be suspended in Alberta under the MOU.
The MOU, in carefully addressing the various regulatory and policy hurdles to a pipeline proponent, has laid the foundation on which to advance such a project, with the remaining challenges largely relating to Indigenous consultation and British Columbia political opposition. Here too the Alberta and Canadian Governments have taken pains to minimize those challenges, requiring meaningful economic participation by way of co-ownership by Indigenous groups in any pipeline project, a requirement for collaboration with British Columbia to ensure substantial economic and financial benefits are shared and the extension by Canada of opportunities to British Columbia for projects of national interest to be designated.
It remains to be seen, given the fraught social and political milieu in which the project is to be undertaken and the legacy of failed attempts to expand pipeline egress, from Northern Gateway to Keystone XL to Energy East, whether all of these action items and proposals are sufficient to encourage a proponent to undertake the massive capital commitment required to progress a project of such scope. Or indeed, after factoring in the economic costs of equity participation and decarbonizing oil by way of CCUS, whether project economics are sufficient to motivate one or more proponents.
Pathways Project development
As noted above, Canada and Alberta’s goal is to be a global energy superpower that lowers global greenhouse gas emissions by being the lowest carbon intensity oil producer in the world. One of the main ways in which Canada and Alberta can be a source of clean energy is through CCUS – in particular, through the construction and financing of the Pathways project, which would be the largest CCUS project in the world. Proponents of the Pathways CCUS project have been largely in a “wait and see” mode as they have sought regulatory certainty on the development of CCUS and the magnitude of government supports which may be offered given the estimated capital investment of $16.5 billion to develop Pathways.
The MOU makes clear that the construction of the new crude oil pipeline is a prerequisite to the development of the Pathways CCUS project and the Pathways CCUS project is also a prerequisite to the development of the new crude oil pipeline. As such, much of the MOU hinges on these two key major infrastructure projects and the MOU seeks to provide this investment certainty for Pathways and emissions reduction outcomes for the respective governments. It states that both the Governments of Alberta and Canada will work cooperatively with the Pathways partner companies to develop and enter into a tri-lateral MOU on or before April 1, 2026 for a multi-phased approach to delivering a set of emissions savings projects (the “Phase 1 Pathways Projects”), focused predominantly on carbon capture and storage, solvent-based replacements or other actions taken by Pathways that reduce emissions intensity. The Phase 1 Pathways Projects will be built and commence operations in a staged manner between 2027 and 2040 to achieve committed emissions reductions at date-certain intervals, enforceable through potential tax and regulatory measures. The trilateral MOU and the approval and commencement of the initial Phase 1 Pathways Projects will be a precondition to the commencement of the new crude oil pipeline.
The outcome of the co-dependence of the Pipeline Project and Pipelines Phase 1 Projects may be anticipated to be a stable, long-term production source of low, or ultra-low carbon intensity hydrocarbon products – the benefits of which will be available to downstream industry which have become, or may be anticipated to be covered in the future by, verifiable emissions intensity reduction requirements in their own manufacturing or production processes.
Capital expenditures for oil & gas development
Since the announcement of the oil and gas emissions cap, there has been a shadow of uncertainty hanging over the oil and gas industry in Alberta as to how much new capital should be deployed in Alberta and Canada due to the cap, which many viewed as intended to effectively limit oil and gas production in Alberta. However, the MOU seeks to erase this uncertainty by clearly stating that it will not implement the Oil and Gas Emissions Cap. The MOU speaks to unlocking and growing natural resources production in Western Canada to establish Canada as a global energy superpower and enabling Canada to reach its international export goals and, through innovation and intergovernmental cooperation, be a source of clean energy to lower global greenhouse gas emissions. In exchange, Alberta will enhance its industrial carbon pricing and methane reduction programs and collaborate on other initiatives such as carbon capture and nuclear power to reduce its carbon emissions. Canadian-produced LNG, which would also have been subject to the cap, is similarly anticipated to benefit from the elimination of such legislation.
With the elimination of the Oil and Gas Emissions Cap, a potential new crude oil pipeline to the Canadian west coast, and the existing designation of LNG Canada Phase 2 as a project of national interest in British Columbia, it seems likely that there will be an increase in exploration and development investments in Western Canada, with some in the industry calling this MOU transformational. Sources for the capital required for this increase in exploration and development could be anticipated to include public and private equity capital, private equity and pension and other wealth funds.
Opportunities in AI data centre development
The MOU speaks to increasing intra-Alberta electricity generation for consumer and industrial use in Alberta, emphasizing meeting the needs of AI data centres while simultaneously reaching net zero greenhouse gas emissions for the electricity sector by 2050. This is reflective of Alberta’s resource-based industries’ need for reliable base load generation (versus intermittent non-carbon-based generation like solar and wind) and Alberta’s recent push to attract large-scale investments by global players in the AI data centre industry. Each of these is premised on Alberta’s electricity market design (unique to Canada) that is merchant-driven (versus a vertically integrated utility model adopted in a number of other Canadian provinces) and Alberta’s wealth of natural gas to fuel new base load and dispatchable generation (in the face of a dearth of hydro-electric generation or existing nuclear infrastructure).
The MOU also reflects the federal government’s desire to continue to pursue the goal of net zero emissions from electricity generation that had been initially promoted by the previous Liberal Party government’s implementation of the CER. The federal government has also indicated in the MOU that it intends to work collaboratively with Alberta to design policy supports that support the deployment of nuclear technology, CCUS and energy storage to decarbonize the electricity system.
This aspect of the MOU falls on the backdrop of pending changes to restructure the electricity market in Alberta, which are intended to make electricity more affordable, and very recently announced proposed changes to legislation to promote data centre development. Most notably, the latter changes are focused on targeting “bring your own generation” data centres versus grid supplied electricity. While not providing specifics, Alberta additionally commits in the MOU to implementing a policy framework on or before July 1, 2026 to incentivize large investments in data centre development, including incentives for Canadian sovereign computing.
To strike the necessary balance, the MOU commits Canada to suspending the operation of the CER in Alberta on the successful agreement of a new carbon pricing regime – with a ramp up to a minimum effective credit price of $130/tonne – to be negotiated between Alberta and Canada by no later than April 1, 2026. The intention being that the new carbon pricing regime will be administered through Alberta’s existing TIER program and regulations – which have been the backbone of carbon pricing in Alberta for years – with the hope of providing more substantive economic and commercial flexibility for new carbon-based dispatchable generation than otherwise would not be present under the CER.
With much riding on the regulatory predictability of the TIER program, those seeking to invest in Canada should note that it has been an active area of regulatory development in Canada and Alberta over the past year. The TIER program, which operates as an output-based pricing system applicable to large emitting facilities (industry agnostic) and aggregate oil and gas infrastructure in Alberta, is an Alberta system, but is required to meet equivalency recognition with the Canadian federal backstop industrial carbon pricing system. At present, the headline charge for each tonne of excess CO2e is fixed at $95, while compliance credits which may be applied in lieu of the payment of such charge (generated from well-performing facilities and the operation of specifically designated technologies, including CCUS and electricity generation from solar and wind) are presently trading at below $30. By committing to a minimum effective carbon price, Alberta appears to be signaling that it will either tighten credit generation requirements or implement a minimum price floor for trading amongst relevant system participants. Note that the Canadian federal backstop industrial emissions pricing system presently maintains scheduled headline charge increases to $170/tonne CO2e by 2030. Thus, the interaction between the headline charge and the minimum effective charge in Alberta, and the degree of difference between the two under TIER, remains to be seen.
This aspect of the MOU will be an early indicator of success for both Canada and Alberta, since the first sign of whether, and to what extent, some success has been achieved will crystalize on the April 1, 2026 deadline for an agreement on a new carbon pricing regime.
For further discussion of data centre developments in Alberta, please see our separate post on that topic.
Conclusion
The MOU is neither a contract nor a binding commitment, but it recognizes the opportunities afforded to Canada by the bountiful resources at its disposal and provides a road map for responsible development that achieves Canada’s GHG objectives while powering the Canadian economy for decades to come.
The costs are not insignificant, with the imposition of a minimum effective carbon price of $130/tonne and the investment of billions of dollars in CCUS, potentially making Canada’s energy industry less competitive than its counterparts in other global production regions. Nevertheless, it is the bargain that has been struck by government and with which industry will need to find a way to function.
The intended agreement on minimum effective industrial carbon pricing is a foundational aspect of the entire MOU which is, properly, on a defined timeline. Given the reliance on carbon pricing to spur the aspirations contained in the MOU – oil and gas development; the Pathways Project; and AI centre development, any failure to strike such an agreement will very likely be the first indication that success may be out of reach.
The devil will be in the details, and the size and scope of the projects contemplated by the MOU are so massive and the costs so significant that its aspirations may be overwhelmed by the challenges presented, but in at least agreeing to work together in good faith to advance their mutual interests, the Governments of Canada and Alberta have taken a large first step towards creating the environment from which an Energy Superpower may emerge.
The authors would like to thank Carter Ross, student-at-law in the Calgary office of Stikeman Elliott, for his assistance with this article.
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