‘Skin in the game’: How Alberta and Ottawa plan to fix provincial carbon market

CALGARY — The Alberta and federal governments have tied up one of the last remaining loose threads hanging from the energy accord they signed late last year.

The memorandum of understanding included a goal to increase the carbon cost industry emitters truly bear to $130 a tonne. But they did not set out a timeline or details on how it would be implemented. On Friday — a month and a half past the governments’ self-imposed April 1 deadline — Prime Minister Mark Carney and Alberta Premier Danielle Smith announced an agreement on the nitty gritty details.

Here are some highlights from the plan:

The status quo:

Alberta has had an industrial carbon pricing regime for almost two decades. Under its Technology Innovation and Emissions Reduction policy (TIER), each facility that emits more than 100,000 tonnes of carbon dioxide a year is subject to a certain performance benchmark.

Facilities that fall under the limit can generate and sell credits. Those that exceed their limit can comply by buying credits, investing in on-site carbon reducing technology or paying into a provincial technology fund.

Federal and provincial officials agree the program hasn’t been working. Though the “headline” price for the amount paid to government is set at $95 a tonne, it’s rarely the cost polluters bear in real life. That’s because there is a surplus of credits in the marketplace, which acts like any other based on supply and demand.

The ready supply has pushed down what’s known as the “effective” price to less than half the headline price. In that scenario, companies aren’t compelled to reduce their emissions because it’s must more cost-effective to offset them with cheap-as-dirt credits.

What’s changing:

Both governments have agreed to target an effective carbon price of $130 by 2040. That is to be done by both gradually raising the headline price from its current level and setting a floor price for carbon credits, with the effective price falling within that range. The minimum transfer price for the trade of credits is to rise to $110 in 2040 from $60 in 2030.

“This gives industry the time and certainty needed to plan, invest and deliver real emissions-reducing projects without undermining competitiveness,” Smith said before she signed the agreement alongside Carney.

Several climate advocates panned the move.

“There will be no effective action to reduce oilsands emissions for a generation,” said Chris Severson-Baker, executive director of the Pembina Institute clean-energy think tank.

Rick Smith, president of the Canadian Climate Institute, agreed the timeline stretches too long.

“The deferred timeline on carbon pricing risks watering down industrial carbon pricing systems in other provinces, like B.C., which would otherwise be at a significant competitive disadvantage.”

But Michael Bernstein, president and CEO of Clean Prosperity, said the deal strikes a “difficult balance” as Canada juggles environmental, economic and national unity challenges.

“The agreement is a material improvement over the status quo, even though the near-term climate benefits will be modest,” he said.

The Alberta government estimates that by having its own carbon pricing regime instead of having to comply with the federal one, industry will save about $250 billion through 2050. The federal backstop would have required a carbon price of $170 per tonne by 2030.

“The new industrial carbon tax plan improves on earlier proposed versions yet still represents a unique cost to Canadian oil and natural gas producers,” said Lisa Baiton, head of the Canadian Association of Petroleum Producers.

“If growing Canadian energy exports is our goal, we should not be adding costs to oil and natural gas production when no other directly competing country has done so.”

An insurance policy, of sorts:

The agreement seeks to provide long-term investment certainty for those pursuing green projects. Both companies have agreed to issue “carbon contracts for difference” to those pursuing emissions reductions investments between 2030 and 2040. If the federal carbon policy is repealed, for instance, Ottawa would be on the hook for the difference in the carbon price. The same would go for Alberta if it gets rid of TIER.

Both governments have agreed to jointly fund contracts covering up to 75 million tonnes of emissions reductions up to a maximum liability of $600 million each.

“In other words, we will have skin in the game so that that market actually works,” Carney said at the signing event.

Bernstein called the carbon contracts for difference provisions one of the most significant parts of Friday’s deal.

“This program promises to be a game-changer for unlocking low-carbon economic growth — one that can be expanded across Canada.”

This report by The Canadian Press was first published on May 15, 2026.

Lauren Krugel, The Canadian Press