Canada just took one big step closer to reaching its energy superpower potential

A tri-lateral MOU between the governments and the six (soon to be five after the Cenovus-MEG merger) Pathways companies on the implementation of the Pathways project. This is expected to involve enhancing federal Investment Tax Credits (ITCs), probably extending some of them out to 2040, and opening the door to enhanced oil recovery projects qualifying for ITCs. On the provincial side, Alberta will be expected to enhance its Alberta Carbon Capture Incentive Program, currently set at 12 percent, which is a significantly smaller contribution than the 50 percent federal ITCs. Industry will have to agree to a timetable for investments, construction, and completion of the Pathways projects between now and 2040, with a combination of carrots and sticks to ensure that projects and emissions reductions are delivered. A federal-provincial cooperation agreement on impact assessments, likely along the lines of what was just agreed to with Manitoba and Ontario by which the federal and provincial governments have agreed to “one project, one review” with provincial authorities taking the lead for most projects, unless it is clearly in federal jurisdiction, with the federal government relying on the outcome of provincial processes to deal with any secondary issues within federal jurisdiction. In and of themselves, it could take months or years to negotiate any one of these agreements, as has been the case on previous carbon pricing, methane, and impact assessment equivalency agreements. Trying to reach four of them in four months is a tall order. But the incentives are strong for both governments to do so. Alberta’s most important goal, a new pipeline to the West Coast to reach Asian markets, is clearly contingent on the development of Pathways and reaching an agreement on the other aspects of this MOU. Assuming that these agreements can be inked by April 1, significant heavy lifting will still be necessary to get a pipeline built. Notably, while the MOU states that the pipeline or pipelines will be “private sector constructed and financed,” Alberta is agreeing to act as the pipeline proponent. And while the MOU refers to consultation and cooperation with British Columbia, it does not state that B.C. would have a veto over the project, as Prime Minister Carney and Energy Minister Tim Hodgson have sometimes implied. But even with the Alberta government stepping into the breach to spearhead the pipeline and B.C. not having the ability to block it, a high degree of First Nations support will be essential. The previous Northern Gateway pipeline project involved consultation with some 80 First Nations, with about 40 of them along the pipeline route. And even though 26 of those 40 had accepted economic benefit agreements with Enbridge, the Supreme Court ruled that consultation had been inadequate. Given the evolution of jurisprudence around the duty to consult and accommodate and the introduction of the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) with its provisions for “free, prior and informed consent” since the Northern Gateway, the judicial expectations for Indigenous consultation and participation today will, if anything, be higher. It is hard to see how a pipeline can be built without a willing First Nations host community or communities at the marine terminus of the pipeline, whether in Prince Rupert, Kitimat, or elsewhere along the B.C. coast, and without support for a strong supermajority of B.C. and Alberta First Nations along the pipeline route. On the other hand, with significant Indigenous support for and participation in the pipeline, likely including a significant equity ownership stake for First Nations, it is unlikely that environmental organizations, minority First Nation opponents of the project, or the B.C. government could be successful in blocking it. To turn this grand blueprint into a completed grand bargain, months of effort on behalf of Ottawa, Alberta, industry, and Indigenous communities will be necessary. But the size of the prize makes it worth trying to do so. An additional 1.4 million barrels of oil per day reaching tidewater (the combined volume mentioned in the MOU of new pipelines plus enhanced capacity on TransMountain) could mean $30 billion per year or more of revenue—a full percentage point permanent increase in Canada’s GDP. There are few, if any, projects of national interest with this kind of economic potential for the country. And if the Pathways project and other emissions reduction measures outlined in the MOU are achieved, these new oil exports would be significantly decarbonized and would, in fact, be the lowest emissions intensity heavy oil in the world. As long as Asia, the United States, and other markets continue to have demand for heavy oil, it makes sense for Canada to try to capture as much of those markets as possible. And as long as the world is trying to reduce carbon emissions and deal with the threat of climate change, it makes sense to prefer decarbonized barrels. Here’s hoping that the atmosphere of cooperation we saw with the unveiling of the MOU will continue over the coming months and years so that Canada can truly advance its goal of becoming a clean and conventional energy superpower.