The memorandum of understanding on energy signed in November by the federal and Alberta governments could unlock more than $90 billion in low-carbon capital investment and slash over 70 million tonnes of annual emissions in Alberta, according to a report by Clean Prosperity.

The report by the Toronto-based climate policy organization is based on in-depth modelling of Alberta’s industrial economy, and consultation with experts, industry and policymakers.

“Drafting the agreement was just the first step,” Michael Bernstein, (photo at right), president and CEO of Clean Prosperity, said in a statement. “Now the federal and Alberta governments need to follow through on their commitments in order to deliver huge economic and climate benefits.”

Clean Prosperity’s report calls on both governments to urgently finalize new rules for Alberta’s Technology Innovation and Emissions Reduction (TIER) carbon market — rules that will ensure a minimum effective carbon credit price of $130 per tonne, as specified in the MOU. High carbon credit prices are necessary to incentivize low-carbon investment. 

Clean Prosperity’s analysis shows that carbon credit prices in the range of $130 per tonne to $170 per tonne could unlock over $90 billion in low-carbon capital investment.  

In order to unlock massive investment and emissions reductions, Ottawa and Alberta also need to commit to a financial mechanism — also outlined in the MOU — to provide necessary certainty to industry that the governments will uphold strong carbon markets over the long term, the report says.

Clean Prosperity argues that this financial mechanism should take the form of broad-based carbon contracts for difference issued jointly by the federal and Alberta governments. 

Carbon contracts for difference guarantee the future value of carbon credits for low-carbon project proponents. They improve certainty about project revenues, reduce risk and unlock capital investment.

When it comes to carbon capture, utilization and storage (CCUS), the case for building and operating CCUS projects depends on guaranteed revenue per tonne of CO₂ captured – revenue that comes from selling carbon credits.

By committing to ensure a minimum credit price of $130, the MOU makes an important step toward building the business case for widespread deployment of carbon capture in Alberta, the report says.

But it requires follow-through to strengthen Alberta’s TIER market. In the absence of a strong, durable, predictable price signal in TIER, CCUS deployment will continue to stagnate, even with the support of programs like Alberta Carbon Capture Incentive Program and the federal CCUS investment tax credit, according to the report.

Clean Prosperity says securing credit prices of $130 per tonne is all the more urgent in the wake of the U.S., whose One Big Beautiful Bill Act enhanced the 45Q tax credit for carbon capture. The 45Q offers a US$85 subsidy for each tonne captured.

A $130-per-tonne carbon credit price in Alberta “would cement the province’s competitive edge for attracting carbon capture investment,” the report says.

“This MOU could herald a major turning point for low-carbon investment and climate action in Alberta and across Canada,” said Brendan Frank (photo at right), the report’s co-author and Clean Prosperity’s director of policy and strategy. 

Recommendations for the Alberta and federal governments

Clean Prosperity recommends that the Alberta and federal governments work together to:

1. Finalize TIER market design rules to achieve a minimum effective credit price of $130 per tonne, including a timeline for achieving this price.

Establishing a credit price trajectory as soon as possible is required to cement Canada’s competitive advantage and unlock tens of billions of dollars worth of shovel-ready low-carbon projects, including the oilsands industry’s Pathways Alliance’s $16.5-billion Phase 1 carbon capture and storage network.

The MOU states that this project will be built and commence operations in a staged manner beginning in 2027, which adds to the urgency of finalizing new rules for TIER, Clean Prosperity says.

“Carbon credit prices are what matter most to project proponents and investors, not the headline carbon price. Higher credit prices are the province’s most efficient tool to unlock new investment dollars while reducing emissions.”

Widespread deployment of CCUS in Alberta requires credit prices to rise in value and retain their value over the long term. However, TIER credit prices have declined steadily since 2023 and traded below $20 per tonne as of November 2025.

“Reversing this trend as soon as possible, and ideally achieving $130 per tonne by 2030, can get low-carbon projects going faster,” Clean Prosperity says.

2. Implement the financial mechanism outlined in the MOU in the form of joint carbon contracts for difference (CCfDs).

These CCfDs should be broad-based and backstopped by both the Government of Alberta and the Government of Canada to ensure that both parties maintain their commitments on TIER, and to provide near-term certainty for industry.

CCfDs are the most powerful tool available to governments to provide the certainty needed to make TIER credits bankable for project proponents and unlock low-carbon investments in the near term, Clean Prosperity says.

Importantly, both governments can structure these contracts in ways that create little or no direct fiscal cost and avoid inflating deficits, while still complying with Public Sector Accounting Standards.

Clean Prosperity recommends that the Government of Alberta:

3. Make the Alberta Carbon Capture Incentive Program (ACCIP) as simple and bankable as possible by revising its payout structure for CCUS projects.

In the MOU, Alberta affirmed its support for ACCIP and committed to expanding this program to support the Pathways Alliance project.

ACCIP is a grant of 12 percent for new eligible CCUS capital costs, paid in three installments over three years after year one of operations. Altering the payout structure so proponents can claim eligible expenditures earlier, in the year they are incurred, would significantly increase the program’s value to proponents.

The addition of a recovery mechanism could ensure that grant funding would be returned if a project is shelved.

Clean Prosperity recommends that the federal government:

4. Lift the exclusion of the CCUS investment tax credit (ITC) for enhanced oil recovery (EOR), but only for capture and transport equipment, and at a reduced rate.

In the MOU, the federal government has committed to extend federal ITCs to encourage large-scale CCUS investments, including in the Pathways Alliance and EOR.

Clean Prosperity recommends that EOR projects be able to claim the CCUS ITC at a reduced rate (e.g. half the rates offered for capture and transport for other eligible uses).

Because most EOR is already profitable on its own, Clean Prosperity recommends lifting the eligibility exemption for capture and transport costs only, recognizing that these investments will contribute to the development of learning curves and shared infrastructure that can reduce costs for future CCUS projects.

Strong recovery mechanisms already found in the CCUS ITC would need to be expanded to ensure additionality and eliminate free-riding.

The development of “plug-and-play” CO₂ transportation infrastructure and storage sites across Alberta is a key enabling condition for carbon capture to scale, according to the report. Large enhanced oil recovery projects using CO₂ can serve as anchors for CCUS infrastructure and, in the presence of strong carbon markets, can accelerate scaling.

5. Finalize the federal Clean Electricity ITC to encourage deployment of low-carbon electricity.

Carbon capture is essential for reducing industrial emissions, but it must be complemented with other pathways, like electrification, the report says.

Clean Prosperity’s modelling finds that reducing grid intensity by two-thirds could result in 6.3 megatonnes CO₂ equivalent annual emissions reductions from electrification across five sectors: oil and gas extraction; chemical manufacturing; pipeline transportation; petroleum refineries; and cement manufacturing.

The 2025 federal budget reaffirmed the government’s intention to legislate the Clean Electricity ITC. “It should be finalized as soon as possible.”

Federal-Alberta agreement is a “potential breakthrough” for decarbonization

Critics who attacked the federal-Alberta MOU as a betrayal of climate action in Canada are wrong, Berstein wrote in an op-ed in The Globe and Mail.

“The historic announcement is actually a potential breakthrough for decarbonization. Canada’s progress on emissions reduction was stuck in a ditch, and the Ottawa-Alberta ‘grand bargain’ just put it back on the road,” he said.

The former stack of federal climate policies wasn’t working, Bernstein argued. “Those policies became a Jenga tower of overlapping and un-investable regulation that was destined to topple.”

“What’s worse is that policies such as the oil and gas emissions cap and Clean Electricity Regulations inflamed tensions with Western Canada. The result was political gridlock and little in the way of emissions reductions,” he said.

Bernstein said this MOU takes a smarter approach, relying on a policy that originated in Alberta and has the potential to attract support across regional and party lines: industrial carbon pricing.

“Carbon pricing can do more at a lower cost than any other policy option to reduce Canada’s emissions – if we get the details right. So far, we’ve struggled,” he said.

Bernstein said what convinces him this time is different is that the MOU lays out proposed solutions to two key problems that are holding carbon pricing back. “If Ottawa and Alberta turn their plans into reality, it could make the deal a watershed moment for decarbonization.”

The first problem is that while the headline carbon price is currently $95 a tonne, what really matters is the price of carbon credits, Berstein said.

In Alberta, those credits are trading at around $20, because the market is oversupplied. “There’s not enough juice to convince firms that big investments in decarbonization will be economic.”

But with the MOU, he noted, the federal and Alberta governments have agreed to reform the carbon market to increase credit prices – not the largely symbolic headline price – to at least $130 a tonne. “That can deliver both climate and economic benefits.”

Clean Prosperity’s analysis shows that at carbon credit prices between $130 and $150, the Alberta carbon market can unlock $90 billion in low-carbon capital investment and reduce 70 megatonnes of annual emissions in the province.

That’s more than triple the emissions that would have been reduced in Alberta by the Clean Electricity Regulations that were suspended in the MOU, Bernstein said. “Carbon pricing also slashes those emissions at a much lower cost to Albertans.”

MOU includes mechanism to backstop multibillion-dollar decarbonization investments

The second problem is that in order to make multibillion-dollar decarbonization investments that span decades, investors have to believe that carbon pricing is going to stick around.

That’s why the linchpin of this MOU’s climate commitments is the “financial mechanism” that Alberta and Ottawa have agreed to adopt as a guarantee to investors that they will maintain their commitments to strong carbon markets over the long term, Berstein said.

“This is the first time we’ve seen two orders of governments jointly offer to put their money where their mouths are to guarantee the durability of carbon pricing policy. It’s potentially a game changer,” he said.

A financial mechanism to increase certainty for industry could take different forms. Carbon contracts for difference are the “caviar” of carbon-pricing guarantees, and that’s what the federal and Alberta governments should jointly serve up if they want to unlock a massive rush of low-carbon investment, Bernstein said.

“As long as governments follow through on their promises to uphold the system, the contracts are never exercised and cost nothing to taxpayers.”

The other side of the climate ledger is the new bitumen pipeline to B.C.’s coast proposed in the MOU, which climate advocates argue will raise emissions. But the key driver of oil emissions is global demand, Bernstein pointed out.

He said he agrees with the majority of Canadians who have been telling pollsters that any incremental emissions from a new pipeline would be outweighed by the significant economic and geopolitical benefits it would deliver.

Alberta and Ottawa must be held to account for the commitments they’ve made – especially to respect Indigenous rights, he said. “But naysayers are clinging to a policy regime that could never succeed, and selling short a new approach that can.”

“I’m convinced that the best way to ensure that climate policy sticks is to balance it with other urgent public policy priorities: strengthening our economy, diversifying trade and bringing our country together,” Bernstein said. “The federal-Alberta MOU is a bold effort to rise to that challenge.”

[Editor's note: See also "Oilsands industry's $16.5-billion carbon capture and storage project plus current policies would significantly increase oilsands production and signiificantly reduce emissions," in today's Insights Report].

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