In its deal with Alberta, Canada will scrap emissions cap on the oil and gas sector, among other moves.

Canada’s Prime Minister Mark Carney has signed an agreement with Alberta’s premier that will roll back certain climate rules to spur investment in energy production, while encouraging construction of a new oil pipeline to the West Coast.

Under the agreement, which was signed on Thursday, the federal government will scrap a planned emissions cap on the oil and gas sector and drop rules on clean electricity in exchange for a commitment by Canada’s top oil-producing province to strengthen industrial carbon pricing and support a carbon capture-and-storage project.

The deal, which was hailed by the country’s oil industry but panned by environmentalists, signaled a shift in Canada’s energy policy in favour of fossil fuel development and is already creating tensions within Carney’s minority government.

Steven Guilbeault, who served as environment minister under Carney’s predecessor Justin Trudeau, said he was quitting the cabinet over concerns that Canada’s climate plan was being dismantled.

Carney is counting on the energy sector to help the Canadian economy weather uncertainty from United States President Donald Trump’s tariffs, and is seeking to diversify from the US market, which currently takes 90 percent of Canada’s oil exports.

In remarks at an industry event in Calgary, Carney said US tariffs and the resulting uncertainty will wipe $50bn from Canada’s economy, the equivalent of $1,300 for every Canadian, stressing the need to build projects that can spur growth and reduce US reliance.

He has relaxed some environmental restrictions implemented by his predecessor, Justin Trudeau, while reaffirming his commitment to net-zero carbon emissions by 2050.

New markets

Alberta is also exploring the feasibility of a new crude oil pipeline to British Columbia’s northwest coast in order to increase exports to Asia, but no private-sector company has committed to building a new pipeline.

Pipeline companies and the Alberta government have repeatedly said significant federal legislative changes – including removing a federal cap on oil and gas sector emissions and ending a ban on oil tankers off British Columbia’s northern coast – would be required before a private entity would consider proposing a new pipeline.

The Canadian government will enable a clear and efficient approval process for a new pipeline to be constructed and financed by the private sector, Carney said.

He added that the new pipeline would transport one million barrels of low-emission Alberta bitumen a day, with a route that increases access to new Asian markets as a priority.

Thursday’s agreement includes a commitment by the federal government to adjust the Oil Tanker Moratorium Act in order to facilitate oil exports to Asia.

British Columbia Premier David Eby, who opposes a new pipeline through his province, said on Wednesday the legislation should stay in place.

Other pipeline opponents are also speaking out. A coalition of Indigenous groups in British Columbia said this week it will not allow oil tankers on the northwest coast and that the pipeline project will “never happen”.

The Trans Mountain pipeline from Alberta to the British Columbia coast, which is owned by the Canadian government and is currently the only option to ship Canadian oil directly to Asian markets, tripled its capacity last year with a 34 billion Canadian dollar ($24.2bn) expansion.

Climate concerns

Environmentalists raised concerns about the agreement’s implications for climate change, while oil producers supported the deal.

“With this agreement, the federal government risks doing significant damage to minimum national standards that will have broader impacts on Canada’s climate change efforts,” the Pembina Institute, a clean energy think tank, said in a statement.

Industry leaders said the partnership between the province and the federal government would boost the energy sector.

“The elimination of the emissions cap, changes to the Competition Act, and the commitment to work together on new market access are all significant steps towards unlocking Canada’s vast natural energy resources,” the Canadian Association of Petroleum Producers said in a statement.

The federal government and Alberta also said they would conclude an agreement on industrial carbon pricing by April 1 next year.

In addition, the two agreed to cooperate on building the Pathways Plus project, expected to be the world’s biggest carbon capture project and designed to capture emissions from Canada’s tar sands.

The federal government will also assist Alberta in building and operating nuclear power plants, strengthening its electricity grid to power AI data centres, and building transmission lines to neighbouring provinces.