The regulatory landscape for Alberta's industrial carbon market is evolving following the signing of a trilateral Memorandum of Understanding (MOU) on July 2, 2026, between the Government of Canada, the Government of Alberta, and the Pathways Alliance, representing five of Canada's largest oil sands producers. Publicly announced on July 13, the agreement builds on the broader federal-provincial Implementation Agreement signed on May 15, 2026, which established a framework for advancing joint commitments related to emissions reductions, carbon pricing, and energy infrastructure. Together, these agreements create a policy structure linking Alberta's Technology Innovation and Emissions Reduction (TIER) system with Carbon Contracts for Difference (CCfDs) and the development of the Pathways carbon capture, utilization, and storage (CCUS) project. For industrial emitters, this provides greater long-term certainty around the future direction of compliance obligations under TIER.
While the agreement is centred on enabling one of the world's largest carbon capture and storage (CCS) projects, its significance extends beyond project financing. The agreement supports the development of the proposed Pathways Alliance CCS network, which is expected to capture and permanently store up to six million tonnes of carbon dioxide annually by 2035 as an initial milestone. The broader pathway targets approximately sixteen million tonnes per year of net emissions reductions over time through expanded CCS deployment, additional emissions reduction technologies, and operational improvements across the oil sands sector.
One of the key features of the agreement is a performance-based adjustment to emissions intensity benchmarks for participating oil sands facilities under the TIER Regulation. Facilities that achieve their allocated share of the Pathways CCS project's emissions reduction milestone by 2035, will see their annual benchmark tightening rate reduced from two percent to one percent, lowering the pace at which future compliance obligations increase. However, if participating companies fail to meet the agreed emissions reduction milestones, benchmark tightening will increase to 1.5 percent annually between 2035 and 2040.
The agreement also strengthens the financial framework supporting decarbonization investments. Alberta has extended its Carbon Capture Incentive Program through 2035, continuing to provide grants covering 12 percent of eligible CCS capital costs, while the federal and provincial governments have committed to jointly support eligible emissions reduction projects through CCfDs. Together, these measures provide long-term carbon price certainty by establishing a minimum carbon value and reducing investment risk for carbon capture projects. The agreement includes provisions for government support of up to 75 million tonnes of carbon credits between 2030 and 2040 through CCfDs, improving financial certainty for capital-intensive emissions reduction investments. Achieving the scale of the Pathways CCS project requires substantial investment in capture facilities, transportation infrastructure, and permanent geological storage. As a result, regulatory certainty and long-term carbon price visibility should continue to remain critical factors in supporting project economics and investment decisions.
What this means for the Alberta TIER market
For the Alberta TIER market, the agreement introduces both near- and long-term implications for compliance demand and the future composition of compliance instruments. In the near term, reducing the benchmark tightening rate from two percent to one percent for participating oil sands facilities may slow the growth in compliance demand. Given the oil sands sector represents one of the largest sources of demand for TIER compliance instruments, this could contribute to continued price pressure, particularly while CCS infrastructure is being developed.
Over the longer term, the agreement provides greater policy certainty through CCfDs and continued support for emissions reduction projects. As CCS deployment expands, the TIER market may gradually shift toward a greater role for high-integrity, technology-driven emissions reductions alongside traditional operational improvements. While increased CCS deployment could reduce compliance demand from participating facilities, it may also introduce additional sources of verified emissions reductions and reshape the supply dynamics of Alberta's compliance market. However, company-specific obligations, emissions reduction milestones, verification requirements, and other mechanisms that determine how these commitments translate into TIER compliance outcomes remain subject to future definitive agreements.
Next Steps:
Market participants should continue to monitor updates to the TIER Regulation, guidance on benchmark adjustments, and the design of CCfDs as these mechanisms are formalized. Key implementation details remain subject to definitive agreements and future regulatory amendments.
ClearBlue is actively monitoring these developments. For more information regarding ClearBlue’s advisory services or market intelligence coverage, please contact us.