Canada and Alberta Reach Agreement on MOU Implementation, Re-Defining Carbon Pricing

Canada has committed to align the updated federal benchmark with the framework set out in the Implementation Agreement, providing a measure of resolution to the ECCC discussion paper consultation.

A key item from the MOU was the statement that the TIER system will ramp up to a Minimum Effective Credit price of CAD 130 per tonne. The Implementation Agreement provided clarity on the use of that term, distinctly distinguishing Effective Credit Price from the Headline Price, stating that Alberta will administer and design TIER such that the Effective Price of credits in the TIER market will adjust over time and will target CAD 130 in 2040.

To support long-term market stability and provide a predictable value for TIER credits, the Alberta government will introduce a minimum transfer price, commonly known as a Price Floor. Set to take effect in 2030, this mechanism is designed to ensure that the credit market remains a robust incentive for industrial decarbonization. The provincial government intends to have the formal regulations for this Price Floor enacted by December 31, 2026.

Under these new rules, any traded credit retired to meet a TIER compliance obligation must be valued at or above the established Price Floor for that year, or the floor price in the year the credit was initially acquired. To maintain fairness for existing market participants, the agreement includes a grandfathering provision for any credits generated prior to the enactment of the regulation. These legacy credits will remain eligible for transfer at prices below the floor, following their original expiry periods, ensuring that the value of existing holdings is protected during the transition to the new pricing framework. The below table outlines the Price Floor schedule from 2030 to 2040.

The figure below provides a visualization on the TIER carbon price trajectory from 2026 to 2040, showcasing the updated Headline Price schedule and the implementation of the Floor Price in 2030.

Annual Tightening Rate

A key component of today’s announcement is the newly established annual tightening rate schedule (Stringency Rates). Notably, these revised stringency rates are materially lower than the current regulation's annual 2% tightening rate, which was previously scheduled to increase sharply to 4% in 2029 for oil sands mining, upgrading, and in-situ facilities. The applicable Stringency Rates for the benchmarks under TIER are as follows:

• 2027–2030 — Pathways FSB: 2.0%. Applies to firms building and operating the Pathways Project.
• 2027–2030 — Large Oil Sands FSB: 2.0%. Highest tightening rate among non-Pathways sectors.
• 2027–2030 — Small Oil Sands FSB: 1.5%. Lower rate reflective of smaller-scale facilities.
• 2027–2030 — Other sectors FSB: 1.5%. Default for facility-specific benchmarked sectors.
• 2027–2030 — Electricity HPB: 1.0%. Resolves the previously open question on power-sector tightening.
• 2027–2030 — Oil Sands, Hydrogen, Other HPB: 0.5%. Lower rate for high-performance benchmarked sub-sectors.
• 2031–2040 — Large Oil Sands FSB held at 2.0%. All other FSB rates moderate to 1.0%; Pathways FSB drops to 1.0%.
• 2031–2040 — HPB rates unchanged. Electricity at 1.0%; Oil Sands, Hydrogen, and Other at 0.5%.

Direct Investment Pathway

Previously introduced in the Fall 2025 TIER regulatory amendments, Alberta will design and administer the Direct Investment program (DIP) to preserve market function and the Effective Price. The agreement specifies:

• Eligibility caps: Eligible investment amounts limited to 50 percent of eligible capital and up to 50 percent of operating costs directly attributable to the approved project.
• Stacking treatment: Eligibility is net of any government grants, TIER Fund support, investment tax credits, or other public financial support (closing the door on full stacking).
• Ineligible costs: Development studies and related expenses are not eligible.
• Investment Credit us: Limited to compliance years with obligations, or in substitution for credits used in past three years' compliance (reactivation of credits).

Carbon Contracts for Difference (CfDs)

A new jointly funded program is established to underpin emissions-reduction investments through 2040:

• Coverage: CfDs issued to parties pursuing emissions reductions investments between 2030 and 2040.
• Volume: Up to 75 million tonnes of emissions reductions covered on an equal cost-shared basis.
• Liability cap: Maximum liability of CAD 600 million per party (Canada and Alberta).
• Price linkage: Administered such that effective prices are on track to reach CAD 130 in 2040.
• Default provisions: If the federal carbon pricing backstop is repealed or Canada fails to maintain its commitments, Canada assumes sole liability. If Alberta repeals TIER or fails to maintain its commitments, Alberta assumes sole liability.

Pathways Project and the Trilateral MOU with the Oil Sands Alliance

Canada and Alberta are moving forward with a trilateral MOU involving the Oil Sands Alliance (which includes Canadian Natural Resources Limited, Cenovus, ConocoPhillips Canada, Imperial Oil Limited, and Suncor Energy) to formalize the Pathways Project. This large-scale emissions reduction initiative and the development of a new oil pipeline to Asian markets are established as mutually dependent projects within the agreement. A central component of this partnership is the commitment to respect Aboriginal and Treaty rights, ensuring cooperative consultation and accommodation with Indigenous groups regarding the carbon pipeline and storage infrastructure.

The project sets a target of 16 million tonnes of annual emissions reductions by 2045, beginning with a minimum of 6 million tonnes from CCUS in service by 2035, followed by incremental 5-million-tonne reductions in 2040 and 2045 through various technologies. To provide financial certainty, the federal government has extended the CCUS Investment Tax Credit to 2035 and introduced support for enhanced oil recovery, while guaranteeing a minimum 20% credit creation rate for upstream CCUS projects under the Clean Fuel Regulations. Alberta is matching these efforts by extending the Alberta Carbon Capture Incentive Program specifically to support the Pathways Project’s implementation.

West Coast Oil Pipeline

The agreement outlines a clear regulatory path for the development of a new oil pipeline aimed at reaching Asian markets. Alberta has committed to submitting a formal application to the federal Major Projects Office by July 1, 2026. Following this, the federal government will pursue designating the pipeline as a project of national interest under the Building Canada Act, with a target completion date of October 1, 2026. If the project receives this designation, Canada aims to provide a final conditions document by September 1, 2027, which would allow construction to begin, provided that all constitutional duties to consult with Indigenous Peoples have been fully satisfied.

Central to this plan is the mutual dependency between the pipeline and the Pathways Project; the progress of one is tied directly to the success of the other. The two governments have also pledged to work closely with British Columbia through trilateral discussions to ensure the province’s economic interests, including regional interties, are considered during the pipeline's development.

Electricity

The electricity portion of the agreement establishes a framework for regulatory alignment and grid expansion while ensuring provincial jurisdiction over the power market. A primary feature is the decision to hold the federal Clean Electricity Regulations (CER) in abeyance while the ongoing legal challenge proceeds through the Alberta Court of Appeal and potentially the Supreme Court of Canada. If the regulations are ultimately upheld as constitutional, both governments have agreed to negotiate an equivalency agreement that would stand down the federal rules in Alberta in favor of provincial measures. Conversely, if the CER is found unconstitutional, the federal government will repeal the regulations entirely, and Alberta will maintain its established carbon pricing framework.

Read also: Canadian PM Carney unveils new National Electricity Strategy 

To meet future demand, Canada and Alberta will collaborate to double the capacity of the provincial grid by 2050. This expansion will incorporate a diverse energy mix, including natural gas, nuclear, and renewables, with a specific focus on maintaining system stability. To support this growth, the federal government intends to extend the Clean Electricity Investment Tax Credit to cover major intra-provincial high-voltage transmission projects. Meanwhile, Alberta will exercise its constitutional authority to manage its Restructured Energy Market, implementing necessary changes to safeguard grid reliability while continuing to attract investment in both natural gas and lower-carbon generation technologies.

Further Canada-Alberta Collaboration

Canada and Alberta will launch a joint Electricity Working Group. This group is tasked with advancing a net-zero electricity sector by 2050 by identifying competitive projects and technologies—such as nuclear, geothermal, and battery storage, that support grid modernization and stability under Alberta’s restructured energy market. This collaborative effort ensures that both baseload and intermittent power sources are integrated effectively while maintaining economic competitiveness.

Beyond electricity, the federal government has already moved on several key commitments, including the extension of investment tax credits for carbon capture and enhanced oil recovery, the removal of specific "greenwashing" provisions from the Competition Act, and the formal decision not to introduce a federal oil and gas emissions cap. Looking forward, the two governments will work to finalize a policy framework for artificial intelligence data centers by July 1, 2026, followed by a provincial nuclear power generation strategy by January 1, 2027. To manage these initiatives, both parties have pledged to a process of continuous consultation and advance notice, ensuring that implementation issues are resolved through mutual agreement and cooperative communication.

ClearBlue is updating its TIER supply, demand and price forecasts to reflect the Implementation Agreement and will publish revised scenarios in an updated TIER Supply and Demand (S&D) report. Clients with specific compliance position or credit transaction questions should contact their ClearBlue advisor directly.

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