A Pipeline That Won’t Be Built and the Real Trade Beneath the Canadian Climate Deal – CleanTechnica

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The public debate around the Canadian Smith Carney memorandum of understanding (MOU) has focused on what appears to be a federal retreat on climate policy in exchange for support for a new crude oil pipeline. That surface reading is easy to reach in the first hours and days of commentary. It is harder to sustain after a closer look at the structural forces that shape oil markets, the way major energy infrastructure is financed, and the political incentives inside Alberta and Ottawa.

When you take those into account, the deal looks less like a climate rollback and more like a political compromise that trades symbolic support for a pipeline that is very unlikely to ever be built for real and measurable gains in industrial carbon pricing and methane control. The key is accepting that the pipeline exists mainly in language and in negotiations rather than in the world of capital markets, global demand, and regulatory authority. The climate walk-down is real in specific areas but smaller than it first appears, and the gains on pricing and methane may carry more weight than many observers expect.

The starting point for understanding this moment is the earlier deal between Rachel Notley and Justin Trudeau. The first phase of the Trans Mountain Expansion debate produced a grand bargain that I believed made sense at the time. Alberta was prepared to introduce a provincial carbon price, shut down coal plants, accept an emissions cap on the oil sands, and align with a federal climate plan. As today, the market cliff for Alberta’s product was obvious and no private firm was willing to build the pipeline.

In return, Ottawa would remove specific federal and political barriers to the Trans Mountain Expansion and support its approval. The deal brought Alberta into the national climate tent at a moment when that was politically challenging. The climate plan was meaningful. The pipeline approval, unlikely to turn into an actual expansion, was a concession to Alberta’s need to feel that its resource sector had a viable path forward. I believed then that supporting the initial steps of that deal was the right decision based on the information and context available.

My support stopped at the point when the federal government decided to purchase the pipeline and take on the role of developer. That decision was not part of the original bargain and created a massive fiscal and political liability for Canada. My assumption is that then Finance Minister Morneau and his Bay Street collaborators just couldn’t resist the deal and sold Trudeau and his Cabinet on the bad idea.

The cost ballooned from a modest infrastructure upgrade into a $30 billion plus megaproject. Cost pressures, interest costs, and regulatory delays pushed the project far beyond commercial logic. The federal government was left holding an asset that private firms had refused to touch. The record since then has been poor. The line has struggled with maritime challenges, toll design, market access questions, and long-term competitiveness in a decarbonizing world. Canada is subsidizing Alberta’s oil to the tune of $2.5 to $3 billion per year. The original idea of approving the project as part of a broader climate cooperation framework made sense. Nationalizing it did not and the financial results have proven that.

The context for the current Smith Carney deal is different from the one that shaped the Notley Trudeau bargain. There is no privately driven pipeline awaiting approval. Global oil markets have shifted. Markets that once seemed stable have entered flat or declining demand territory. The United States is approaching its own structural peak oil demand. China has started to move from growth to plateau as electric vehicles reshape its transport energy balance, with gasoline and diesel peaks in the past and only petrochemicals driving crude import growth. Europe has been reducing oil consumption for years. Carbon border policies are beginning to shape the direction of long lived fossil infrastructure. The world that once absorbed rising volumes of heavy crude is now showing signs of steady decline.

Alberta’s product faces additional structural challenges. Bitumen is heavy and high sulphur. It requires complex refining. The pool of refineries that can profitably take it is shrinking. Two of California’s heavy oil refineries have announced closure. Asian heavy crude refineries are studying retooling to accept lighter crudes with lower emissions intensity, crudes close to water that will be widely available with fewer offtakers in coming years. These indicators do not point to a strong business case for a new corridor to the Pacific and do not support sustained increases in demand for Alberta’s heavy, sour barrels.

It is common to hear calls for private investment to deliver new export infrastructure but capital markets have been clear about their risk tolerances. Kinder Morgan, one of the most experienced pipeline developers on the continent, walked away from the Trans Mountain Expansion even after receiving substantial political support. Investors saw high regulatory risk, long time horizons, potential for litigation and growing transition pressures.

Those factors have increased rather than decreased. The cost of capital for long lived fossil infrastructure has risen sharply. Investors expect a return profile that new pipelines cannot promise. Heavy, sour oil is disadvantaged everywhere. The number of complex refineries able to take it is shrinking. Shipping distances to Asia, combined with smaller freighter capacities possible in BC waters, increase costs. Even with streamlined regulatory processes the set of financial players that would back a $20 billion plus project has collapsed. Wall Street invested 25% less in oil and gas in 2024. A private firm will not come forward without loan guarantees, take or pay contracts backed by strong credit and risk protections. None of those conditions exist today. They are not likely to materialize.

Market demand and financing aren’t the only challenges. A new west coast pipeline must pass through a set of structural blockers that the Smith Carney deal does not remove. The first is the federal tanker ban on the northern British Columbia coast. The legislation remains unchanged and still prohibits large crude carriers from calling at the ports that any northern or central route would require. Amending or repealing it would need a full legislative process and would trigger significant political and legal pushback. The deal only gestures at adjusting legislation if needed and does not commit the government to doing so.

Another major blocker is the longstanding opposition from many west coast First Nations whose territories and waters any pipeline and tanker route would cross. The Haida, Heiltsuk, Gitxaała and other Nations have made their positions clear and have strong constitutional rights that give them real influence over land use, marine safety and environmental protection. The agreement speaks of engagement and potential economic partnerships, but it does not create consent nor does it resolve the issues that defeated past projects. British Columbia’s authority over land, permitting and environmental oversight also remains intact and the province has not signalled support for another crude export corridor. These realities sit outside the scope of the Smith Carney deal and continue to limit the feasibility of any new line to the Pacific.

There is also no evidence that the federal government is prepared to repeat the Trans Mountain experience. The current government inherits the financial and political burden of the earlier purchase. The project has not attracted buyers at anything close to its carrying value. Ottawa understands the cost and reputational risk of building new fossil infrastructure at a time when markets are flat and set to decline and emissions policy pressures are rising from more reliable trade partners to the east and west. A second federal foray into pipeline development would compound those risks. The Government of Canada has already taken its lesson from the Trans Mountain Expansion and is unlikely to socialize the next round of risk even if Alberta wants to keep the dream alive. This is not only a financial consideration. It is also a question of federal policy coherence during a global transition period when large fossil infrastructure can quickly become stranded.

If Ottawa will not build it, the question becomes whether Alberta can. The answer on institutional, financial and jurisdictional grounds is no. Alberta would need to create a crown corporation with the expertise, project management capacity and fiscal depth to take on a megaproject with a capital cost that could approach or exceed the Trans Mountain Expansion. Alberta’s fiscal structure depends on royalties, corporate taxes and a narrow tax base. The province does not have the capacity to absorb tens of billions of dollars of new debt without rating pressure. A provincial crown corporation would struggle to raise capital at a cost that makes the project viable and would face direct scrutiny from markets that already see long lived oil infrastructure as high risk. Alberta also lacks control over the most important pieces of the project. It cannot control federal environmental approvals, tanker rules, coastal Indigenous consent processes or British Columbia’s regulatory decisions. Even a well funded Alberta crown corporation would run into the same external limits that shaped the Trans Mountain Expansion and the same commercial headwinds that kept private capital away.

This brings the discussion back to the substance of the Smith Carney deal. Ottawa did give up significant regulatory tools. The oil and gas sector emissions cap has been removed, but the market is unlikely to demand more of Alberta’s product. The Clean Electricity Regulations have been suspended for Alberta, but their coal plants have already been shut down.

In exchange, the federal government received commitments that carry real weight. Alberta accepted a $130 per ton industrial carbon price floor—with no commitment that it would not be raised—under its Technology Innovation and Emissions Reduction (TIER) program and agreed to pursue a 75% methane reduction by 2035. These measures impose material obligations on Alberta’s industrial sector. Alberta also committed to align on carbon capture deployment, for what that’s worth, and to begin working through long delayed grid modernization decisions. These commitments are not symbolic. They have cost and compliance implications and they strengthen elements of the national climate policy structure.

At the same time, the pipeline sits in a different category. It is in the text but it is unlikely to exist in reality. The federal government agreed to a streamlined regulatory pathway under the Major Projects Office. That pathway comes with language about national interest and procedural clarity. None of that guarantees a project and none of it provides the financial backbone that a pipeline would require. The pipeline operates in the agreement as a gesture that allows Alberta to claim a victory and allows Ottawa to claim it is open for business globally. The governments have left space for a private proponent to step forward while knowing that the commercial case is weak. Alberta can argue that it has fought for market access. Ottawa can argue that it has respected Alberta’s priorities. The likely outcome is that no viable proponent emerges and the pipeline quietly drops from the agenda.

The structure of the deal starts to look different when read through this lens. Alberta receives symbolic support for a pipeline and relief from specific federal rules. Ottawa receives meaningful increases in carbon pricing and methane policy and a reduction in intergovernmental conflict. The cost of the symbolic support is low if the pipeline never materializes. The value of the carbon and methane measures is high if they are implemented in good faith, which has yet to be seen in Alberta.

The trade is imperfect but it carries more balance than the initial commentary suggested. It is shaped by the experience of the earlier Trans Mountain bargain and the lessons of the nationalization that followed. It is shaped by global oil market trends that limit the future of heavy oil projects. It is shaped by the fiscal realities of both governments. The pipeline is a hook that makes negotiation possible, not a project that capital markets will ever bring to life.

One piece of fallout was that a mid- to senior-level Cabinet minister, Steven Guilbeault, resigned after the deal between Carney and Smith became public. Guilbeault had originally entered federal politics under Justin Trudeau after a long career as an environmental activist. Under Trudeau he served first as heritage minister and then, after the 2021 election, as environment minister. In that role he oversaw key climate and energy regulations: the oil & gas emissions cap, clean electricity proposals, regulation of methane emissions, and the broad package of policies underpinning national emissions goals. When Carney became prime minister he did not keep Guilbeault on as environment minister; instead he was reassigned to a renamed heritage portfolio—minister of Canadian culture and identity—and also made the cabinet’s Quebec lieutenant. That reassignment left him removed from climate-policy responsibilities shortly before the new Alberta–Ottawa deal.

When the new Alberta–Ottawa memorandum of understanding leaked, outlining major rollbacks of clean-electricity rules, exemptions for a new pipeline, and expansion of oil- and gas-sector tax credits to enhanced oil recovery, Guilbeault requested a briefing and raised serious objections internally. According to reporting, he told Carney’s office as early as this spring that backing a pipeline would make it very difficult for him to remain in cabinet. After seeing the full text of the MOU, he decided he could not stay. He tendered his resignation from cabinet on Thursday, stating that environmental issues “must remain front and centre” for him and that he strongly opposed the deal.

Viewed in politics rather than climate policy, his resignation reads less like a decision to fight the government from the back benches and more like an exit: a minister who was assigned a role he did not seek, removed from his policy area of passion, and then faced with a deal that betrayed much of what he had pursued. In that sense he was perhaps already looking for a good exit from the Cabinet. In terms of parliamentary arithmetic and party discipline, it is unlikely he will vote against the government. Instead he simply chose not to be part of a Cabinet whose course he could not support. That makes this a political loss for optics: the government loses a visible climate-policy face, undercuts its own narrative of unity, and hands ammunition to critics. But it falls short of a full rupture: the internal dissent is contained, the numbers remain unchanged, and the minister in question remains within the party fold.

The end result is a climate compromise that is smaller in its retreat than it appears and more practical in its gains than many critics assumed. The larger climate fight continues in the same areas it always has. Reducing methane. Pricing industrial emissions. Aligning electricity systems with clean generation. Meeting international expectations. This deal does not solve those problems. It does not end the political conflict between Alberta and Ottawa. It does however create a space where both sides can step back from permanent confrontation and re-engage on policy problems that require cooperation. It is not the deal many climate advocates wanted. It is also not the collapse many assumed. It is a compromise built around a pipeline that will probably never be built and a set of climate measures that will have real effects. Of course, I thought that in the aftermath of the Trudeau-Notley deal as well.