Ottawa nears deal with Alberta on carbon pricing that is weaker than federal backstop

OTTAWA – Ottawa and Alberta are closing in on an industrial carbon pricing deal that is more lenient than the existing federal system and could have ramifications across the country.

A source with knowledge of the discussions who was not authorized to speak publicly about them told The Canadian Press the deal would see Alberta’s effective carbon price reach $130 per tonne by 2040, while the headline price in Alberta would also reach $100 per tonne by 2027, before rising to $130 per tonne by 2035.

The difference between the effective carbon price and the headline price is the way in which companies accumulate credits to comply with their emission limits.

While Prime Minister Mark Carney has rolled back several of the Liberal government’s climate measures over the year he’s been in office, he has always tied those rollbacks to the promise of strengthening Canada’s carbon pricing system for big emitters.

But the timeline allowing Alberta to reach a headline price of $100 per tonne by 2027, and $130 per tonne by 2035, is weaker than the current federal backstop — scheduled to reach $125 per tonne by 2027 and $170 per tonne by 2030.

The Supreme Court ruled in 2021 that while Ottawa had the power to set a minimum carbon pricing standard, it has to treat all provinces and territories equally.

Right now, only Nunavut, Yukon, Manitoba and Prince Edward Island follow the federal backstop, meaning the leeway offered to Alberta will need to be extended to those jurisdictions as well.

Other provinces have their own systems in place which either adhere to or are stricter than the federal backstop.

The expected agreement with Alberta stems from the energy pact Canada and Alberta reached last fall which tied various climate policies to an Alberta oil pipeline to the West Coast.

Under the industrial emissions system, companies can only emit so much based on their production before they have to capture it, or buy credits to effectively pay for their pollution. Those who beat their emission limits earn credits to sell on the market.

The effective carbon price — the market price — is the price at which credits are bought and sold on the open market.

The headline price is what companies pay the Alberta government to reach compliance — money which then goes into a general fund to invest in emissions reduction technology. Companies in Alberta still need to buy a minimum of 10 per cent of their compliance from the province’s headline pricing — which Alberta Premier Danielle Smith capped at $95 per tonne through 2026.

But market credit prices in Alberta had been trading for as low as $17 a tonne last year, after Alberta implemented a sweeping change to its industrial carbon price program in December following the deal with Ottawa.

The changes allowed companies to avoid paying provincial fees for emissions by investing in their own emissions reduction projects instead, and allowed smaller companies that didn’t meet the program’s minimum emissions threshold to opt out of the carbon pricing system.

“If you can buy cheap units at the market price that’s lower than the effective price, you’ll do that,” said Dave Sawyer, principal economist at the Canadian Climate Institute.

He told The Canadian Press market credit prices in Alberta have crept back up to $40 a tonne following rumours earlier in the week about Alberta and Ottawa closing in on a deal.

Although energy companies have long called for industrial carbon pricing to be scrapped altogether, the new leeway for Alberta to reach the $130 per tonne market price by 2040 has been criticized by environmental groups.

“If Prime Minister Carney proceeds to gut the industrial carbon pricing, as reporting indicates, he will have put the final nail in Canada’s climate action coffin,” said Aly Hyder Ali, senior program manager of oil and gas at Environmental Defence.

“By agreeing to let Alberta reach a minimum effective industrial carbon price of $130/tonne by 2040, Carney will turn the industrial carbon pricing into a permission slip to pollute for another decade and a half.”

While Sawyer said he was also disappointed by the timeline stretching to 2040, he said the devil is in the details of the agreement regarding what happens with the surplus of credits on the market right now.

“There’s an overhang, there’s too many units sitting around. So are they going to buy units?” Sawyer said.

“All that to say, sure, the timeline looks bad, But the final determination will really depend on what this thing looks like, and we’ll have more insight, it looks like this week.”

This report by The Canadian Press was first published May 13, 2026.