Alberta, Ottawa and Oil Majors Strike Deal to Advance $20B+ Carbon Capture Project Tied to New Oilsands Pipeline

A landmark agreement between the federal government, Alberta, and five of Canada’s largest oil companies is pushing one of the country’s most ambitious and controversial carbon capture projects closer to reality, while simultaneously laying the groundwork for a new West Coast oilsands pipeline.

The Pathways Project, a massive carbon capture and storage initiative whose price tag has ballooned to an estimated $20 billion to $30 billion, will move forward in stages under a framework signed July 2 and publicly announced this week. The project is directly linked to a proposed pipeline running from Alberta’s oilsands region to a tanker terminal on British Columbia’s southern coast with Pathways serving as the environmental counterweight to the additional emissions that pipeline would enable.

The arrangement is straightforward in its logic: oil companies get regulatory and fiscal support to grow bitumen production and fill a new pipeline; governments get a commitment to capture and bury millions of tonnes of carbon dioxide underground. Alberta filed its pipeline proposal to the federal major projects office on the same day the Pathways agreement was signed.

Alberta Premier Danielle Smith framed it in grand historical terms. “The biggest nation-building projects in Canada’s history have succeeded through partnership,” she said, calling the deal a model for growing the economy while strengthening energy security.

Federal Energy and Natural Resources Minister Tim Hodgson echoed that tone, saying the agreement delivers on commitments made in a sweeping Canada-Alberta memorandum of understanding signed last November covering a broad range of energy matters.

The federal government is putting real money on the line. Ottawa will extend investment tax credits 50 per cent on eligible carbon capture equipment and 37.5 per cent on related transportation and storage infrastructure through 2035, five years beyond their original expiry date. New legislation is also planned to introduce tax credits for enhanced oil recovery, a technique that pumps captured CO2 into aging oil fields to squeeze out more production.

Alberta, for its part, is finalizing its own carbon capture incentive program and has pledged financial support to encourage the kind of production growth needed to justify and sustain the new pipeline. Companies in the Pathways consortium will also receive incentives under Alberta’s carbon pricing system if they hit specific milestones.

The five companies behind the project Canadian Natural Resources, Imperial Oil, Suncor, Cenovus Energy, and ConocoPhillips, collectively known as the Oil Sands Alliance will build a pipeline network funneling captured CO2 from oilsands facilities across northern Alberta to an underground storage site near Cold Lake.

The consortium is targeting capacity to store roughly six million tonnes of CO2 per year by the mid-2030s, with ambitions to reach an additional 10 million tonnes in reductions by 2045. That’s a significant step back from the alliance’s earlier goal of 22 million tonnes by 2030.

Environmental groups aren’t buying the celebratory framing. Keith Stewart, senior energy strategist at Greenpeace Canada, was pointed in his assessment: “Imagine the smallest of fig leaves, but the leaf is actually made of plastic.”

His critique lands with some mathematical weight behind it. Oilsands and thermal heavy oil production pumped out 92 million tonnes of CO2 emissions in 2024, according to the federal government’s own national inventory data. The reductions committed to under this agreement represent roughly seven per cent of that total and critics argue any gains would be swamped by the new emissions unlocked by building a pipeline specifically designed to increase production.

Cenovus CEO Jon McKenzie acknowledged at an energy conference in June that the project’s original $16.5 billion price estimate no longer holds, with the real figure likely falling somewhere between $20 billion and $30 billion.

The Pathways infrastructure is targeted to be in service by January 1, 2032, with the full project wrapping up by 2035. Binding agreements between the federal and Alberta governments and each of the five Oil Sands Alliance companies are to be finalized and signed no later than November 15.

The agreement also includes a commitment for Pathways to make reasonable efforts to use Canadian-made construction materials a nod to broader economic sovereignty concerns animating energy policy discussions across the country.

Whether this deal will ultimately be remembered as a genuine step toward cleaner oilsands production or as an elaborate justification for expanding fossil fuel infrastructure remains bitterly contested. What’s not in dispute is that both governments have now tied themselves firmly to the industry’s future and vice versa.