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Canada has taken a dramatic turn in its approach to tackling emissions from the oil and gas sector, agreeing to drop the previously proposed emissions cap in a new deal with Alberta. This unexpected move signals a major shift in national energy and climate policy, aimed at balancing economic growth with environmental commitments.
What Happened
On November 27, 2025, the Canadian federal government and Alberta provincial officials signed a memorandum of understanding that rescinds the implementation of the long-debated Oil and Gas Emissions Cap. The agreement formalizes Canada’s decision to allow Alberta’s oil and gas sector to expand production without being subject to a federal emissions ceiling that had yet to come into effect.
In exchange, Alberta has committed to collaborating on a reinforced industrial carbon pricing framework and to spearheading large-scale carbon capture and storage projects. Notably, the deal includes the launch of the Pathways project—poised as the world’s largest carbon capture initiative—to reduce emissions intensity in oil sands operations over the next decade and beyond.
Why It Matters
Balancing Growth and Climate Goals
This agreement is a defining moment in Canada’s energy policy. It underscores a pivot towards supporting the growth of Alberta’s oil and gas industry while still asserting a path toward net zero greenhouse gas emissions by 2050. By dropping the emissions cap, the government clears regulatory hurdles that had limited expansion potential, aiming to boost Canada’s energy exports and economic security.
Simultaneously, the deal embeds a strategy that relies heavily on robust carbon pricing and carbon capture technologies to offset the environmental impact, attempting to reconcile industrial growth with climate responsibilities.
A New Carbon Pricing Paradigm
The industrial carbon pricing system, centered on Alberta’s Technology Innovation and Emissions Reduction (TIER) program, will now be the main tool to drive emissions reductions. The deal commits the parties to establish a minimum effective carbon credit price of C$130 per tonne by 2026, aiming to incentivize innovation and cleaner industrial practices.
Key Details
- Emissions Cap Dropped: The federal Oil and Gas Emissions Cap will not be implemented.
- Clean Electricity Rules Suspended: Alberta’s Clean Electricity Regulations are temporarily paused pending a new carbon pricing framework.
- Carbon Capture Commitment: Alberta and oil sands operators will build the Pathways carbon capture project in stages from 2027 through 2040.
- Carbon Market Collaboration: Canada and Alberta will work together to ensure the Alberta carbon market functions predictably and reliably.
- Methane Reduction Agreement: A methane emissions equivalency deal with targets to reduce emissions 75% by 2035 is slated for completion by April 2026.
What Comes Next
Over the coming months, Canada and Alberta will negotiate the details of the industrial carbon pricing agreement, due by April 1, 2026. This deal will shape the trajectory of emissions management, setting financial mechanisms to secure industry compliance and long-term climate goals.
Further, infrastructure plans include expanding clean power generation with investments in nuclear, hydro, wind, and solar energy to transition Alberta’s power grid toward net zero by mid-century.
The agreement signals a new era where Canada aims to position itself as a global energy superpower while pursuing ambitious climate targets through innovation and market-based environmental policies.
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