Oilsands profits soar, but carbon capture stalls amid tax clash

The Canadian oilsands industry has voiced strong criticism of the current industrial carbon tax, labeling it 'uncompetitive' and a significant barrier to investment and growth within the sector. Despite generating a collective $24.7 billion in profits in 2025, oilsands producers remain stalled on critical carbon capture infrastructure, notably the promised pipeline to sequester emissions, due to unresolved financial arrangements. This disconnect between profitability and project advancement underscores industry frustration with regulatory frameworks that fail to facilitate timely development.

Progress on the Memorandum of Understanding (MOU) linking pipeline approval to carbon capture commitments has been painfully slow, exacerbating concerns about the oilsands' future growth and Canada's energy security. Although Prime Minister Mark Carney's November 2025 agreement with Alberta set a clear condition—'No Pathways, no pipeline'—the absence of finalized details and the lack of construction activity reveal deep regulatory and collaborative bottlenecks. These delays not only stall critical infrastructure but also fuel industry skepticism about the government's ability to deliver on its energy and environmental promises.

Alberta’s Technology Innovation and Emissions Reduction (TIER) carbon pricing system has demonstrated minimal impact on oilsands production costs, with economist G. Kent Fellows finding an average increase of just C$0.70 per barrel in 2023 and a production-weighted average of only C$0.34 per barrel. Even with planned carbon price escalations to C$140 per tonne by 2040, no facility is projected to face costs exceeding C$5 per barrel through 2050, largely due to TIER’s design that rewards outperforming emissions benchmarks with credits, effectively reducing the net cost burden. Indeed, major projects like Horizon Mine and Kearl have realized net benefits, underscoring the system’s nuanced approach that decouples headline carbon prices from direct production cost increases.

The Glacier Phase 2 project in Alberta exemplifies the technical viability of integrating carbon capture with natural gas power generation, achieving over 90% CO₂ capture and a carbon intensity of just 84 kg/MWh by combining a 15 MW turbine with post-combustion capture. However, despite this technological success, financial viability remains challenged by delays in government incentive programs such as the Federal CCUS ITC and Alberta’s ACCIP, which have slowed financing and investor confidence. Legislative measures like Bill C-15, extending tax credit rates through 2035, offer long-term policy certainty, but as Entropy emphasizes, predictable and timely program administration is critical to sustaining investment momentum, especially for large-scale initiatives like the Pathways Alliance oilsands project.

Beyond technology, the evolving economics of carbon capture hinge increasingly on execution speed, stable policy frameworks, and commercial contracting, which have become as vital as capture efficiency itself. Investors now scrutinize not only current eligibility for incentives like the 45Q tax credit but also the likelihood of maintaining such support throughout lengthy permitting and construction phases amid shifting federal policies. This dynamic is evident in projects like ExxonMobil’s Baytown facility, which lost substantial DOE funding due to insufficient customer commitments, illustrating how regulatory uncertainty and weak market demand can stall technically feasible projects despite generous subsidies.

Norway’s Northern Lights project stands as a rare beacon of success in the carbon capture and storage (CCS) arena, showcasing a collaborative model where government oversight through Gassnova and major oil companies like Equinor, Shell, and TotalEnergies jointly own and operate a cross-border CO₂ transport and storage hub. This approach, with the Norwegian government covering 80% of costs, highlights the critical role of substantial public funding in de-risking CCS infrastructure and enabling project advancement, a stark contrast to Canada’s Pathways Alliance, which struggles with unresolved financial arrangements despite oil sands producers generating $24.7 billion in profits in 2025.

Canada’s Pathways project exemplifies the complex interplay of political, financial, and industrial challenges that hinder CCS progress globally. Despite political commitments like Prime Minister Mark Carney’s 'No Pathways, no pipeline' stance linking carbon capture advancement to new oil pipeline approvals, the project has yet to break ground due to disagreements over funding mechanisms and diluted emissions targets that reduce the urgency of actual carbon storage. The reliance on government-backed Carbon Contracts for Difference to guarantee prices for up to 75 million tonnes of carbon credits between 2030 and 2040 underscores the heavy public subsidy dependence, raising questions about the sustainability and competitiveness of Canada’s CCS funding framework compared to international peers.

Globally, the CCS sector faces persistent economic and infrastructural hurdles that temper enthusiasm despite technological viability. Experts like Peter Findlay of Wood Mackenzie emphasize that while capture technology functions effectively, insufficient economic incentives and inadequate carbon pricing dampen industry growth, a reality mirrored in Norway where emitter demand for Northern Lights remains tepid due to low carbon prices. Additionally, widespread challenges such as financing risks, cost inflation, regulatory uncertainty, and critical gaps in CO₂ transport and storage infrastructure create bottlenecks, delaying project execution and limiting scale-up, even as oil and gas companies remain the primary adopters of CCUS technologies worldwide.

Canada’s CCS ambitions extend beyond oil sands, with projects like Heidelberg Materials’ cement industry capture initiative aiming to sequester over one million tonnes of CO₂ annually by late 2026, reflecting a broader innovation ecosystem. However, these efforts still grapple with execution risks and financial viability concerns, underscoring that while diversification is underway, the sector’s overall progress remains constrained by the same systemic challenges faced by oil sands projects, including securing long-term contracts, managing high capital costs, and navigating public skepticism.