Fuel for the fires: Western Canada as an “energy superpower”

Western Canada’s political economy got a jolt on July 2, the political equivalent of a blockbuster hockey trade. The federal government signed deals with each of British Columbia and Alberta to double down on fossil fuels and advance a vision of Canada as an “energy superpower.” 

In Alberta, a new Memorandum of Understanding between the federal and Alberta governments—along with the big five oil sands giants—stated their joint commitment to the new West Coast Oil Pipeline and the Pathways Carbon Capture and Storage Project. The MOU outlines new steps forward on a bigger deal from last November between the feds and Alberta on energy development, and comes in the context of Alberta’s separation referendum on October 19. 

In BC, the new Canada-British Columbia Cooperative Prosperity Agreement details new federal support for resource development and infrastructure projects, in exchange for BC’s blessing on the new pipeline. BC also won some concessions around the pipeline route, and a promise for some revenues from the “economic upside” of the pipeline. 

Within a couple weeks, fire season erupted across the country, with wildfire smoke smothering eastern North America. In full climate change denial, President Trump and other U.S. politicians blamed Canada and threatened tariffs in retaliation. The cognitive dissonance between wildfires fuelled by a warming planet and the promotion of more fossil fuel megaprojects has been palpable in Canada as well. 

Even as fossil fuel corporations have record profits at their back, it is the federal government largely underwriting the expansion of oil and gas development, while removing barriers intended to protect the public interest and lower greenhouse gas emissions. Meanwhile, clean energy has landed as a viable, scalable alternative, suggesting Canada wants to become the wrong kind of energy superpower. 

New pipeline to BC coast

The new West Coast Oil Pipeline (WCOP) is technically still in its early development stages and a final investment decision will not be made until 2028 or 2029. According to the Alberta government’s submission to the federal Major Projects Office, the WCOP would cost between $35.2 and $43.7 billion, a cost that “compares favourably” to the Trans Mountain Pipeline Expansion (TMX). 

The TMX, of course, went wildly over budget—from $7.4 billion when the federal government took over the expansion project from Kinder Morgan in 2018 to more than $34 billion upon completion. The WCOP will also have substantial federal involvement, although ownership will be through “a new entity” that includes the Alberta Petroleum Marketing Commission and Pembina Pipeline Corporation.

A concession to BC is that the pipeline will not take a northern route and the federal North Coast tanker ban will remain in effect. Instead, the WCOP will largely follow the Trans Mountain pipeline system before terminating at Roberts Bank on the coastal outskirts of Metro Vancouver. This echoes the situation a decade ago when mass public opposition to Enbridge’s proposed Northern Gateway pipeline led the federal government, then under Justin Trudeau, to take it off the table in favour of the TMX.  

As a result of the cost over-runs, the tolls pipeline shippers pay have not reflected the full cost of building the TMX. Tom Gunton at Simon Fraser University estimates a subsidy to Canada’s oil industry between $9-19 billion based on comparing Trans Mountain’s interim tolls to what a private sector firm would charge to cover operating and capital costs. While Trans Mountain recently announced a settlement with the industry around the tolling structure, it’s unlikely the public subsidy will be fully eliminated. 

Trans Mountain will also be increasing pipeline capacity through a “mainline optimization project” that will enable an additional 300,000 barrels per day on its system. The WCOP would add one million barrels per day. In both cases, the federal government has promised BC a form of fiscal benefit or royalty, although the feds have not provided any further details.

The federal commitment to pipeline construction is also embodied in the new Major Projects Office itself. Inclusion of the WCOP in the major projects inventory would enable fast-tracking of permits and approvals. The MOU speaks to the federal government implementing a one year approval process for major projects, while Alberta feels it only needs 120 days. This runs the risk of running over Indigenous rights and circumventing environmental protection.

A carbon capture fig leaf

The federal government required that the new pipeline be accompanied by carbon capture and storage (CCS), a technology whose feasibility has yet to be demonstrated at scale or at reasonable cost. The Pathways CCS project would take carbon dioxide from 13 oil sands sites and transport them via pipeline to underground storage. At best, it’s a very expensive exercise, estimated at $20-30 billion, in branding Canadian oil as “low emissions” per barrel while simultaneously boosting overall production and emissions.

Oil and gas companies have already been using the Pathways project to promote a greener public image, though the companies have tried to put the onus on the federal government to pay for it. Through generous investment tax credits, the feds will be paying fifty cents on the dollar for capital investment in carbon capture equipment and 37.5 per cent on transportation and storage equipment. These tax credits are reduced to 25 per cent and 18.75 per cent respectively if used for enhanced oil recovery (EOR), a process of pumping carbon dioxide (CO₂) to repressurize older wells to extract more oil. 

Pathways would not be fully operational until 2035, at which point the MOU claims it would sequester a net 6 million tonnes (Mt) of CO₂ per year, which could increase to 16 Mt by 2045. The “net” refers to carbon sequestration after any EOR and is why the promised sequestration is so underwhelming. In context, Canada’s emissions from the oil sands were 89 Mt in 2023 and from the oil and gas industry as a whole, 208 Mt. 

Canada will see higher emissions from the oil and gas industry in line with increased pipeline capacity. It’s much worse in global terms, as exported oil and gas is counted where it is combusted, i.e. in another country’s inventory. For example, if the new combined 1.3 million barrels of pipeline capacity described above represented incremental production from the oil sands, this would translate into 185 Mt per year of CO₂ when combusted—the equivalent of one-quarter of all of Canada’s emissions economy-wide (694 Mt in 2023). 

Federal support is not limited to capital costs and the MOU commits Ottawa to “offer financing or support mechanisms that provide for operating cost support for carbon capture and storage projects”. Oil sands companies participating in Pathways will also get preferential treatment in Alberta’s industrial carbon pricing system (TIER) through a slower implementation of emissions pricing requirements. Agreement between the feds and Alberta earlier this year also weakened the targets for TIER, which is already insufficient with oil sands companies currently paying a mere nine cents per barrel on average as a “price on carbon.”

BC’s grand bargain

BC Premier David Eby heralded the July 2 Canada-BC Prosperity Agreement as “a big day for BC.” A new pipeline has been deemed the price of national unity in the age of Donald Trump’s trade war, so was there really any other choice? BC locked down federal financial support for key elements of the province’s resource-heavy Look West plan which it released last November (reviewed here). We can also count additional new federal spending in BC for housing and community infrastructure that was announced in June (including the controversial plan to bail out condo developers). 

The Prosperity Agreement is a major boost for liquefied natural gas and mining development in BC’s Northwest. BC Hydro has been planning a major electricity transmission line upgrade to power multiple new mining and liquefied natural gas (LNG) projects. The feds will contribute $3.9 billion toward this North Coast Transmission Line (NCTL)—out of a total price tag of $6 billion—although the federal money includes investment tax credits, lower-cost financing and First Nation equity support. The BC government has already exempted the NCTL from environmental assessment and review by the BC Utilities Commission.

BC intends for the NCTL to provide renewable electricity supply to future LNG facilities to reduce the gas they would otherwise burn to power their operations. This “clean LNG” would keep emissions within BC in check (albeit at the cost of rising electricity prices for other ratepayers), but the lion’s share of emissions would be outside of BC. LNG Canada, which has been in operation for a year, is a conventional facility burning gas, boosting BC’s annual emissions by more than 4 Mt per year (an increase of 7% for BC’s annual emissions). The facility has also had start-up challenges with excessive flaring and venting of “waste gas” into Kitimat’s air shed.

Also under construction in the Kitimat area is Cedar LNG, which has received $200 million from each of the federal and BC governments, which will use new electricity supply for its operations. Other LNG projects on the North coast are still awaiting a final investment decision, with LNG Canada Phase Two and Ksi Lisims LNG most likely to advance. Decisions have been held up by uncertainty about future LNG markets, and unless buyers are already lined up, few companies are going to approve capital investments in the tens of billions of dollars.

On the South coast of BC, just outside Squamish, Woodfibre LNG is also progressing through construction with operations likely to commence in 2028. While originally planned to be a smaller project, the federal Natural Resources Minister Tim Hodgson mused earlier this year that the plant’s capacity could be doubled or tripled. 

The Prosperity Agreement also pledged support for mining in BC, dubbed the Northwest Critical Mineral and Conservation Corridor. The main federal contribution is $500 million towards an underground expansion of the Red Chris copper mine. It’s not clear if this is financing, tax credits or cash, nor is it clear why the feds need to subsidize this mine when copper is increasingly in high demand. 

Mining is a dirty business and there’s no getting around tailings ponds and potential spills. The Mount Polley tailings dam collapse in 2014 released 25 billion tonnes of “toxic sludge” into the local watershed, including 134.1 tonnes of lead, 2.8 tonnes of cadmium and 2.1 tonnes of arsenic, making it the worst mining waste disaster in Canadian history. While the mine was back up running by 2015, charges were not filed against the company until late 2024 and the case is still before the courts. The BC government failed to implement promised regulatory reforms, and recently agreed to allow an increase in the height of the tailings dam (to an astonishing 77 metres) to extend the mine’s life another eight years.

While this looks like a win for mining and oil and gas companies, the fiscal benefits to governments are likely to be muted after we consider the vast subsidies at play. Employment benefits to workers and communities are largely on the construction side, as these are very capital intensive projects, with relatively few jobs once operational. 

As for conservation of “irreplaceable ecosystems”, the BC and federal governments merely commit to “undertake the development of a strategy.” 

The Prosperity Agreement will also have a large footprint in the Metro Vancouver area. Topping the list is a $10 billion federal expansion of the Roberts Bank shipping terminal to handle the new WCOP and other export commodities. The Port of Vancouver is also seeking to dredge Burrard Inlet to accommodate more capacity on oil tankers. The Tsleil-Waututh First Nation, who live on the inlet, are challenging this action in court. 

Potash exports were a sore point in 2025 when Saskatchewan’s Nutrien stated it would use Washington state ports due to lack of capacity at the Port of Vancouver. Federal officials have been scrambling to keep this activity within Canada. 

All of this ship traffic is bad news for endangered Southern resident killer whale populations.

The feds plan to spend about $50 million per year to mitigate impacts. Inevitably, additional oil and LNG tankers along with other increased shipping through the Salish Sea will be a big negative for marine life and will impact other industries like transportation and tourism.

Last but not least, the feds will also support up to $3 billion towards a new, higher-capacity Massey Tunnel under Fraser River to boost goods movement and alleviate congestion. Estimated costs have ballooned to $8.5 billion for the full project. The incoming NDP government in 2017 cancelled a planned bridge to replace the existing tunnel but progress has since been limited.

Wither climate action

All of this planned megadevelopment in the West might make sense in light of geopolitics in a world where carbon emissions did not matter. But the carbon implications are simply enormous and must be set against the real climate change the world is experiencing. Wildfires are again a top story but also floods had earlier raged Manitoba and Ottawa. In Europe, the death toll reached into the thousands due to unprecedented heat. 

Boosting oil and gas production and therefore global CO₂ emissions will cause damages into the future. Estimates of the “social cost of carbon”—the economic damages arising from greenhouse emissions—range from $50 to $250 per tonne of CO₂. Expanded oil and gas production in Western Canada could add as much as 200 MT of CO₂ per year to the atmosphere, or about $10 to $50 billion of damages every year. In light of the ongoing heat waves and wildfires, this is Bond villain territory.

The sad part is that both David Eby and Mark Carney get it on climate change. They do not deny the science and have been advocates for climate action in the past. Back when he was Bank of England governor in 2015, Carney made an important and influential speech on the mismatch between cause and effect: 

Climate change is the Tragedy of the Horizon. We don’t need an army of actuaries to tell us that the catastrophic impacts of climate change will be felt beyond the traditional horizons of most actors—imposing a cost on future generations that the current generation has no direct incentive to fix. That means beyond: the business cycle; the political cycle; and the horizon of technocratic authorities, like central banks, who are bound by their mandates.

Then, as now, Carney gave a great speech. But today’s speeches are more likely to trumpet Canada’s role as an energy superpower. Climate action has been deemed a loser at the polls. After patting ourselves on the back for our greenhouse gas emission targets and planning frameworks, Canada has dropped most of our climate policies. Contrast that with China, who never really made any public commitments, but then quietly took over clean energy technology supply chains.

But it’s much worse than not acting: Eby and Carney are championing a major expansion of the industry that is causing climate change, and propose to subsidize them even as they have profited so handsomely from recent supply shocks, whether from Iran or Ukraine. It doesn’t get more petro state than that. Apparently, the only thing that will stop Canada’s relentless march to produce and export ever more fossil fuels is if other countries stop buying. 

If anything, President Trump’s Iran war, and the vulnerability of supplies through the Strait of Hormuz, has also changed the calculus for Asian countries—upon whose purchases future Canadian oil and gas growth depends—to invest heavily in renewable technologies to become more self-reliant. Even before the Iran war, this overhang of uncertainty explains why no private sector proponent wants to build the pipeline given its massive price tag. 

Canada shifting into full-blown petro state mode is painful to watch for those of us who’ve been working on clean energy and climate policy for (in my case, 17!) years. How much of the future must we sacrifice for the sake of the present? The real lost opportunity is that this massive fiscal effort could alternatively transition Canada to a fully renewable, circular economy, build housing for all and make other investments that would raise our collective standard of living.

About the author

Marc Lee

Marc Lee is a Senior Economist with the Canadian Centre for Policy Alternatives. Marc joined the CCPA’s British Columbia office in 1998, and is one of Canada’s leading progressive commentators on economic and environmental policy issues. From 2009 to 2015, Marc led the CCPA’s Climate Justice Project (CJP), which published a wide range of research on fair and effective approaches to climate action through integrating principles of social justice. Marc continues to write about climate and energy policy, strategies for affordable housing, federal and provincial budgets and macroeconomics. Marc has an MA in Economics from Simon Fraser University and a BA in Economics from the University of Western Ontario. Marc is a past chair of the Progressive Economics Forum, a national network of heterodox economists. He also served as a Visiting Professor at Simon Fraser University’s School of Public Policy in 2024 to 2025.