Average Oil Sands Facility to See Less Than $2 per Barrel in Carbon Pricing Costs

August 13, 2026 – The recently updated federal-Alberta carbon pricing agreement is projected to cost an average oil sands facility less than $2 per barrel, and to keep industrial carbon pricing costs below $5 per barrel (bbl) for every oil sands facility analyzed through 2050, according to a new C.D. Howe Institute report.

In “Buckets of Oil and Barrels of Steam: Quantifying Carbon Pricing’s Impact in Alberta’s Oil Sands,” C.D. Howe Institute Fellow-in-Residence G. Kent Fellows examines the impact of Alberta’s Technology Innovation and Emissions Reduction (TIER) system on oil sands production costs and how those costs are expected to evolve under the new federal-Alberta agreement.

“Across all facilities, the carbon price added an average of $0.70 per barrel in 2023,” says Fellows, Assistant Professor of Economics and the Director of Graduate Programs for the School of Public Policy at the University of Calgary, adding that the production-weighted average was only $0.34/bbl. “This indicates that larger facilities generally perform better relative to their emissions targets.”

At the upper end, the author finds some oil sands projects currently have net carbon pricing costs of up to $4.05/bbl. Meanwhile, some projects that outperform their emissions targets receive a net benefit under TIER, reducing their effective marginal costs by up to $1.09/bbl. “Given that the operating costs for 99 percent of operators are between $21 and $65 per barrel, the carbon price represents a small portion of overall marginal costs in the oil sands,” says Fellows.

Fellows also models the costs of the federal-Alberta carbon pricing agreement under the conservative assumption that facilities make no further improvements in emissions intensity – finding that all projected impacts remain below $5/bbl through 2050, with the average facility facing a burden less than $2/bbl.

Under the intensity standards before the agreement and with a $170/tonne carbon price in 2030, most projects would have also still incurred a cost of less than $5/bbl.

Fellows also examines a more stringent scenario in which projects reach full stringency by 2050 and face a $170-per-tonne carbon price. Under this scenario, no oil sands project faces a carbon pricing cost increase of more than $10/bbl in 2050, but the implied costs are much more substantial overall.

“The TIER system is far more complex than the repealed consumer-facing carbon tax, and that complexity exists to provide policymakers with more nuanced policy levers,” says Fellows. “Eliminating the industrial carbon pricing system risks considerable financial damage to Alberta facilities, while substantially increasing the headline carbon price or tightening intensity standards could increase the system’s overall economic burden. TIER provides policymakers with a flexible framework for balancing emissions reductions with economic costs over time.”

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For more information, contact: G. Kent Fellows, Fellow-in-Residence, C.D. Howe Institute, and Assistant Professor of Economics, University of Calgary; and Lauren Malyk, Manager, Communications, C.D. Howe Institute, 416-873-6168, lmalyk@cdhowe.org.