The Reforms Needed to Unlock Private Billions for Carbon Capture

From: Lennie Kaplan
To: Carbon capture watchers 
Date: December 5, 2025
Re: The Reforms Needed to Unlock Private Billions for Carbon Capture

Market-based reforms to industrial carbon pricing are critical to unlocking billions in private sector investment in carbon capture, utilization, and storage (CCUS) across Canada over the next 25 years.

The recently signed Canada-Alberta MOU commits the federal and Alberta government to ramp up the minimum effective Alberta industrial carbon price (TIER) to $130 per tonne, effective date yet to be determined

It also establishes financial mechanisms, such as carbon contract for differences (CCfDs), to provide certainty to industry about industrial carbon prices, going forward; ensures the Alberta carbon market functions reliably and provides predictability for industry and investors, including sector-specific benchmarks and annual stringency reduction rates. It also contains an enhanced methane equivalency agreement to better manage methane emissions.

And, of course, it entrenches a shared commitment to spur the Pathways CCUS project as a necessary condition for “decarbonized barrels” to be sent on the proposed Northwest B.C. Coast pipeline.

The MOU also stresses the importance of removing the proposed Oil and Gas Emissions Cap and revising the Clean Electricity Regulations. However, while, the MOU is a good start, its words need to be followed up with concrete actions by government, as soon as possible.

CCUS economics are extremely dependent on the effectiveness of market-based mechanisms, most notably Canada’s industrial carbon pricing system. Currently, there is a great deal of private sector uncertainty around the adoption of CCUS technology in Canada; much of it the product of a flawed federal-provincial industrial carbon pricing regime.

Robust industrial carbon pricing encourages the private sector to be innovators in reducing emissions, in a least cost fashion, through more rapid deployment of technologies and minimizes the use of inefficient and costly government subsidies.

Reform of Canada’s industrial carbon system is essential given CCUS emission abatement costs are highly uncertain and CCUS project economics, as with Pathways, depend heavily on revenues raised from the sale of emission performance credits.

“First-of-kind” CCUS costs range from $36.40 (in 2020 dollars) to $61.30 per tonne of CCUS captured, at a minimum, and $103.20 to $172.40 per tonne of CCUS, at a maximum. Future costs range from $20.20 to $34.10 per tonne of CCUS captured, at a minimum, and $59.60 per tonne to $99.60 per tonne of CCUS, at a maximum.

Alternative emission abatement options can offer emissions reductions complementary to CCUS and should be emphasized in unlocking private sector investment. Low cost emissions abatement options include, more electricity generation and switching from coal and oil to natural gas across the economy as well as better methane leak management, electrification of home and industrial building heating and reviving the promotion of energy efficiency through education and well-targeted incentives.

Using data drawn from the Navius Research, Canada Energy Dashboard, I estimate that CCUS uptake across Canada could range between 108 to 134 million tonnes, including between 67 and 87 million tonnes in Alberta, by 2050, depending on the right mix of market-based mechanism and levers. This could translate into billions in new CCUS investments over the next 25 years even at the current prices and existing technology. And technological improvements should be expected, over time, to lower CCUS costs further.   

Ottawa and Alberta need to act, as soon as possible, to overhaul the industrial carbon pricing system to remove investor uncertainty. The MOU, with its emphasis on a stable, predictable and market-based carbon pricing system, is a good first step towards driving adoption of CCUS in Canada, through such projects as Pathways, leading to the decarbonization of our economy.

Lennie Kaplan is a former senior manager in the fiscal and economic policy division of Alberta’s Ministry of Treasury Board and Finance and provided initial policy advice leading to the development of Alberta’s Technology Innovation and Emissions Reductions (TIER) carbon pricing regime.

To send a comment or leave feedback, email us at blog@cdhowe.org. 

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.

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