Carney government is betting pipeline revenue on a carbon capture project whose price keeps climbing and carries environmental risks

- A Fraser Institute study calls for caution regarding the Pathways carbon capture project. - The project aims to inject carbon dioxide underground but poses environmental and fiscal risks. - Cost estimates for Pathways have risen significantly since its initial proposal. - Carbon capture targets have been lowered from 22 million tonnes to 16 million tonnes by 2030. - Critics argue that the project may not generate revenue and could lead to long-term liabilities. - Binding agreements for the project are due by November 15, raising concerns about enforceability. A new study urges caution on the carbon capture network that Ottawa and Alberta have made as part of the price of admission for a new West Coast pipeline. The need for caution in the recent study, published by the Fraser Institute, takes a look at environmental risks, but it also raises fiscal ones too. “Environmental Risks of Carbon Capture, Utilization, and Storage Technologies” reviews the literature on what can go wrong when carbon dioxide is compressed and injected underground at scale, which is what the Pathways project intends to do. Injecting fluid underground at high pressure is a well-documented trigger for seismic activity, and the authors point to thousands of small tremors recorded at the In Salah storage project in Algeria that tracked changes in injection rates. They also point to large-scale saltwater disposal in North America, which they call the best real-world analogue available, where small pressure increases have set off quakes in formations connected to deep basement faults. Long-term monitoring at well-run storage sites has not detected damage to shallow groundwater, but modelling and laboratory work consistently show that leaks can acidify aquifers and mobilize lead, arsenic, and uranium. Controlled experiments show elevated CO2 in soil sharply cutting yields in crops. The authors’ central concern about the carbon capture, utilization, and storage (CCUS) project is its sheer scale. Pathways would be the largest such project in the world, and nothing of comparable size has been built anywhere. As proposed by the Oil Sands Alliance, the Pathways Project would gather emissions from 13 oilsands sites through 16 lateral lines into a CO2 pipeline network of more than 650 kilometres, then inject them into a sandstone formation one to two kilometres beneath the Cold Lake area. The Fraser Institute report cites risks outlined in Stanford research, whose researchers calculated that storage reservoirs must leak less than 1 percent per thousand years for carbon capture to deliver the climate benefit of renewables. Pathways was pitched in 2022 at $16.5 billion for its first phase. Both current estimates come from the companies building it, but show the cost already ballooning before its even underway. The Oil Sands Alliance put first-phase cost at $20 billion in a briefing to the federal government, and Cenovus chief executive Jon McKenzie told the Global Energy Show in Calgary in June it would require $20 billion to $30 billion—a cost he said leaves Canadian producers uncompetitive and the pipeline “unfinanceable.” Meanwhile, as the cost estimate continues to increase, the carbon capture targets are becoming less ambitious. The original pledge was a total reduction of 22 million tonnes annually by 2030, of which 10 to 12 million tonnes was to come from the Pathways CCUS project, rising to as much as 40 million tonnes a year by 2050. May’s implementation agreement, announced jointly by Ottawa and Alberta, cut the total to 16 million tonnes and pushed the full amount out to 2045. Only six million tonnes of it is carbon capture, due in service by Jan. 1, 2035; the remaining 10 million is to come “via a range of technologies” in 2040 and 2045. A final investment decision is not expected until late 2027 at the earliest. The low end of McKenzie’s cost estimate for Pathways is a 21 percent increase on the 2022 figure while the high end is 82 percent. Neither is extraordinary by Canadian standards. The Trans Mountain expansion was estimated at $5.4 billion when Kinder Morgan applied in 2013 and $7.4 billion when Ottawa bought it. It ended up costing around $34 billion. The federal CCUS investment tax credit refunds 50 percent of eligible capture equipment costs and 37.5 percent of transport and storage costs, and Budget 2025 delayed the scheduled reduction of those rates by five years, so full value now runs to the end of 2035. Alberta’s carbon capture incentive program adds a grant of up to 12 percent of new eligible capital, extended through 2035 under the July memorandum of understanding. The National Observer reported the project is already entitled to write off 50 to 60 percent of its construction cost through the two programs combined. Not everything qualifies—engineering studies, land clearing and road construction are excluded—but 12 percent of a $30-billion build is $3.6 billion from Alberta alone, and the province’s entire program budget is $3.2 billion to $5.3 billion for every sector through 2035. Ottawa has also agreed to cover operating costs through measures to strengthen the Clean Fuel Regulations. Dave Sawyer, principal economist at the Canadian Climate Institute, puts that at $400 million to $500 million a year at current credit prices and says it could quickly double. The counterargument is that this is a price signal, not a handout. May’s implementation agreement cuts the annual tightening of participating companies’ emissions benchmarks under Alberta’s TIER regulation from two percent to one over 2031 to 2040, and July’s MOU makes that conditional on hitting the 2035 capture milestone. The agreement also targets an effective carbon price, meaning what credits actually trade for, of $130 a tonne by 2040. Clean Prosperity, which advocates for industrial carbon pricing, has found that prices between $130 and $150 should be enough to make some, if not all, of Pathways viable, and its director of policy and strategy, Brendan Frank, called the implementation agreement material progress toward making the project economic. The deal lands at the bottom of that range, and not for another 14 years. Eric Nuttall, a partner and senior portfolio manager at Ninepoint Partners in Toronto, where he runs the Ninepoint Energy Fund and the Ninepoint Energy Income Fund, estimates a one-million-barrel-per-day pipeline could generate roughly $5 billion a year in royalties. Trans Mountain is the benchmark, and Alberta Central found the expansion generated about $13.6 billion to oilpatch revenues in its first year, including $5.4 billion to Alberta’s treasury. Trans Mountain itself returned more than $1.7 billion to Ottawa in 2025 through interest, dividends and fees, at an average utilization rate of just 86 percent. On those numbers, the public capital cost of a $30-billion Pathways equals roughly two-and-a-half years of the new pipeline’s incremental royalties, and the operating support would absorb 8 to 10 percent of that stream annually, indefinitely. The pipeline itself also adds considerable costs. Alberta’s submission puts the pipeline at $35.2 billion to $43.7 billion, excluding escalation and financing costs during construction. Ottawa and Alberta would be equal partners, with Pembina holding 10 percent through construction and a stake reserved for Indigenous partners. On top of all those costs, there is another $10 billion Ottawa has committed to the Roberts Bank port corridor as well. If we apply even half of Trans Mountain’s overrun factor to Pathways, then the carbon capture project alone consumes the better part of a decade of government royalties. Martha Hall Findlay, who spent years helping create the Pathways alliance and now directs the University of Calgary’s School of Public Policy, says the project should be postponed. Writing in the Globe and Mail back in May, she noted Canada produces about 1.3 percent of global emissions, and the oilsands 12.4 percent of Canada’s total—roughly 0.16 percent globally—and that phase one would likely cut global emissions by less than 0.02 percent, and cost billions. Findlay’s verdict is that it “will not generate revenue, only significant cost.” As The Hub‘s Alberta Bureau Chief Falice Chin reported in July, the deal leaves the hardest questions unanswered, including who absorbs the overruns. Definitive agreements with each of the five companies are targeted for Nov. 15, and the MOU states that every commitment in it is conditional on those signings. Until they happen, none of it binds anyone. The Fraser study adds further questions about environmental risks and areas of the project that do not appear to have been costed: long-term monitoring, remediation, and liability for a storage complex that has to hold for a thousand years. Those recurring bills will come due long after the royalties are cashed. Ottawa’s investment in the Pathways carbon capture project, tied to a new West Coast pipeline, faces scrutiny due to rising costs and environmental concerns. A Fraser Institute study highlights risks associated with large-scale carbon capture, including potential seismic activity and groundwater contamination. The project’s estimated cost has surged from $16.5 billion to between $20 billion and $30 billion, while carbon capture targets have been reduced. Critics argue that the project may not yield significant revenue and could incur substantial long-term liabilities, raising questions about its viability and financial implications for Canadian producers. Ask about this article — or anything in Canadian politics, economics, and public policy — powered by The Hub’s 5,000-article archive and deep area expertise. Comments (6) What? A project doubled in cost once the government invested? Say it ain’t so! Starting with Trudeau, everything our government has touched has turned to sh!t. It mystifies me that Canadians are unable to see Canada’s new robes.