Analysis shows that even strengthened industrial carbon pricing will cost the oil sands very little, averaging less than 50 cents a barrel in 2030.
Key insights:
- Average costs are very small. Industrial carbon pricing costs oil sands facilities less than 10 cents per barrel today and less than 50 cents per barrel by 2030, even under stronger pricing that aligns with the Canada-Alberta MOU.
- Costs vary across facilities. The most emissions-intensive facilities face higher net carbon costs, while the most efficient facilities earn money by reducing emissions and selling carbon credits on the market.
- Low costs are by design. Canada’s industrial carbon pricing systems have specific design features that help drive emissions reductions while protecting competitiveness, which is why the average cost remains low.
The costs of industrial carbon pricing, especially for the oil sands, are easily exaggerated. These facilities are among the most emissions-intensive in Canada, and it is easy to point to the national industrial carbon price and imply that these facilities face economic hardship.
But the data tell a completely different story. On average, industrial carbon pricing costs the oil sands very little, and that won’t change even as the carbon price rises.
Even a carbon price of $130 per tonne would still cost less than a Timbit per barrel
The Canadian Climate Institute has previously explained how industrial carbon pricing is designed to incentivize emissions reductions at a low cost, leaving oil sands producers paying the equivalent of around a Timbit per barrel of oil.
Figure 1 shows the results of an updated analysis of the costs facing 29 oil sands facilities under Alberta’s carbon pricing system, known as TIER (or the Technology Innovation and Emissions Reduction Regulation). This analysis, based on the text of the regulations and real compliance data, shows that costs vary across facilities but remain low on average, just under nine cents a barrel in 2026.
This pattern persists even as carbon prices rise, which will be required to make sure these systems live up to their emissions-reducing potential. Our analysis examined how costs would evolve if systems are improved to deliver credit prices of $130 per tonne by 2030, as outlined in the Canada-Alberta Memorandum of Understanding. Even then, some facilities profit and some face costs, with a production-weighted average cost of 47 cents per barrel—roughly the price of a Timbit, after considering inflation.
Figure 1
The variation across facilities is important. Some facilities face material costs, some marginal ones, and some make a profit because their performance is good enough to generate saleable and bankable carbon credits.
For example, a handful of facilities have costs that exceed a dollar per barrel, with Tucker Thermal facing carbon costs of nearly $4 per barrel in 2030. These costs are high enough to trigger relief under TIER’s cost containment program.
By contrast, the most efficient facilities actually make money from industrial carbon pricing. For example, because CNRL’s Muskeg River, Jackpine, and Scotford integrated mining and upgrading complex is one of the most efficient operations in the oil sands, it earns performance credits that it can sell or bank for future years—more than eight million of them since 2016. Today, those credits are worth $300 million. By 2030, they could be worth as much as $1 billion if prices rise to $130 per tonne as planned.
Clearly, there is wide variation in facilities. But even a stronger carbon price would leave the average oil sands facility facing a cost measured in cents per barrel, not dollars.
Industrial carbon pricing is designed to minimize costs
The costs of industrial carbon pricing are low on average because of three important design choices.
First, facilities don’t pay for all of their emissions as they might under a carbon tax. Instead, they face a carbon price only for emissions that exceed a facility-specific threshold, or performance standard. That limits total costs but still rewards facilities that improve their emissions performance.
Second, a tax and royalty “shield” further reduces carbon costs. Oil sands producers with net carbon pricing costs can count those expenses against their revenues, reducing federal and provincial corporate tax liabilities and the royalties they pay to the province. Meanwhile, producers that earn a net return from industrial carbon pricing do not have to count those revenues toward their royalty obligations.
Third, the TIER system provides a final line of defence for balance sheets in the form of a cost containment program. If an oil sands producer faces carbon costs that exceed 3 per cent of sales or 10 per cent of profits, they are eligible for relief from the provincial government.
These design features explain how carbon pricing can keep overall costs low while still providing an incentive to reduce emissions. The most efficient facilities can profit, while the least efficient face higher costs—but even then, costs are carefully calibrated, and there are checks to prevent total costs from undermining a facility’s overall profitability. Industrial carbon pricing is designed to maintain incentives to reduce emissions and protect competitiveness even as the systems get stronger over time. All for the price of a Timbit per barrel.
Ross Linden-Fraser is a Research Lead at the Canadian Climate Institute. Dale Beugin is Executive Vice President at the Canadian Climate Institute.