https://c2cjournal.ca/2025/10/one-country-two-markets-the-shaky-promise-and-unfair-burden-of-decarbonized-oil/
“The obligation about to be imposed upon Western Canada’s energy sector to produce and transport ‘decarbonized’ oil will place it under a material – if not ruinous – regulatory and financial handicap in world markets. Meanwhile, Eastern Canadian refiners would be allowed to continue importing oil from the United States and offshore jurisdictions.

This might cause one to wonder whether Smith’s musings about a “grand bargain” are anything more than a back-of-the-envelope guesstimate conjuring a kind of political unicorn, a federally-approved export pipeline carrying hypothetically decarbonized oil. And this brings us to the second major question, one that stabs at the heart of the economies of Alberta and Saskatchewan: why is it important that Western Canada’s oil be “decarbonized” at all, when that requirement is not imposed upon oil imported to Eastern Canada, much of it from countries whose environmental standards are nowhere near as rigorous as those of Western Canada?

The term “decarbonized” is assuredly aimed directly – and solely – at Western Canadian oil production. So too is the federal government’s ongoing commitment to “responsibly produced oil and gas”, defined as a Canadian oil and natural gas emissions cap, the Oil Tanker Moratorium Act, a (now somewhat deferred) Zero-Emission Vehicle (ZEV) Mandate, a Clean Fuel Regulation and a Clean Electricity Standard (CES) ostensibly leading to a net-zero electricity grid by 2035 (recently deferred to 2050).

Self-evidently then, the obligation about to be imposed upon Western Canada’s energy sector to produce and transport “decarbonized” oil will place it under a material – if not ruinous – regulatory and financial handicap in world markets. Meanwhile, Eastern Canadian refiners would be allowed to continue importing oil from the United States and offshore jurisdictions, free from any comparable regulatory burden. Can the immense cost of capturing, transporting and storing CO2 be justified by the revenues from oil that is, by definition, largely made of carbon?

Investors appreciate that as with all complex regulatory and policy matters, the devil often lurks in the details. It may be no coincidence that the Canadian energy sector’s own investments have increasingly favoured other jurisdictions. Benchmark West Texas Intermediate crude oil is currently trading in the range of US$60-65 per barrel, and low-grade oil sands bitumen trades at a substantial discount to that. How much more can Canadians afford to penalize their own oil producers?
What might be the consequences if oil prices fall below the current price range?
And who will pay the ongoing, unavoidable operating costs for the machinery needed to compress the CO2 and force it into the underground storage formations?

It will not be crude oil markets that pay.
It is simply a cost that Canada would impose on itself to reduce operating profits from exported oil (known in oil production economics as the “netback”, the key performance metric of how much profit a company makes per barrel of oil after subtracting all the costs required to bring that oil to market). The consequence of imposing that cost would certainly be a loss of market share not just for Alberta, but for Canada. None of Canada’s international heavy oil supply competitors are imposing such a cost, and no other country is paying it. Can Alberta, much less Canada, afford this?

Carney’s “decarbonized” oil proposition represents a commercial standard that may be difficult if not impossible for Alberta’s hydrocarbon production industry to achieve. It very much remains to be seen whether a concerted effort to bury CO2 to “decarbonize” Western Canadian oil will restore a much-diminished Canadian “can-do” spirit for economic development and encourage much-needed interprovincial teamwork across shared jurisdictions.

The politics of why the Liberal government appears to favour dividing the Canadian economy into two, with one part based on expensive domestic oil and the other on cheaper imports, is beyond the scope of this article. But of this we can be confident: by insisting that Western oil producers bury their CO2 at a still-unknown but surely enormous cost, the nascent “Carney doctrine” would effectively split Canada into two economic development zones – one based upon a “decarbonized” Western Canadian oil production zone and another that allows internationally-imported “fully carbonized” oil to enter Eastern Canada free of penalty.

Why is the Mark Carney government’s decarbonized oil policy unfair to Western Canada?
By thereby cementing two different oil market realities in Canada, the Carney government’s decarbonization policies would render his vaunted One Canadian Economy Act effectively moot, with a situation that denies Western Canada the chance to generate economic value while still achieving little reduction in global emissions.

Canadians need to consider carefully whether the concept of “decarbonized” Western Canadian oil represents a “grand bargain” or yet another example of the “running in place” Lewis Carroll’s Red Queen described in Through the Looking Glass.

Decarbonization is neither economically viable nor just.

One might well ask whether it is even logically coherent to speak of “decarbonizing” a substance whose very utility is based on the fuel value of the carbon in it – something akin to “dehydrating” water. And when, in any case, the consequences of ultimately using that substance will be borne by the consuming country. It’s not even as if regular old “carbonized Canadian oil” is so profitable in the first place; investors can do better across the border in North Dakota’s Bakken play, while low-cost Saudi Arabian oil remains profitable at benchmark prices below Canada’s cost of production.

Thus, decarbonization risks placing impossible conditions on Western oil production while ignoring other sources of carbon emissions from imports into Eastern Canada. Canadian regulations for emissions caps and decarbonized oil will not noticeably reduce the growth of global GHG emissions. Other oil producers will simply meet the demands of the international marketplace that would otherwise have been supplied by Canada. And to cap it all, after the tens if not hundreds of billions in lost capital investment suffered under the previous Trudeau government, these policies undermine the appearance of fair practices within Confederation and indeed, may generate irreconcilable differences among its members.
Taking it all together, a cynic might regard requirements for decarbonized Western Canadian-produced oil to be a mere sophistry whereby the Carney government professes conditional support for another oil pipeline, or perhaps even expanded liquefied natural gas production, while imposing terms that are impossible to meet.

And, not to put too fine a point on it, might wonder whether Danielle Smith is unwittingly leading Alberta taxpayers into a financial trap.”

Ron Wallace is a former Member of the National Energy Board.