Alberta’s Energy Competitiveness at Risk from Carbon Costs, Study Warns

CALGARY, AB – June 25, 2026 – A new study from the Fraser Institute is sounding the alarm over Alberta's economic future, warning that a combination of industrial carbon taxes and carbon capture mandates will render the province's vital energy sector uncompetitive against its U.S. counterparts. The report, authored by prominent economist Jack M. Mintz, argues that these policies will drive up production costs significantly, encouraging investors to seek higher returns in jurisdictions with lower regulatory burdens, such as Texas and New Mexico.

According to the independent public policy think-tank, the cumulative impact of these environmental policies places a direct and substantial financial strain on energy producers. "By increasing the marginal costs to produce energy in Alberta, federal and provincial policymakers are in effect encouraging investors to look at other energy-producing jurisdictions where costs are lower and returns on investment are higher," said Mintz, the President's Fellow of the School of Public Policy at the University of Calgary.

A Widening Cost Gap

The study, titled Impact of Carbon Policies on Competitiveness in Oil, Natural Gas and Electric Power: An Alberta-US Comparison, paints a stark picture of the projected cost increases by the year 2040. The analysis assumes the implementation of a $140 per tonne industrial carbon tax, as outlined in a recent Memorandum of Understanding between Ottawa and Alberta, alongside the costs of complying with mandatory carbon capture, utilization, and sequestration (CCUS) requirements.

Under this scenario, the report projects dramatic cost escalations across the board:

• Conventional Oil: The cost to produce a barrel is forecast to jump from US$43 to $54, a 25.6% increase.
• Oil Sands: The cost per barrel is expected to rise from US$51 to $61, a 19.6% increase.
• Natural Gas: Production costs are projected to climb from CDN$1.56 to $2.17 per gigajoule (GJ), a substantial 39.1% increase.
• Electric Power: The cost to generate a megawatt-hour (MWh) of electricity is anticipated to surge from CDN$39 to $53, a 35.9% increase.

The implications extend far beyond the energy sector itself. Mintz highlights a ripple effect that could touch every corner of the provincial economy. "Critically, by increasing the cost to generate electricity, policymakers will be raising costs on producers across the province, meaning their goods and services will be more expensive," he stated. This potential for broad inflationary pressure adds another layer of concern for businesses and consumers alike.

The core of the competitive disadvantage, the study argues, is that these costs are unique to Alberta when compared to key American energy states, which do not have similar carbon pricing frameworks. This asymmetry creates a challenging environment for attracting the capital necessary to sustain and grow the province's cornerstone industry.

The Policy Tightrope: Climate Goals vs. Economic Reality

These projections land in the middle of a complex and evolving policy landscape. Alberta's industrial carbon pricing system, the Technology Innovation and Emissions Reduction (TIER) regulation, is designed to drive emissions down among large industrial emitters. While the province recently froze the TIER fund price to alleviate economic pressures, the federal-provincial agreement points toward a future with higher carbon costs, as reflected in the study's $140 per tonne figure.

Industry groups have voiced similar concerns about the economic balancing act. The Canadian Association of Petroleum Producers (CAPP) has noted that while it supports efforts to lower emissions, the current industrial carbon pricing framework adds a "unique cost" and complexity that makes Canada less competitive than its global peers. An industry representative cautioned that layering on costs not faced by competitors could hinder the growth of Canadian energy exports, calling for a regulatory framework that entices, rather than deters, investment.

This tension highlights the central challenge for policymakers: how to pursue ambitious climate targets without undermining the economic engine of the province. The Fraser Institute's report suggests that as currently designed, these policies may be tipping the scales too far, risking what Mintz calls the inevitable flight of capital. "As energy becomes more expensive to produce as a result of the increased taxes and regulations, investors will inevitably look to other energy-producing jurisdictions where costs are lower," he concluded.

The Other Side of the Ledger: Incentives and Investment

While the Fraser Institute's analysis focuses on the new cost burdens, it's also crucial to consider the significant government efforts designed to mitigate them, particularly in the realm of carbon capture. Both the federal and provincial governments have rolled out substantial incentives to spur the adoption of CCUS technology.

On the federal level, a new Investment Tax Credit (ITC) offers to cover up to 60% of capital costs for direct air capture equipment and 50% for other carbon capture technologies. This is complemented by Alberta's own Carbon Capture Incentive Program (ACCIP), which provides a 12% grant for new eligible CCUS capital costs. Over the last decade, Alberta has already invested or committed approximately $2 billion to advance CCUS projects and research.

These powerful incentives fundamentally change the cost equation for companies and are designed to make Alberta a leader in decarbonization technology. The net cost to producers, after accounting for these credits and grants, may be substantially lower than the gross figures implied by the new regulations.

Furthermore, current investment data suggests a more optimistic outlook. Capital spending in Alberta's oil and gas sector is forecast to rise to Cdn$18.9 billion in 2026, continuing an upward trend from recent years. This suggests that, for now, factors like rising energy prices and new export capacity are keeping investors engaged. Academic research on carbon pricing in other developed nations also indicates that, to date, competitiveness impacts have generally been minimal, though this could change as carbon prices rise to the levels projected in the study. The ultimate outcome for Alberta will depend on the intricate dance between rising regulatory costs, the offsetting power of government incentives, and the relentless pull of global market forces.