The Smith and Carney governments have yet to finalize a deal on the industrial carbon tax, despite an April 1 deadline included in last year’s Alberta-Ottawa memorandum of understanding (MOU). Considering the stakes, it’s no wonder the deal remains hard to reconcile.

To recap, in May 2025 the Alberta government froze its industrial carbon tax at $95 per tonne of carbon emissions. But under the MOU — a framework to advance major energy and infrastructure projects and “unlock the growth potential of Western Canada’s oil and gas” — the province committed to raise the tax to at least $130 per tonne, a 37% increase. And the door remains open for further increases towards the federal target of $170 per tonne by 2030. Alberta’s industrial carbon tax system applies to large emitters (including oilsands operations and refineries) when emissions exceed a government-set limit. Firms can comply either by paying the tax or buying credits from other firms engaged in emission-reduction projects.

MEJIA, ALIAKBARI: Here’s why Smith and Carney governments should scrap industrial carbon tax Back to video

Clearly, increasing the industrial carbon tax in Alberta would impose significant costs. According to a recent study, if Alberta’s industrial carbon tax rises to $170 per tonne by 2030, the Alberta economy will create 10,000 fewer jobs and Alberta workers will earn $1,730 less every year compared to a scenario where the carbon tax stays at its current $95 per tonne and does not increase further.

Crucially, the study finds that by 2030, capital earnings (capital gains, interest, dividends, etc.) would decline by 10.8% in Alberta under the higher industrial carbon tax. This large decline in returns would result in reduced or cancelled investment plans in the province, including in the energy sector. Alberta is Canada’s largest energy producer and the largest source of the country’s main exports — oil and gas. Less investment means fewer resources to advance new projects and develop infrastructure in one of Canada’s most important economic sectors. It also means fewer jobs in an industry that supports higher living standards for Albertans, with wages significantly higher than the national average.

Adding insult to injury, Alberta’s energy industry is already grappling with a sharp decline in investment. Over roughly the last decade, investment in the province’s oil and gas dropped from $64.7 billion in 2014 to $25.4 billion in 2024 — a 61% decrease (inflation-adjusted). Preliminary data suggest 2026 investment will fall broadly in line with 2024 levels.

Canada is one of the few oil-producing countries to impose a carbon tax on its industries, including energy producers. With global demand for oil and gas projected to rise for decades to come, higher production costs in Alberta’s energy sector will simply push investors to other jurisdictions including the U.S., Africa and Latin America.

No reduction in emissions

Finally, while proponents argue for the industrial carbon tax on environmental grounds, increasing the tax will not necessarily reduce global emissions. In reality, it may simply push production to jurisdictions where oil and gas is produced with far higher emissions, which cross all borders regardless of where they originate.

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If the Smith and Carney governments agree to increase the industrial carbon tax in Alberta, they will make it costlier to invest in Alberta, damage the economic prospects of Albertans, while doing little to reduce global emissions. Clearly, both governments should prioritize investment, jobs and the prosperity of Albertans and eliminate the industrial carbon tax.

Julio Mejia and Elmira Aliakbari are analysts at the Fraser Institute.

© Edmonton Sun