Canada expands CCUS subsidies to oil extraction, drops emissions cap

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THE CANADIAN federal government is set to expand subsidies for carbon capture, utilisation and storage (CCUS) to include oil extraction, while abandoning a proposed cap on oil and gas emissions.

The changes came as part of a memorandum of understanding between the federal government and provincial authorities in Alberta signed in late 2025. The agreement aims to increase bitumen exports to Asia alongside development of a large-scale CCUS project.

Under current policy, CCUS projects are excluded from federal tax credits if captured CO2 is used for enhanced oil recovery (EOR), where CO2 is injected into hydrocarbon deposits to boost oil production. However, the federal government has promised to remove the restriction, arguing it will stimulate greater bitumen production in Alberta.

A new pipeline will also be constructed to transport 1m bbl/d of bitumen between Alberta and ports in British Columbia to support exports to Asia. This is alongside an expansion of the existing Trans Mountain pipeline which would add up to 400,000 bbl/d of capacity. The Alberta government is expected to submit plans for the new pipeline to the federal Major Projects Office by July 2026.

The governments are also planning to construct what they describe as the world’s largest CCUS project, with the goal of making Alberta’s bitumen the “lowest carbon intensity produced barrels of oil in the world”. This would likely rely heavily on CO2 captured from industrial sources and used for EOR. The governments said the CCUS project and the new bitumen pipeline are “mutually dependent”.  

The federal government also agreed not to implement the previous government’s proposal to cap oil and gas production emissions to 65% of 2019 levels.

Keith Stewart, senior energy strategist at Greenpeace Canada, said the move was “so much worse than we expected”.

The agreement also delays the deadline for oil and gas producers to reduce methane emissions by 75% relative to 2014 levels, pushing it back to 2035 – five years later than set out in previous legislation. The pipeline is expected to be co-owned by Indigenous groups in Alberta and British Columbia, with governments pledging to engage with communities during construction, although the project has been met with opposition from some Indigenous groups.

“This is a betrayal of Canada’s climate commitments and makes a mockery of our commitment to reconciliation with Indigenous Peoples,” Stewart added.

Canadian prime minister Mark Carney said the agreement came “in the face of global trade shifts and profound uncertainty”.

Energy and natural resources minister Tim Hodgson said: “Canada is acting decisively to establish ourselves as a global energy superpower in the face of a changing world. Together, Canada and Alberta will not only export critical energy to our customers, we will also support our allies, create hundreds of thousands of jobs here at home, and show that our energy sector can lead on a global stage.”