Oil sands expansion threatens Alberta’s climate credibility

Alberta’s push for more oil risks breaching its emissions caps and deepening its dependence on volatile royalties

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Premier Danielle Smith’s ambitious oil production targets for 2030 and 2035 are unrealistic and fiscally irresponsible.

Her recent instructions to the minister of energy and minerals to develop a roadmap to reach six million barrels per day of Alberta oil production by 2030 and eight million barrels per day by 2035 suggest the Alberta government is becoming increasingly reliant on oil production growth to address its structural budget gap.

Continuing to suggest that the Alberta government can afford to cover rising permanent spending levels in health care, education and other areas with volatile oil revenues is a poor fiscal policy choice for getting Alberta finances back on a sustainable track over the medium to long term. These revenue flows fluctuate widely with global oil prices and have historically caused boom-bust cycles in Alberta’s finances.

The oil production targets also carry significant implications for Alberta’s ongoing talks with Ottawa on a so-called “Grand Bargain”—a political deal that would see Alberta reduce greenhouse gas (GHG) emissions in exchange for federal support for carbon capture and pipeline development.

It is difficult to find any credible forecast supporting these production levels, given current world oil market realities. Astute observers have already outlined several caveats: limited pipeline capacity, regulatory delays and competitive pressures from Mexico and Venezuela.

Even assuming these optimistic targets are realistic, the reality on the ground tells a different story. Capital investment would take years to ramp up. New pipeline infrastructure would be required, not just to the B.C. coast but across the continent.

It would also take an extremely aggressive uptake of carbon capture and storage (CCS) and the early deployment of direct air capture (DAC), both likely requiring major provincial subsidies, to offset the resulting increase in GHG emissions.

Assuming these targets are achievable, what are the implications?

1. Increasing reliance on oil royalties to fund the budget.
I estimate that reaching these targets would increase the Alberta government’s reliance on unstable and unpredictable oil royalties from 19.5 per cent of total revenues in 2025-26 to 23.3 per cent in 2030-31 and 25.5 per cent in 2035-36. Is continuing to advance the idea that Alberta can rely on these revenues to permanently fill a $7-billion structural shortfall really a wise public policy choice? How much of these royalty windfalls will be used to support a permanently higher spending base, when they should be used “off the top” to build the Heritage Fund or retire Alberta’s rising debt?

2. Higher oil sector absolute GHG emissions.
Using base-case data from the Conference Board of Canada’s January 2025 report to Alberta Treasury Board and Finance, I estimate that growing oil and gas production to seven million barrels of oil equivalent per day in 2030 and 7.3 million by 2035 would raise sector emissions from 165 Mt (million tonnes of greenhouse gas emissions) in 2025 to 171 Mt in 2030 and 174 Mt in 2035. These projections are based on production levels below the government’s targets, so actual emissions could be significantly higher. How do these rising emissions square with a “Grand Bargain” focused on reducing emissions and accelerating CCS deployment?

3. Higher oil sands absolute GHG emissions.
Most of the sector’s emissions increase would come from the oil sands, which already account for more than half of total oil and gas emissions. If production continues to rise, oil sands emissions are projected to grow from 92 Mt in 2025 to 96 Mt in 2030 and 97 Mt in 2035—approaching the legislated 100 Mt annual cap.

Unless Alberta sees a major uptake in CCS and early arrival of DAC, both requiring major new fiscal incentives, that cap could be breached within a decade. Will the government repeal the Oil Sands Emissions Limit Act? Or will taxpayers be asked to fund an even larger share of CCS and DAC? And what becomes of Alberta’s commitment to align the cap with the Pathways Alliance target of reducing emissions by 22 Mt per year by 2030?

4. Higher overall GHG emissions.
Total GHG emissions in Alberta are also expected to rise if oil production hits the government’s targets. Projections show emissions rising from 276 Mt in 2025 to 279 Mt in 2030 and 283 Mt in 2035, even without accounting for the higher production levels the government now seeks.

Taken together, these fiscal and environmental risks raise serious doubts about the wisdom of the government’s approach. The Alberta government must clearly explain the assumptions behind these targets and how they were actually derived.

Lennie Kaplan is a former senior manager in the fiscal and economic policy division of Alberta’s Ministry of Treasury Board and Finance, where, among other duties, he examined best practices in fiscal frameworks, program reviews and savings strategies for non-renewable resource revenues. In 2012, he won a Corporate Values Award in TB&F for his work on Alberta’s fiscal framework review. In 2019, Mr. Kaplan served as executive director to the MacKinnon Panel on Alberta’s finances—a government-appointed panel tasked with reviewing Alberta’s spending and recommending reforms.