“… we’ve also got a view that’s shared by the Government of Alberta in the ‘grand bargain’ — I’m going to quote the premier of Alberta — that the future of oil export is going to be low carbon, and so twinning … oil sands development with carbon capture makes sense.”

Prime Minister Mark Carney – speaking at the Canadian Club Toronto on November 7, 2025

Canada is trying to do something no other major fossil-fuel producer has accomplished: pursue two fundamentally conflicting goals at the same time. On one hand, we want to grow our fossil fuel industry — continue increasing production, expand export capacity, and lock in decades of future revenue. On the other hand, we want to cut our greenhouse gas emissions to meet our climate targets and prevent the worst effects of climate change.

Our political and industry leaders tell us we can make a “grand bargain” that will allow us to do both. The pitch goes like this: Canada can keep producing and exporting oil and gas and still achieve its climate goals, because new technologies — particularly carbon capture — will make our barrels among the “cleanest in the world.” If we capture the emissions from oil production, we can keep the economic benefits without the climate harm.

It’s an appealing story. But it rests on some massive assumptions, and chief among them is that carbon capture works, can be deployed at scale and at reasonable cost, and that Canada has enough safe geological space to store all the CO₂ we capture.

Whether these assumptions are likely to be true or not does not get enough attention in the national debate over our fossil fuel development ambitions.

But it should, because oil sands production is among the most carbon-intensive oil production in the world. Extracting and upgrading bitumen requires enormous amounts of heat, usually from burning natural gas, which is why the fossil fuel sector is now responsible for 30% of Canada’s total emissions, and rising.

If we make a grand bargain and it fails to deliver — if production keeps growing while carbon capture underdelivers — Canada’s emissions will rise sharply, with serious consequences for our climate, economy, and international credibility.

So, can we really rely on carbon capture to decarbonize Canada’s oil and gas sector? Can we eat our cake and have it too?

The Blind Spot: Exported Emissions Don’t Count — But They Still Matter

Before we get into answering that question, there’s another crucial piece of context that rarely makes it into public discussion – is there really such a thing as decarbonized oil and gas?

The short answer is no – there is no such thing. When politicians refer to clean, low-carbon, or decarbonized oil and gas, they are referring to efforts to cut emissions from producing fossil fuels, while ignoring emissions from using them.

It’s a pretty shameless omission, because around 85% of oil and gas emissions come from combustion, not production.

The rules of the Paris Agreement leave a major loophole for fossil fuel exporters: countries are only responsible for emissions released within their national borders. That lets Canada ignore the far larger emissions created when our exported fuels are burned abroad.

So when leaders claim that they intend to produce “low-emission” oil or gas, they’re only referring to the production phase and taking advantage of the accounting quirk of the Paris agreement to ignore exported emissions.

Unfortunately, in Canada’s case, these exported emissions are by far the largest part of our country’s emissions, driving global warming. In 2023, for the first time, CO2 emissions produced from Canada’s fossil fuel exports surpassed a billion tonnes, significantly eclipsing the country’s domestic emissions estimate of 702 million tonnes for the same year.

Some argue that if Canada doesn’t expand oil and gas production, others will simply step in to meet the demand. But basic economics tells us the opposite: more supply lowers prices and increases consumption, and many economic and climate-policy analyses argue that when fossil-fuel supply expands, the lower prices tend to boost consumption or delay the transition to non-emitting energy sources.

Canada’s expansion wouldn’t just satisfy demand — it would help generate it, locking in more emissions for decades. And even if Canada does not acknowledge those emissions in its totals, they still worsen the effects of climate change. The atmosphere doesn’t care who counts emissions.

With that said, for the sake of argument, let’s ignore the effects of increased fossil fuel production on the planet and focus only on Canada’s production emissions.

Even with this major caveat, is carbon capture likely to deliver the reductions needed to support the idea of a grand bargain in which our fossil fuel production increases but our domestic emissions do not?

Answering that question begins with understanding how carbon capture works, how much it costs and who pays for it.

The Two Kinds of Carbon Capture — and Why Only One Matters Here

First, let’s be clear about what we mean when we talk about carbon capture, because the term covers two very different types of climate technologies.

The first is Carbon Capture, Utilization and Storage (CCUS), which refers to systems that capture CO₂ at the point of emission, before it enters the atmosphere. This is the kind of capture that can be used at power plants, cement kilns, refineries, and oil sands upgraders. CCUS is fundamentally an emissions-avoidance technology: it aims to prevent new CO₂ from being released in the first place.

The second category is Carbon Dioxide Removal (CDR). Unlike CCUS, these approaches remove CO₂ that is already in the atmosphere. They include Direct Air Capture (DAC), which pulls CO₂ from ambient air; nature-based solutions such as reforestation or soil carbon storage; and engineered systems like BECCS (bioenergy with carbon capture) or enhanced rock weathering. CDR is best understood as cleanup, not prevention.

For Canada’s oil and gas sector — and for the idea that we can keep expanding production while still cutting emissions — only CCUS is relevant. A grand bargain would depend on preventing new emissions during production, not cleaning them up after the fact.

How CCUS Works

Carbon capture, utilization, and storage operates through a three-step process: capture, transport, and use or storage.

The first step is capture. CO₂ must be separated from a mixture of exhaust gases, which can be done in several ways: post-combustion capture, the most common approach in power plants; pre-combustion capture, where CO₂ is removed before the fuel is burned; and oxy-fuel combustion, which burns fuel in pure oxygen to produce a more concentrated CO₂ stream.

All of these approaches work to capture carbon. Under ideal conditions, they can capture 85–95% of the CO₂ in the treated exhaust. Each approach has different features that may make it more suitable for various applications and may affect its cost per tonne of CO₂ captured.

Once captured, the CO₂ is compressed and transported to a storage or utilization site. In most cases, pipelines are the most efficient and economical way to move large volumes of CO₂, though trucks or ships are sometimes used for smaller or specialized projects.

The final step is use or storage. Today, most captured CO₂ is used rather than stored — primarily for enhanced oil recovery (EOR), where CO₂ is injected into aging oil fields to help push more oil to the surface. While EOR can make capture projects financially viable, it also leads to higher net emissions, since the additional oil extracted is ultimately burned.

The true climate benefit of carbon capture comes from permanent geological storage, where CO₂ is injected deep underground into stable rock formations and kept out of the atmosphere for thousands of years.

The Risks and Limits of Storing CO₂ Underground

Geological storage is generally considered safe, but not risk-free. Potential issues include:

• leakage through faults, fractures, or old wells
• induced seismicity from pressure buildup
• possible groundwater impacts

Some of the earliest storage sites now have decades of operational experience showing that risks can be low when sites are carefully selected and monitored.

However, that experience remains very limited, compared to the potentially tens of billions of tonnes of CO2 emitted annually that might need to be stored if CCS expands globally.

Compounding this challenge, a major Nature study published in 2025 suggests that realistically safe geological storage capacity may be up to ten times smaller than earlier estimates. Our capacity to store captured carbon may be insufficient for this technology to be the lead solution the world leans on to prevent the worst effects of climate change.

In other words, storage is likely a finite resource and should be reserved for sectors with no viable alternatives, rather than being used to justify the expansion of fossil fuel production.

How Effective Is Carbon Capture, Really?

Under ideal technological and operating conditions, carbon-capture systems are designed to remove roughly 85–95% of the CO₂ in the treated exhaust — a range supported by the IPCC, the IEA, and the U.S. Department of Energy.

In real-world applications, however, the numbers decline significantly once you account for energy penalties, equipment downtime, and the fact that many facilities only treat a portion of site emissions.

Two Canadian examples illustrate the challenge.

At the Boundary Dam coal-fired power plant in Saskatchewan, the carbon capture unit was designed to capture 90% of its CO₂, but chronic mechanical problems resulted in low uptimes, and the project has reported capturing about half of its target capacity between 2014 and 2021. Almost all the CO₂ captured at Boundary Dam was used for enhanced oil recovery, negating the project’s climate protection benefits.

Shell’s Quest project in Alberta, one of the largest CCS initiatives linked to the oil sands, has performed somewhat better. Designed to capture 80% of the CO₂ in the targeted stream, it achieved about 75% of that between 2016 and 2020. But independent reports have shown that when all facility emissions are counted, Quest captures only about half of its total emissions.

But there is another critical point that is often not included in the presentation of CCS effectiveness results: CCS projects almost always report CO₂ captured, not CO₂ avoided. Running capture equipment consumes large amounts of energy — often generated by burning additional natural gas or coal — which produces extra CO₂ that is not captured. When these “parasitic emissions” are included, the true climate benefit is smaller than the headline capture rate suggests. In some cases, the net reduction can fall to a fraction of the reported capture amount; in others, it may even turn negative.

In the Quest example, for instance, independent analyses show that once the extra energy required to run the CCS system is included, Quest have even emitted more CO₂ than it captured in some years.

These projects are not outliers. Across dozens of CCS installations worldwide, the pattern is consistent: real-world capture rates fall far short of what would be needed to make continued fossil fuel use compatible with climate goals.

In sectors where zero-emission alternatives already exist—such as electricity generation—partial capture simply isn’t enough. When cleaner, cheaper, non-emitting technologies are available, CCS cannot justify the continued operation, let alone expansion, of fossil-based systems.

The Economics of CCS: Why Costs Rise Quickly

Carbon capture is expensive, and the costs vary significantly depending on a wide range of factors, but are largely driven by the concentration of CO₂ in the stream being treated.

A 2023 analysis by the International Institute for Sustainable Development (IISD) found that high-purity industrial sources, such as natural-gas processing or fertilizer production, typically cost $27–48 CAD per tonne of CO₂ captured. Costs are substantially higher for applications involving lower-purity streams. In sectors like cement, steel, or fossil-fuel power generation, capture costs typically range from $50–150 CAD per tonne, reflecting the greater energy and equipment required to separate CO₂ from dilute exhaust.

Real-world retrofits can be even more expensive. IISD cites an example of a proposed CCS retrofit for a natural-gas-fired power plant in the oil sands region, with capture costs estimated at $111–144 CAD per tonne.

But these are only the capture costs. Transport and storage add additional expense, meaning full-chain CCS costs can easily exceed these capture-only estimates. For oil sands facilities, where emissions come predominantly from low-purity flue gases, CCS falls squarely into the highest-cost category.

Will these costs come down?

Many clean-energy technologies—most famously wind and solar—have seen dramatic cost declines as deployment expanded, driven by standardization, mass manufacturing, and global learning-by-doing. However, the IISD analysis concludes that CCS is unlikely to experience important cost reductions with greater deployment.

Because CCS systems must be custom-designed for each site, handle widely varying gas compositions, and integrate into complex industrial processes, there is little opportunity for economies of scale or major efficiency breakthroughs.

IISD finds “no strong evidence” that capture costs will fall substantially over time and warns that, given CCS’s bespoke nature, today’s high costs are likely to persist rather than decline meaningfully with deployment.

What This Means for the Cost of a Barrel

According to Canada’s National Greenhouse Gas Emission Inventory, each barrel of oil sands crude results in roughly 76 kilograms of production emissions, or about 0.076 tonnes of CO₂.

If CCS removes one-half to one-third of those emissions—consistent with real-world performance today—that means capturing between 0.023 and 0.035 tonnes of CO₂ per barrel. Using a representative full-chain CCS cost of about $100 per tonne (the mid-range for low-purity applications), this translates into an added cost of roughly $2.00 to $4.00 CAD per barrel. Even if capture costs were lower—say $80 per tonne—the increase would still fall in the range of $1.50 to $2.75 per barrel.

Relative to the market price of oil, currently around $60 USD per barrel, that works out to a premium of about 3% to 5% for barrels with a portion of their emissions reduced by CCS.

Who Pays?

Because CCS adds cost — sometimes significant cost — companies are unlikely to adopt it voluntarily. It becomes viable only when policies like carbon pricing make emitting more expensive than capturing, or when regulations such as emissions caps or performance standards require producers to cut their emissions. Without strong policy, CCS projects are unlikely to proceed.

Even when those policies exist, industry can be expected to argue that the additional cost could make them uncompetitive in global markets. As a result, companies will push for government subsidies to cover CCS expenses.

This isn’t theoretical — it’s already happening. The Pathways Alliance, a coalition of Canada’s largest oil sands producers, has proposed a $16.5-billion CCS network to capture CO₂ from more than 20 oil sands facilities. But the Alliance has made clear that the project will proceed only if governments provide substantial public funding.

They have cited Norway’s approach, where the government covers two-thirds of capital costs and all operating costs for a decade, as the benchmark Canada should match. In other words, Canada’s flagship decarbonization proposal is premised on major, ongoing taxpayer subsidies.

This raises an important inconsistency at the heart of the so-called grand bargain. Its champions argue that “cleaner” or “lower-emissions” Canadian oil and gas will be valued by trading partners, giving our products an advantage in global markets. If that is true and international customers genuinely want “cleaner” barrels, then the market itself should reward those producers.

If the government is going to encourage fossil fuel expansion paired with CCS, it should stand firmly by that logic. The costs of decarbonizing Canadian oil and gas should be borne by industry and reflected in the price of the product, not transferred to taxpayers through subsidies.

Otherwise, the grand bargain becomes a public subsidy for private profit, rather than a credible climate strategy.

The Grand Bargain That Isn’t

In the end, carbon capture can work — just not at the scale or reliability required to uphold any so-called grand bargain.

Proponents say CCS promises a future where Canada can keep expanding oil and gas production while still cutting emissions. But in practice, even the most optimistic deployment across all Canadian operations would only capture a portion of production emissions. And it does nothing about the far larger problem: the emissions released when those fuels are ultimately burned. Those downstream emissions — the vast majority — would continue heating the planet toward dangerous, irreversible consequences.

That is the fundamental flaw at the heart of the bargain. CCS simply. cannot clean up enough of the sector’s footprint to justify new pipelines, new LNG terminals, or expanded oil sands production. It can be a tool for reducing emissions from existing operations during a transition. It cannot be a passport to perpetual fossil fuel growth.

Worse, the economics make any bargain even less credible. Carbon capture in the oil sands is expensive, and industry insists these costs threaten its competitiveness. The result is a familiar pattern with private companies demanding billions in taxpayer subsidies to protect their profits. Under this arrangement, Canadians would end up footing the bill for capturing a small share of emissions, while producers continue exporting the fuels that generate far larger emissions abroad.

And perhaps the most damaging consequence is the illusion it creates — the notion that oil and gas production can go on indefinitely as long as we bolt on enough carbon capture equipment. That illusion delays real decisions, locks in new fossil infrastructure, and steers Canada further from the clean-energy economy our trading partners are rapidly building.

There is no grand bargain here. Carbon capture can help us wind down fossil fuels responsibly, but it cannot maintain, let alone expand, a sector whose core product is the source of the problem.

The honest path forward is clear: we should use CCS where it genuinely makes sense by implementing regulations to require existing operations to clean up what they can, and invest in the energy systems that will define Canada’s future, not its past. ■