Implementation Agreement – Relying On The Tried-and-True TIER Program And A Path Forward For Energy

On May 15, 2026, the Government of Canada and the Government of Alberta jointly announced an Implementation Agreement¹ (Implementation Agreement), which reaffirms the importance of, and relies on, the Technology Innovation and Emissions Reduction Regulation (TIER) framework to translate the commitments of the Canada-Alberta Memorandum of Understanding (the MOU) dated November 27, 2025 into tangible steps which enable Alberta’s oil and gas industry to meet both domestic and international increased demand, while maintaining the shared goal of achieving net-zero greenhouse gas emissions by 2050.

Over the past few months, news releases and government hints – and now the terms of the Implementation Agreement itself – show a laser focus by both governments on developing and maintaining effective carbon markets as a main driver to achieving these emission reductions goals.² However, a fundamental precept of the carbon market is that in order for the market to drive emissions reductions, the demand for credits must exceed supply. Alberta is currently over-supplied with emission offset credits, emission performance credits and sequestration credits (collectively, carbon credits) resulting in a market price well below the legislated carbon price (e.g., the fund price under TIER). Therefore, an increase of the legislated carbon price is less significant if market participants can simply purchase carbon credits from the market at a material discount. Aiming to address this specific concern, the Implementation Agreement: (i) evidences alignment by the Federal Government and Alberta on long-term carbon pricing and on long-term stringency; (ii) supports strong and robust carbon markets by establishing a floor price effective in 2030; (iii) clarifies the direct investment pathway introduced by Alberta in late 2025 (see December 2025 amendments to Alberta’s TIER following the MOU with the federal government); and (iv) subject to agreed upon liability caps, establishes a guarantee of the price of carbon credits through contracts for difference.

Key takeaways

• In the Implementation Agreement, Canada and Alberta have aligned on a revised long-term carbon pricing trajectory, with anticipated adjustments to the federal benchmark.
• The Implementation Agreement introduces mechanisms aimed at strengthening Alberta's carbon market function, including a price floor and contracts for difference.
• Stringency rate increases are eased from the current trajectory, signaling a policy shift toward competitiveness and carbon leakage mitigation.
• The direct investment pathway introduced by Alberta in 2025 is preserved but constrained, with new limits intended to protect market integrity.
• Alberta will be meaningfully participating in the National Electricity Strategy, with commitments by both governments. Further, the Clean Electricity Regulations continue to be held in abeyance – but with a defined drop-dead date and a plan for the results of any court decision.
• Major projects, including the Pathways CCUS initiative, remain central to the MOU but are tied to broader infrastructure development.

Industrial Carbon Price

The federal backstop under the Greenhouse Gas Pollution Pricing Act³ – which sets the minimum national stringency criteria that all provincial and territorial industrial carbon pricing systems must meet, commonly referred to as the “benchmark” – is currently $110/tonne and through legislated increases, is set to be $170/tonne by 2030. Under the Implementation Agreement, the industrial carbon price increases will be tapered. TIER currently sets the Fund Price for carbon emissions at $95/tonne. Pursuant to the Implementation Agreement, Alberta’s industrial carbon price will: (i) be set at $100/tonne for 2027, 2028 and 2029, increasing to $115/tonne for 2030; (ii) increase $3/tonne a year between 2031 and 2035; and (iii) continue to increase by 1.5% annually from 2036 to reach $140/tonne by 2040. In order to implement this change, the federal government agreed to update the federal carbon pricing benchmark to be consistent with the Implementation Agreement. However, it is unclear whether such an updated federal carbon pricing benchmark would be applicable across Canada or only applicable to Alberta.

Oversupply, Market Price and Price Floor

The Implementation Agreement further addresses the existing TIER credit oversupply and the discrepancies between the market price of carbon credits and the TIER fund price. In particular, Alberta will enact regulations to implement a TIER price floor for all transfers of carbon credits, beginning in 2030. This floor price is intended to mitigate such price differences and also influence market participant behavior such as discounted pricing prior to 2030 to reduce surplus or speculative storage of newer vintages, which could impact supply. The floor price is to be set as follows:

It will be important to see the steps that the Alberta Government implements to monitor and enforce the price floor in the TIER market since TIER is traded over-the-counter on a bilateral basis. The price paid for carbon credits for any particular transaction is currently considered to be highly confidential by market participants.

Revisions to Stringency Rates

Stringency rates are the annual emissions tightening rates for facility-specific and high-performance benchmarks under TIER. In other words, increased stringency reduces the amount of annual allowable emissions allocated to industrial emitters and, in response, increases the demand for TIER credits to offset greater compliance obligations.

The Implementation Agreement relaxes the current rate for stringency increases and establishes near and long-term stringency rates over the 2027-2030 and 2031-2040 periods as follows:

These stringency rates represent a relaxation of current stringency rates under TIER which could be seen as negative or permissive by some. On the other hand, the Discussion Paper recognizes the need to address carbon leakage and balance adverse competitive impacts.⁵ Accordingly, it seems the government policy to relax the current stringency rates is intended to promote strong economic growth and ensure Canada remains competitive internationally.

Direct investment pathway

Alberta recently established the direct investment pathway under TIER (see December 2025 amendments to Alberta’s TIER following the MOU with the federal government). Under the direct investment pathway, each investment credit is deemed to represent one tonne of CO2e, and the number of investment credits generated is based on “eligible investments” in an “eligible investment project.” The number of investment credits generated would then be equal to the eligible investment amount divided by the TIER fund price for the year the investment was made. Investment credits create flexibility for emitters and allow them to offset upfront capital costs incurred in the development of carbon reduction technologies against their current TIER compliance obligations before such carbon reduction technologies reach commercial operation. This incentivizes long-term projects that require substantial upfront capital, including carbon capture, utilization, and storage investments. However, there have also been some criticisms of this new process and there have been concerns raised about the credibility of these "emissions reductions" since the investment credits do not represent actual reduction in emissions.

The Implementation Agreement directly addresses this investment pathway by constraining the number of investment credits that can be generated. Alberta has agreed to design and administer the direct investment pathway in a manner that preserves market function and the TIER effective price, including limiting eligible investment amounts to 50% of eligible capital and 50% of operating costs directly attributable to the approved project (net of any government grants, TIER fund support, investment tax credits or other public financial support).

While Alberta’s high-level commitment to preserve market function and the TIER effective price is reassuring, the specific requirements and qualifications that are to be set out in the Standard for Direct Investment, including the types of project or capital investments and the scope of operating costs that will be eligible for investment credits, will provide important clarity on this pathway for project development.

Contract for differences

Another important mechanism used to de-risk market pricing for investors and project developers is contracts for differences (CfD) – a commonly used structure in the renewable industry. These contracts guarantee the holder a specific price for its carbon credit. The governmental counterparties will pay the difference between an agreed upon strike price (not to be confused with the floor price above) to the market price received by the CfD holder. Alberta and Canada have committed to fund carbon CfDs for up to 75 million tonnes of emission reduction with an aggregate maximum liability of $600 million for each government. The impact of these carbon contracts for difference on incentivizing investment will be strongly tied to the amount of the guaranteed fixed minimum price.

In terms of the long-term commitment to these CfDs, Canada will assume full liability for these carbon pricing backstops if the Greenhouse Gas Pollution Pricing Act is repealed or the federal government fails to maintain its commitments to carbon pricing in the Implementation Agreement. Alberta will assume full liability for such backstops if TIER is repealed or the provincial government fails to maintain its commitments to carbon pricing in the Implementation Agreement. The full assumption of liability if any government fails to maintain its carbon pricing commitments under the Implementation Agreement should incentivize the long-term performance of these obligations and mitigate “stroke of pen” risk and the risk of future changes in governments and policies.

A note regarding electricity

Beginning in 2035, the Clean Electricity Regulations (CER) will set limits on carbon dioxide pollution from almost all electricity generation units that use fossil fuels as a generation source. The CER are drafted to be technology-neutral, and apply to fossil fuel-burning units with a capacity of 25 MW or greater connected to an electricity system subject to North American Electric Reliability Corporation (NERC) standards. The carbon price under the Greenhouse Gas Pollution Pricing Act (GGPPA) creates an economic price signal for covered industrial/electricity emissions; the CER create a sector-specific emissions prohibition/standard for fossil-fuel electricity generation under Canadian Environmental Protection Act, beginning mainly in 2035. Carbon pricing may influence dispatch, investment and retrofit decisions, but it does not by itself authorize non-compliance with the CER. From 2035, a fossil generator may need to satisfy both: (i) pay or remit under the GGPPA (or provincial equivalent where applicable) and (ii) remain within the CER’s CO₂ limit or use CER-recognized compliance mechanisms.

The National Electricity Strategy, released a day before the announcement and publication of the Implementation Agreement, references that amendments will be made to the CER, but doesn’t go into detail. Amendments would have application nationally, and not just in Alberta.

The Implementation Agreement confirms the Clean Electricity Regulations⁶ (CER) CER will continue to be “held in abeyance.” While the CER are in force and effective across Canada, they were suspended in Alberta pursuant to the MOU pending a new carbon-pricing agreement, which has now taken the form of the Implementation Agreement. This abeyance now has a defined end date – until the CER Reference⁷(currently before the Alberta Court of Appeal) is ultimately determined. If the CER is found to be constitutional by the highest court hearing such appeal, Canada and Alberta will negotiate an equivalency agreement based on the terms and activities identified by the joint Electricity Working Group to be established by the parties to work towards net-zero greenhouse gas emissions from the electricity sector by 2050. If the CER is found to be unconstitutional, it will be repealed by the federal government without impact on the carbon pricing provisions agreed to in the Implementation Agreement.

Canada and Alberta will work together to expand economic opportunities related to the electricity sector, including by facilitating a doubling of the grid by 2050 and an expansion of natural gas generation and lower-carbon forms of energy development. In particular, Alberta agreed to implement changes to the Restructured Energy Market⁸ to enable natural gas generation and investment in renewables and other forms of generation on an ongoing basis.

Canada intends to extend the Clean Electricity Investment Tax Credit to support major high-voltage intra-provincial transmission projects, complementing existing support for inter-provincial interties. It is expected this tax credit will significantly support new interties between Alberta and Saskatchewan and British Columbia.

Canada and Alberta will launch a joint Electricity Working Group with a mandate to advance the joint commitment to work toward net-zero greenhouse gas emissions from the electricity sector by 2050.

Together, the National Electricity Strategy and the Implementation Agreement suggest a shift in federal and provincial policy and signal a collaborative approach to the development and expansion of economic activities related to the electricity sector, which recognizes the importance of both natural gas generation and lower-carbon forms of power generation.

Further collaboration

Pursuant to the Implementation Agreement, Canada and Alberta confirm that Canada has fulfilled key commitments under the MOU, including:

1. announcing the extension of federal Investment Tax Credits to support enhanced oil recovery and extending current credit rates under the Carbon Capture, Utilization, and Storage Investment Tax Credit to 2035;
2. removing certain “greenwashing” provisions from the Competition Act and honoring its commitment not to introduce the Oil and Gas Emissions Cap.

The governments further reaffirmed their commitment to collaborate on finalizing Alberta’s policy frameworks for artificial intelligence data centers by July 1, 2026, and for nuclear power generation by January 1, 2027.

Last, Canada and Alberta reaffirm their commitment to advancing the oil pipeline project in accordance with the MOU, including progressing the application, designation, and regulatory review processes while respecting Indigenous consultation obligations. They also confirm that the pipeline project and the Pathways Project are mutually dependent and will be developed in tandem. Additionally, Canada and Alberta commit to ongoing trilateral engagement with British Columbia to support the pipeline process and broader economic cooperation on related projects.

Conclusion

The Implementation Agreement reflects a deliberate recalibration of Canada and Alberta’s approach to carbon policy, grounded in the continued use of the TIER framework as a “tried and true” mechanism for regulating industrial emissions. Rather than introducing an entirely new regime, the governments have elected to reinforce and adapt an existing system: aligning long-term carbon pricing, moderating stringency, and addressing structural market imbalances. In our view, this continuity is significant: it enhances regulatory predictability while signaling a pragmatic recognition that market function, investment certainty, and competitiveness must be maintained alongside decarbonization objectives.

At the same time, the Implementation Agreement squarely confronts a number of longstanding pressure points within the TIER system, most notably the persistent oversupply of credits and the resulting discount to the fund price. The introduction of a price floor, constraints on the direct investment pathway, and the deployment of contracts for difference collectively represent an intervention aimed at restoring price integrity and supporting capital deployment into emissions-reducing projects. These measures will require careful implementation, and much will turn on the details, particularly with respect to enforcement of the price floor in an opaque over-the-counter market, the eligibility criteria for investment credits, and the calibration of contract-for-difference strike prices.

At a higher policy level, the Implementation Agreement underscores an evolving federal-provincial alignment on the role of carbon markets, hydrocarbons, and electricity in the energy transition. The express linkage of major infrastructure projects, the coordinated approach to electricity policy, and the allocation of long-term liability for carbon pricing commitments all point to a more integrated, commercially oriented, policy framework. For market participants, the direction of travel is clear; however, as is often the case, the legal and economic implications will ultimately be shaped by the implementing legislation, regulations and orders that follow. Close attention to those developments will be critical in assessing how this framework translates into both risk and opportunity.

Footnotes

1. Prime Minister of Canada, "Implementation Agreement for the Canada-Alberta Memorandum of Understanding of November 27, 2025" (15 May 2026), online: <https://www.pm.gc.ca/en/news/backgrounders/2026/05/15/implementation-agreement-canada-alberta-memorandum-understanding>↩

2. Clear and common requirements on industrial carbon pricing across Canada was identified by the federal government in the Discussion Paper on Driving Effective Carbon Markets in Canada  (Discussion Paper) as a key element to establish effective carbon markets that contribute to strong economic growth: See Canada, Environment and Climate Change Canada, Discussion paper: Driving effective carbon markets in Canada, (Discussion Paper), (Ottawa: Environment and Climate Change Canada, 2025) online: <https://www.canada.ca/en/environment-climate-change/corporate/transparency/consultations/comment-driving-effective-carbon-markets/discussion-paper.html > [Discussion Paper].↩

3. Greenhouse Gas Pollution Pricing Act, SC 2018, c 12, s 186↩

4. “FSB” stands for “Facility-Specific Benchmark” and “HPB” stands for “High-Performance Benchmark.”↩

5. iscussion Paper, supra note 2.↩

6. Clean Electricity Regulations, SOR/2024-263.↩

7. Reference Re Clean Electricity Regulations (Canada), 2025 ABCA 233.↩

8. https://www.aeso.ca/transition/rem/.↩

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