With his first budget, Prime Minister Mark Carney has begun sketching the contours of a so-called “grand bargain” with Canada’s energy sector to promote major project development while attempting to restrain carbon emissions. 

While the 2025 budget document makes no mention of that bargain—a term popularized by Alberta Premier Danielle Smith—it offers the clearest outline yet of the give-and-take relationship oil and gas producers are likely to have with the current Liberal government. 

On one hand, Tuesday’s budget doubles down on Canada’s industrial carbon price, affirming the government’s intention to enforce its pricing mechanism over the provinces. Federal industrial carbon prices are currently $95 per tonne, and are set to rise to $170 by 2030. In a section describing the government’s broader climate competitiveness strategy, the budget says Ottawa would “promptly and transparently” impose its carbon price wherever a provincial carbon system “falls below the benchmark.” 

Conversely, the budget holds out the prospect of changes to policies the industry has long claimed pointlessly crimp investment. Ottawa could lift its emissions cap on oil and gas firms, it suggests, if certain conditions are met. The document also says the government will review the terms of its anti-greenwashing laws. 

Finally, the federal government added the Pathways carbon capture development—a proposed $16.5-billion network between Canada’s largest oil producers—to its list of early-stage strategic projects, a move that gives Pathways special status within the federal regulatory review system. (In September, Ottawa designated its first five projects it deemed to be in the national interest, thus fast-tracking their regulatory reviews.) 

While the budget indicates the broad shape of the grand bargain, however, it leaves many details off the table. 

The document states only an “intention to propose” changes to the greenwashing law, which exposes companies to litigation if they fail to prove the validity of their environmental claims. Its language on the emissions cap is similarly vague: the limit “would no longer be required,” it says, if Canada establishes strong carbon markets, reduces methane emissions and gets carbon capture working at scale. It does not say how that threshold might be met.

Oil and gas lobby groups remained quiet about the budget as of Wednesday afternoon. Neither the Canadian Association of Petroleum Producers (CAPP) nor the Pathways Alliance—the oilsands consortium behind the carbon capture project—had released public comment. Pathways declined The Logic’s interview request, while CAPP did not respond.

Carney has signalled his willingness to relax some of the environmental restrictions introduced by former prime minister Justin Trudeau, citing the need to spur economic growth and diversify trade in the face of U.S. tariffs. Fossil fuel extraction, once widely decried as an unmitigated environmental liability, has regained favour among many governments following Russia’s invasion of Ukraine, and a punishing global trade war. 

Tuesday’s budget begins to outline Ottawa’s expectations for Canada’s oil and gas sector within that changing context.

The Pathways carbon capture project has emerged as a central pillar of those plans. Despite being in the early proposal stage, the project received special mention earlier this year from Natural Resources Minister Tim Hodgson when he first addressed Calgary’s oil and gas players. 

If built, the system would gather carbon dioxide emitted from 13 oilsands developments and transport it via pipeline to Cold Lake, Alta., where it would be stored underground. If it works as planned, the development would effectively eliminate the vast majority of on-site emissions from those facilities. But it would come at a massive cost to taxpayers. The federal government has already agreed to pay roughly half the cost of Pathways and other carbon capture projects through its investment tax credits, but oilsands CEOs have said much more public support is needed to make it viable.  

Meanwhile, Ottawa’s plans to enforce its industrial carbon tax across Canada is likely to face pushback in Alberta, which oversees the country’s largest carbon pricing regime.

Currently, the province’s carbon market sets its own industrial carbon price and regulates about a quarter of the roughly 694 megatonnes of greenhouse gas emissions the country coughs up every year. The system has faced some scrutiny in recent years for applying price thresholds that are viewed by some as too lenient.