Oilsands producers and the Alberta and federal governments are stepping up talks ahead of an April 1 deadline for a deal tying a major carbon capture proposal to expanded crude production and a new export pipeline, though “lots of big challenges” remain, the sector’s main lobby group said Friday.

“You’ve got three parties working really hard, meeting multiple times a week, all determined to get to ‘yes’,” Kendall Dilling, head of the newly rebranded Oil Sands Alliance, formerly known as Pathways Alliance. “There’s lots of big challenges we’re continuing to work through.

“There’s still a lot to do. Whatever is or isn’t announced on April 1, there’s months and months of detailed work ahead. April 1 is another milestone, as opposed to some definitive endpoint.”

Reaching the trilateral agreement is a key plank Alberta’s new memorandum of understanding (MOU) with Ottawa. The MOU stipulates that emissions-saving projects — potentially including the Pathways carbon capture and storage hub — are a precondition for the province’s proposed West Coast pipeline.

The deal could form the linchpin of Premier Danielle Smith’s self-described “grand bargain,” which links investment in emissions reductions to expanded oilsands production and access to new markets through a new one-million-barrel-per-day bitumen pipeline to the B.C. coast

Alliance members, including Canadian Natural Resources Ltd., Cenovus Energy Inc., ConocoPhillips Canada Resources Corp., Imperial Oil Ltd. and Suncor Energy Inc. remain “very committed” to the project, Dilling said. The proposed CCS project was first announced in 2021 as part of plans to decarbonize Canada’s oilsands production and achieve net-zero emissions from operations by 2050.

The oilsands group has largely stayed silent since the November MOU, but Dilling spoke Friday as the Oil Sands Alliance rebranded citing a broader mandate, including lobbying and innovation beyond its flagship carbon capture hub, which will continue under the Pathways Project name.

The rebrand comes as oilsands majors are deep in negotiations with government over a phased plan to cut emissions, focused on carbon capture and other projects to reduce steam use in heavy oil production.

“That’s really the big ambition here, the national-interest project is growing production, getting it to markets, and also doing CCS to ensure that we’re competitive with other oil producing jurisdictions in terms of emissions footprint,” Dilling said.

The alliance has cast decarbonization as a way of preserving Canada’s energy sector as the global economy shifts towards more lower-carbon energy. It has argued that fossil fuels, especially heavy oil, will continue to see demand, including for non-combustion uses like asphalt and petrochemicals.

But the consortium’s push for public funding to help finance the world’s largest carbon capture project has drawn staunch opposition from environmental advocates.

Some industry leaders and investors have also questioned whether the mega-project — and the industrial carbon price required to make it commercially viable — makes sense, warning it could weigh on the sector’s competitiveness at a time when Canada is looking to drive economic activity and diversify exports.

“I won’t dispute that adding costs in Canada that aren’t borne by our competitors in other jurisdictions is a competitive disadvantage. That’s just a fact,” Dilling said. “But we also know that Canadians value not just the economic aspects of these projects, but also doing it in a Canadian way, in a responsible way.”

Dilling declined to discuss the substance of the negotiations, citing confidentiality, but rejected the idea that policymakers must choose between cutting emissions and expanding production.

The former Cenovus executive suggested if carbon costs rise, Ottawa could offset the burden on industry in other ways.

“We can walk and chew gum here. There’s ways to make these investments in a sensible way. There’s lots of other levers to reduce costs for industry,” Dilling said, citing regulatory streamlining and faster permitting — though he declined to comment on tax relief or other measures to offset the high costs of CCS.

Canadian companies have eyed past U.S. industrial policies that allowed firms to deduct 100 per cent of the cost of eligible capital equipment in the first year — including measures recently revived by the Trump administration to boost manufacturing and domestic investment. Canadian energy companies have also eyed the U.S. federal 45Q tax credit, providing per-tonne incentives for captured carbon.

Currently, Ottawa provides a refundable investment tax credit covering up to 50 per cent of eligible CCS capital costs and allows accelerated tax write-offs for qualifying equipment — though companies must still deduct most of the remaining costs over time, rather than all at once.

Oilsands majors may also be urging Ottawa to revive the accelerated tax write-offs on capital spending that helped drive the sector’s buildout in the early 2000s, first ushered in by Jean Chrétien and continued under Paul Martin, before being phased-out under Stephen Harper.

Dilling said high carbon prices alone won’t drive investment in carbon capture and warned they could stifle growth if set too high.

“You can’t let the tail wag the dog,” he said. “If you want to see decarbonization investment, then you need to put in other incentives to pull that investment. You can’t try to drive it with a higher carbon price, because you’ll just kill growth of the industry.”

mpotkins@postmedia.com