Canada Should Make the Future Investable...not Make Oil Risk-Free

I am troubled by Canada’s plan to publicly de-risk another pipeline and the Pathways carbon-capture project. Not only for the climate, but for our prosperity.

I am a climate investor.

Which means I am an optimist.

I invest in entrepreneurs because I believe the future can be better than the present. That technology can outperform incumbency. That markets can solve problems. That capital, allocated properly, can create enormous economic value while returning enormous amounts of carbon.

But optimism is not naivety.

It is not believing that every project described as “nation-building” will build the nation.

It is not assuming that extending an existing industry is the same thing as creating future prosperity.

And it is not asking taxpayers to absorb risks that the expected beneficiaries of a project are unwilling to carry themselves.

That is why I am troubled by the proposed new west-coast oil pipeline.

Not only because of what it could mean for Canada’s climate objectives.

Because of what it says about how Canada intends to create wealth.

Let’s be practical

Canada still produces oil.

The world still consumes it.

People heat their homes, move goods, manufacture products and travel using systems built around hydrocarbons. Those systems cannot be turned off tomorrow without creating economic and human hardship.

Workers and communities dependent on the industry deserve more than slogans. Alberta has made an enormous contribution to Canadian prosperity. Canada needs secure energy, diversified trade and regulatory processes that are credible, rigorous and fast.

This is a transition.

Not a switch.

But acknowledging that we still use oil is not the same as believing we should continue investing public capital in expanding oil production for decades.

Use is not the same as growth.

Managing the present is not the same as underwriting the past.

That distinction matters.

The market is telling us something

The proposed pipeline would carry approximately one million barrels of oil a day from Alberta to the British Columbia coast.

Pembina Pipeline would hold a 10-per-cent economic interest during construction, with the opportunity to add as much as another 10 per cent after the pipeline enters commercial operation. The federal government, through Trans Mountain Corporation, and Alberta, through the Alberta Petroleum Marketing Commission, would own equal shares of the remainder.

Think about the structure.

The public carries almost all the exposure during the period when construction, financing, permitting and cost risks are highest.

Private capital takes a smaller position.

Then, once the project is operating and much of the uncertainty has been resolved, it has the opportunity to invest more.

That is an attractive structure.

For the private investor.

For Canadians, the question is different.

Why are governments being asked to assume risks that the oil industry and infrastructure investors will not?

Private capital is not infallible. Markets can be short-term. Investors can miss important opportunities. Government sometimes needs to act when a project produces broad public benefits that cannot be fully captured by an individual company.

But private reluctance is still information.

It tells us something about construction risk. Something about future utilization. Something about producer commitments. Something about the prospective return. Something about how investors view long-term global oil demand.

Government should not automatically treat that information as an obstacle to be defeated.

It should treat it as a warning to be underwritten.

This is not ideology.

It is diligence.

Pathways is part of the same bet

The pipeline is explicitly tied to Pathways, the proposed carbon-capture and storage network intended to reduce emissions from oil-sands production.

I am not opposed to carbon capture in every circumstance.

There are industrial processes where emissions will be difficult to eliminate and where capturing carbon may be necessary. Cement. Chemicals. Certain industrial applications. Perhaps other sectors where substitution is technically or economically remote.

But not all carbon capture is the same.

There is a difference between using carbon capture to address emissions we cannot yet avoid and using it to extend the production of a fuel the economy is already beginning to replace.

One abates the residual.

The other protects the incumbent.

Pathways is not being developed in isolation. The federal and Alberta governments have made it part of a broader agreement intended to support substantial oil-sands production growth and the construction of the new pipeline.

Canada has extended federal carbon-capture investment tax credits through 2035, covering 50 per cent of eligible capture-equipment costs and 37.5 per cent of eligible transportation and storage costs. It has also agreed to advance operating-cost support mechanisms and enhance carbon-credit treatment. Alberta has agreed to extend its own carbon-capture incentive program and other financial supports.

This is not one cheque. It is a scaffold. Tax credits. Capital grants. Operating support. Carbon credits. Regulatory accommodation. Government equity in the pipeline whose growth Pathways is designed to enable.

Each measure can be explained individually. Together, they amount to a coordinated effort to make further oil-sands expansion financeable.

That is the part I question.

Carbon capture may reduce the emissions intensity of each barrel. It does not eliminate the emissions produced when that barrel is ultimately consumed. And it does not eliminate the financial risk that demand, technology, policy and economics may move faster than the asset’s expected life.

CCS cannot turn a long-duration fossil-fuel bet into a risk-free one.

It can make the bet look cleaner.

The stranded-asset question

“Stranded asset” is often heard as activist language.

It is not.

It is an investment term.

An asset becomes stranded when the cash flows expected to support its valuation fail to materialize over its intended life.

Demand changes. Technology changes. Policy changes. Costs change. Customers change.

The asset does not need to become completely useless. It only needs to become less valuable, less utilized or obsolete sooner than the underwriting assumed.

A new pipeline is not a five-year decision. It is a multi-decade bet on production, throughput and global demand.

Pathways adds another long-lived capital system whose economic purpose is linked to maintaining that production.

The pipeline depends on Pathways. Pathways depends on continued production. Both depend on future demand for the product.

That is not diversification. It is correlated risk.

We have already seen what happens when government assumes that risk.

Ottawa purchased Trans Mountain after its private owner was unwilling to continue carrying the project. The expansion was ultimately completed, and the system is generating revenue, but construction delays and overruns pushed the expansion’s cost to approximately $34 billion.

Government ownership did not eliminate the risk. It transferred it.

To us.

And now, having completed one extraordinarily expensive pipeline expansion, we are considering placing another largely on the public balance sheet.

That is not the lesson I would have drawn.

My pessimism ends here

I am pessimistic about the long-term value of new infrastructure whose economics depend on continuously expanding fossil-fuel production.

I am profoundly optimistic about almost everything being built to replace it.

The Decarbonization of Everything is not an environmental campaign. It is an economic reorganization.

Electricity. Storage. Transmission. Transportation. Buildings. Industrial heat. Materials. Agriculture. Water. Waste. Manufacturing.

The economy is being rewired, re-engineered and rematerialized.

Not all at once. Not in a straight line. Not without political resistance or failed companies, but the capital direction is becoming increasingly difficult to misunderstand.

The International Energy Agency expects approximately US$2.2 trillion to be invested in clean energy in 2026. That is almost twice the amount invested in fossil fuels - for the third year in a row.

Capital is not abandoning energy. It is changing its form.

From extraction to generation.

From combustion to electrification.

From fuel expense to infrastructure investment.

From molecules we continuously buy to technologies we build once and improve repeatedly.

That is the economy I describe in The Gigacorn Hunter.

The largest climate opportunities will not scale because they ask consumers to sacrifice prosperity. They will scale because they create it.

Lower costs. Greater efficiency. More resilient infrastructure. Cleaner air. Reduced volatility. New intellectual property. New industries. New sources of national advantage.

Return carbon. Return profit.

Canada should be extraordinarily well positioned for this economy.

We have clean electricity, engineering expertise, natural resources, critical minerals, research institutions, industrial capacity and access to global markets.

What we lack is not potential. It is direction.

Make the future investable

This does not mean government should finance every climate-technology company.

It should not.

Climate companies must prove their technologies.

They must find customers. They must compete for capital. They must generate margins, protect cash and create value.

Climate is not an exemption from commercial discipline. But neither should oil be.

The role of policy is to make the country’s economic direction credible enough for investors to act.

Build the grids. Modernize transmission. Permit projects faster. Establish durable performance standards. Price carbon credibly. Use public procurement to create competitive markets for lower-carbon materials, buildings, transportation and infrastructure. Support fundamental research. Help promising technologies cross the difficult gap between laboratory, demonstration and commercial scale.

And where exceptional public support is justified, make it transparent, competitive and conditional on substantial private participation.

If taxpayers absorb unusual risk, they should share in the upside.

If a new oil pipeline offers compelling multi-decade returns, its producers and private infrastructure investors should be willing to finance a substantial share of it.

If Pathways creates enough economic value to justify its cost, the companies whose assets it protects should be prepared to commit capital commensurate with that value.

Government can enable an investment. It should not manufacture the commercial case.

Prosperity has a direction

Mark Carney spent years warning investors about the “tragedy of the horizon” - the tendency to underweight risks whose consequences fall beyond normal financial and political timelines.

The same discipline should apply to government.

What happens if oil demand does not grow as expected? What happens if electrification moves faster? What happens if carbon costs rise? What happens if construction costs escalate? What happens if the pipeline operates below capacity? What happens if the public owns another asset whose value depends on policies that maintain oil production?

And what are we not building while our money, political attention and institutional capacity are committed to protecting that investment?

Canada does not need to choose between climate and prosperity.

That is the wrong choice.

Climate alignment is increasingly a condition of durable prosperity.

The real choice is between building assets positioned for where the economy is going and protecting assets dependent on where it has been.

We can use the remaining value of the fossil economy to build what comes next.

Or we can use the future balance sheet of Canadians to delay what comes next.

One creates options. The other creates exposure.

Canada should not make oil risk-free. It should make the future investable.

Build what the next economy will need.

Let the old economy carry more of its own risk.

That is not anti-prosperity.

It is what prosperity now requires.

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To read more from Nelson, you can purchase The Gigacorn Hunter: Seven Principles for a Climate Investor here.