In this week’s The Seven…

• MOUving along - Deal on carbon price reached
• It’s a start - FDI rebounds, but still waiting for business investment
• Upon reflection - Oil and gold drove overseas export growth last year
• Interesting Fact - Canada’s water advantage
• Chart of the Week - Young adults living with their parents

“The most important thing Canada can offer today is trust and reliability…This time Canada doesn’t have the luxury of being slow…The cost of missing this train will be incredible…”

—Fatih Birol, Executive Director of the International Energy Agency (IEA), Canada Growth Summit, May 7, 2026

Pressure is building. The head of the Paris-based IEA last week urged Canada to rapidly expand its energy infrastructure. This comes after a flurry of geopolitical events—Trump's tariffs, U.S. capture of Venezuela’s President, and now the war in Iran—have reinforced the need for safe and reliable energy from countries like Canada.

The ball is in Canada’s court, and the country inched closer today with progress on the Alberta-Canada MOU.

In today’s The Seven, we focus on the MOU and how it links to broader economic goals the federal government has announced. Our Chart of the Week looks at the rising share of young adults living with their parents across Canada and what this means. 

In the pipeline - Deal on carbon price reached

The MOU between Alberta and Canada cleared a major hurdle, with the two parties agreeing on the trajectory of the industrial carbon price (recall that the consumer carbon tax was axed, but an industrial carbon tax is still in place).

According to the agreement, the ‘headline’ carbon price rises to $130/tonne by 2035.

The current headline price is $95/tonne, but due to a surplus of credits in the market, the effective price has recently been trading in the $40-45/tonne range. The goal is to get the effective price to $130/tonne by 2040. Stringency will be tightened to achieve that effective price. This full carbon price schedule and stringency rates are provided here.

To support this price, the parties will offer “carbon contracts for differences.” These contracts provide predictability to firms on the price when investing in emissions reduction technologies.

This is important progress, but it still does not guarantee the West Coast pipeline proceeds. The PM reiterated that the Pathways Carbon Capture and Storage project is a pre-condition for a pipeline. Today’s announcement provides more certainty on carbon pricing and Alberta and Canada reaffirmed their commitment to Pathways. However, no deal with Pathways was announced (a trilateral MOU between Alberta, Canada, and industry was originally planned for April 1).

When conditions are met, including sufficient consultation with Indigenous communities, Canada will give the pipeline the status of a “project of national interest” under the Building Canada Act by October 1, 2026.

We wait for final investment decisions and a proponent before feeding these projects into the forecast. That said, the announcement in the press conference of a targeted September 2027 start date is a positive signal, and should add pressure to get the deal done.

If executed, this is by far the largest upside to our Alberta forecast, and a material upside to our Canadian outlook.

We recently estimated the economic impacts of added oil pipeline capacity in collaboration with Studio.Energy. We estimate the combination of Pathways and 1.5 million barrels of capacity through the West Coast pipeline and Trans Mountain expansions (both contemplated in the MOU) would add, on average, 1.1% to Canada’s real GDP and 5.1% to Alberta’s real GDP between 2027 and 2035. Isolating to just Pathways and the West Coast pipeline (1 million barrels/day) provides a still meaningful impact of nearly 1% to Canada’s GDP over this period.  

The MOU should also be viewed in the context of Canada’s broader economic challenges—namely the need for more investment and exports. We have explored the issue in depth, showing that Canada’s stagnant GDP per capita over the last decade is really a function of weak performance on business investment and exports.

The Carney government has promised to: 1) catalyze $1 trillion in investment over five years; 2) double non-U.S. exports over ten years; and 3) make Canada an energy superpower. We discuss 1) and 2) below.

A West Coast pipeline under the MOU checks all three boxes in getting closer to those goals. Indeed, the addition of TMX alone has pushed Canada’s oil exports to Asia from $0.05 billion in 2023 to $9.3 billion last year. Energy is low hanging fruit to hitting that non-U.S. export goal given the low starting point, and its ability to deliver large increases in capital spending.

It’s a start, but foreign investment needs to translate into new productive capacity

You may have heard two things about investment in Canada.

1) Foreign investment into Canada has rebounded; and 2) Canada is in the midst of an investment crisis.

Turns out both things are true.

Foreign direct investment (FDI) into Canada hit a record high of $93.6 billion last year, and finally for the first time since 2013 exceeded Canadian investment abroad. This is a sign of renewed international interest in Canada. Shell’s recent acquisition of ARC is the latest example.

On second look - Headline numbers overstate gains in non-U.S. markets

Another federal target is to reduce reliance on the U.S., with the goal of doubling non-U.S. exports over the next 10 years.

At first glance, it seems like we’re off to a good start. Last year, non-U.S. goods exports rose 16% or $28 billion. Canada’s share of exports to the U.S. plummeted to the lowest on record (going back to 1990), hitting 73%.

But a closer look reveals the gains came from two categories: gold and black gold (oil).

The oil gains are mostly complements of the Trans Mountain Expansion. The gold gains are due to surging gold prices, resulting in a spike in shipments to Europe (the U.K. in particular).

If you strip out energy and metals, the share of goods exports sent to the U.S. was 72% last year—close to the 10-year average.

So yes, some progress. But not nearly as much as it first seems. And the durable gains are the ones driven by volumes enabled by new export infrastructure.

The lesson? Diversification is hard; it takes time and requires opening new markets and expanding infrastructure. And it’s important to remember the U.S. will, by far, remain our largest trading partner. So getting a CUSMA deal is key, even as we diversify elsewhere.

Interesting Fact - Canada’s fresh water advantage

With agriculture consuming 70% of the world’s freshwater, any strain on water shows up first and hardest in food systems. This results in water security being the most critical input for global food production. This reality is currently being felt in the Southwestern United States and Northwestern Mexico, where the Colorado River—a vital regional lifeline—is enduring its driest period in 1,200 years. In contrast, Canada possesses some of the highest freshwater reserves per capita on Earth—nearly 75,000 m³ per person. This natural abundance provides a significant strategic advantage for our agri-food sector, positioning Canada as a critical anchor for global food security as other regions face increasing water stress.

Chart of the Week - Young adults living with parents

Our Chart of the Week shows the rising share of young adults living at home.  

Two things come to mind for me.

1. Affordability is a big issue. Statistics Canada is quick to point out that there are other factors, like delayed household or family formation (i.e. postponing having kids and more years in school) and changing demographic compositions of young households. But the massive jump in costly markets like Toronto and Vancouver suggest that affordability is a big part of the story. Housing is out of reach for many young adults. Note that this is 2021 census data; we should expect the 2026 share to rise further given the increase in interest rates and rents over this period. 
2. Demand lurks in the shadows. There is a potential stock of would-be home buyers or renters in the 25-39 age group that could hit the market if affordability improved, driving housing demand.

Answer to the previous trivia question: Better known as aspirin, acetylsalicylic acid received a patent in 1900 (it expired in 1917).

Today’s trivia question: How many members of the Walton family lived together in the same house on the 1970’s TV series The Waltons?