The Twenty-Four
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.
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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.
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In the retail segment, rental rates are also generally lower in Alberta. Retail spending is tracking higher so far this year (Jan-Feb), outpacing the rest of Canada on broad-based gains. Going forward, a more resilient labour market should help offset some of the energy price headwinds, as Albertans devote more of their income to filling up at the pumps.
As for space utilization, Calgary and Edmonton are sitting at sub-5% retail vacancy rates according to the latest Calgary and Edmonton market reports by Cushman and Wakefield. But it depends on the market. Higher vacancies exist in downtown Calgary and Edmonton. Return to physical workspace, particularly the return of Government of Alberta staff, should bring back demand. In the suburbs, grocery-anchored retail stores remain in higher demand while the exiting of the Hudson’s Bay Company has freed up mall space.
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The less cheery news is that we haven't seen evidence that it’s really moved the needle on business investment in Canada. As the C.D. Howe correctly points out, it is our domestic capacity in productive capacity that adds to productivity, regardless of how it’s financed.
FDI are financial transactions that lead to an ownership stake, mainly through mergers and acquisitions. It’s a sign of investor interest in Canada, but doesn’t measure new investment in the capital stock in Canada.
Last year, real business investment in structures, machinery and equipment and intellectual property—the stuff that moves labour productivity—was flat. In fact, we’re still below 2014 levels.
PM Mark Carney has identified Canada’s investment deficit as a problem, and has promised to “enable $1 trillion in total investments over the next five years in Canada.”
Details on the target are missing, but a recent release suggests that $280 billion of that comes from government investment and incentives, leaving $720 billion from private and institutional sources.
The federal government hasn’t shown exactly how this target works. We do our best in the chart below by adding $144 billion per year ($720 billion divided by 5 years) in new nominal spending to 2025 investment over the next five years. We don’t know if this is a nominal, or a real (inflation-adjusted) target, or what the base is. We assume a 2025 base, use nominal dollars, and only consider non-residential investment.
Regardless of how you slice and dice the numbers it’s a big jump. This stretch goal clearly requires an acceleration of major projects. And not just the ones on the major projects list, but an improvement in investor confidence and spending in general.
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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).
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Answer to the previous trivia question: The first annual Terry Fox Run was held in 1981.
Today’s trivia question: Who are the Montreal Canadiens playing in the Eastern Conference Final of the NHL Playoffs?