Canada's Alberta province on Feb. 16 offered to collaborate with the federal government to spur carbon capture utilization and storage (CCUS) investments, but only if Ottawa secures Alberta's consent on climate policies that impact oil and gas.

In an open letter to Prime Minister Justin Trudeau, Alberta Premier Danielle Smith said those policies include a proposed oil and gas emissions cap, clean power regulations and legislation to help workers retrain for green energy jobs.

Canada, the world's fourth-largest oil producer, wants to cut carbon emissions 40% to 45% below 2005 levels by 2030. The oil and gas sector is the country's highest-polluting industry, accounting for more than a quarter of all emissions.

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The country's biggest oil producers, a group known as the Pathways Alliance, want to develop CCUS technology to store emissions underground but have said they need more public money to help fund the multi-billion-dollar projects.

In her letter, Smith proposed coordinating a federal CCUS income tax credit with an expansion of Alberta's Petrochemicals Incentive Program to include CCUS projects.

She also requested the immediate creation of a federal and provincial working group led by ministers that could work on reaching an agreement on a joint incentive program in coming weeks.

However, she said the invitation came with "one non-negotiable condition": that Ottawa holds back on passing legislation or policies impacting the oil and gas sector without Alberta's input and full agreement.

"Although Alberta is willing to work as an active partner with the federal government on a coordinated approach to reducing Alberta's and Canada's net emissions, under no circumstances will our province accept the imposition of arbitrary and unachievable targets or policies that spell the end of meaningful long-term investment in Alberta's energy sector," Smith wrote.

Ottawa already unveiled a CCUS investment tax credit worth CA$2.6 billion ($1.93 billion) over the next five years in 2022.

Traditionally conservative Alberta has a testy relationship with the Liberal government in Ottawa.

Smith, who became leader of the United Conservative Party in October vowing to stand up to federal over-reach, is facing a provincial election in May and has accused Trudeau of wanting to "phase out" the oil and gas sector.

In a recent interview, Alberta's environment minister told Reuters tension over the proposed emissions cap was holding up progress on other issues such as CCUS support.

The federal government did not immediately respond to a request for comment.

The Pathways Alliance said it was "encouraged" by Alberta considering an expansion to its petrochemicals incentive program and that Canada needed to compete with U.S. green energy subsidies.

"We look forward to hearing further details from both governments," said Mark Cameron, Pathways' vice president of external relations. 

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