Climate advocates tend to view oil and gas companies as enemies of the energy transition — as firms to be taxed, regulated, constrained and ultimately ousted.
Yet some markets are complicating this picture. In Alberta, traditional oil and gas players now account for nearly one-third of renewable energy capacity. The largest of these firms have diversified into renewables the most.
This buildout is part of a broader expansion of renewable power in Alberta’s electricity grid. In 2017, wind and solar made up about 14 per cent of the province’s installed generating capacity. Today, they make up roughly 36 per cent.
Large fossil fuel incumbents — rich in capital and energy-sector expertise — can help accelerate the transition if properly incentivized. Instead of strictly punishing emissions, climate policy should seek to shift these firms’ capital into clean technologies.
Despite falling costs and technological advances in renewables, fossil fuels still account for over 80 per cent of the global total primary energy mix. Greater clean generation has been constrained by intermittency roadblocks and financing needs in clean energy storage, transmission and grid integration. The transition awaits patient capital, motivating the need for new policy paradigms.
Traditionally, the climate policy orthodoxy involves taxing emissions to make fossil fuels more expensive and drive down demand. This logic has shaped carbon policy around the world on the view that pricing emissions makes polluters internalize the costs they impose on others.
However, carbon pricing does not always change corporate behaviour as intended.
A 2024 European Central Bank study found no evidence that higher carbon prices caused carbon-intensive firms to reduce their emissions intensity. For larger and less demand-sensitive oil and gas firms, absorbing carbon prices — or passing the costs along to consumers — is often easier than making fundamental changes to their capital strategy.
What climate policy should incentivize instead is investment by major oil and gas firms into clean energy.
The median market capitalization for publicly listed oil and gas firms was roughly five times that of renewable companies in 2025. When these economic heavyweights invest in new technologies, it can drive down costs for everyone and boost clean energy expertise.
In the global wind turbine market, for example, doubling manufacturing experience between 2000 and 2019 reduced costs by between 26 and 29 per cent, with knowledge spilling across turbine models and manufacturers. Shared learning, thicker supply chains, deeper pools of labour and finance, and the clustering of complementary firms all help push costs down as deployment grows.
One way to incentivize clean energy investment would be through a carbon tax that is tied to firms’ investment choices: place a heavier burden on firms that remain overwhelmingly committed to fossil fuels, while reducing it for firms that shift capital into renewables.
My research tested this idea using a theoretical framework in which energy firms decide how to allocate their capital between fossil fuels and renewables. Across a range of market and technology simulations, tying the carbon burden to firms’ fossil fuel capital share was the most effective way to shake these firms out of their status quo production strategies and induce new renewable investment.
Canada may be well positioned for such an approach.
The federal Output-Based Pricing System and Alberta’s TIER program currently price emissions at the facility level. An extension of this would be to incorporate how the parent company allocates capital between clean and fossil fuel technologies.
Effective climate policy should recognize that firms contribute differently to the energy transition and respond differently to incentives.
Further renewable scaling requires substantial investment in storage and enabling technologies. Just setting out to shrink the old energy economy will not suffice. The focus must be centered around mobilizing the firms most capable of building the new one.
