Today was not a good day for the Alberta government’s PR machine. An editorial in the New York Times this weekend leads with the headline, “No to a New Tar Sands Pipeline.” Yes, they said tar sands. No, this was not some fringe, west-coast internet publication or a Greenpeace pamphlet, but the New York Times. Apparently Alberta’s message didn’t get through.
Perhaps the millions spent on a PR campaign would have been better spent deploying the world class monitoring system we sorely lack, and which we are now told will cost only $20 million per year. We need monitoring, we need enforcement of existing regulations, and we need credible, binding regulations to get rid of the tailings ponds. We need our companies to be competing on environmental performance, and we need it now. At triple digit oil prices, this is not only possible but essential for our future.
Alberta is a small province in a small country, in terms of population. We are sitting on the 2nd largest oil reserves in the world. Statistics Canada tells us that the bitumen which we could extract with today’s prices and technology is worth over $400 billion, or over 12000 per capita. That’s more than all of our other oil reserves, our coal and our natural gas reserves are worth, combined. That number is certainly higher today, with triple digit oil prices and improving technology. The bitumen buried in the ground in Northern Alberta makes up at least 15% of the tangible wealth of every man, woman, and child in Canada today, and that figure will almost certainly grow if you believe in sustained high oil prices. The kicker is that the only way you can realize that value is by getting the product to market, and we will not be able to do that for long if we count on energy security and arguments about ethical oil to win the day. It’s clearly not going to be enough.
The New York Times does not set energy policy in the US, which is a good thing for Alberta. Keystone XL may still go through, since the regulatory precedent which will carry the day is favorable. That said, as one of 3+ million owners of the resource, I hope that the Alberta government and the federal politicians on the election trail see that the only way to win the PR battle is to first get serious about regulation.
The oil sands are the legitimate engine of the Canadian economy and are the key to our future prosperity. It’s time for industry to stand up and start acting like it and for the government to start holding them to account if they don’t. The oil sands industry is not marginal, and it’s not going anywhere. It’s 50% of the world’s investable oil so, while we can’t name our price, we can set the rules and expect them to be followed.
We can no longer gamble the wealth of our country in order to save a few cents per barrel today. If the New York Times editorial board thinks that oil produced in Northern Alberta’s “tar sands fields” is not a reasonable substitute for Middle Eastern oil (and let’s remember that the recent history of New York does not generally lead to them turning a blind eye to the ills of the Middle East), we have a serious problem. Let’s fix it.
Well said in every way, Andrew.
Actions speak louder than words and it always amazes me how backwards we have acted on that message when it comes to the oil sands. We have a tremendous opportunity to be a leader and set a precedent for responsible resource development but action is needed now.
It simply goes back to the fact that we are not internalizing externalities. Extra costs for sustainable development are necessary and in my opinion can be innovated away once the proper framework/constraints are in place. Win, win.
Thanks Kali! Glad to have you reading and commenting. I think we have to stop seeing it as environment vs. Alberta. Alberta needs to take a leadership role on both environment and economy. Otherwise, we could lose out on both.
Cheers,
Andrew
“The oil sands are the legitimate engine of the Canadian economy and are the key to our future prosperity.”
Quite a statement.
Since when?
Further, this assumes that renewables – which are ethically, politically and environmentally superior – won’t take off and leave oil in the … sand.
There are many indications that this will indeed happen.
Canada will be stuck in the oil along with the dinosaurs.
Thanks for reading.
Since when? Well, I would say the influence is growing. If you look at Stats Can data on tangible wealth, you will see that oil sands reserves currently comprise about 18-20% of wealth in canada, because of the embedded resource rents. That will grow as oil prices increase and technology improves.
Yes, it is absolutely possible that innovations will make oil sands irrelevant, but that is far from being the case today, in particular for liquid transportation fuels. Right now, the cost of generating electricity from solar power is in the 40c/kWh range, while wind is more competitive at 11 ish cents depending on the location. By comparison, the oilsands produce a barrel of oil, which is 1700 kWh of power, for about $30, or about 3c/kWh.
Further, while much has been made of the “subsidies” to oil sands, you must keep in mind that these make up a small portion of the total taxes paid, directly and indirectly, from oilsands, which rank in the hundreds of billions of dollars per year. Renewable energy, by contrast, remains economically irrelevant in most cases unless there is a net flow from government to the producers. That will change, but there will never be significant rent in renewables because there is limited natural comparative advantage.
Lastly, there is nothing that prevents us from competing in both renewable and non-renewable fuels, but we should look at what the investment in renewables will truly get us and compare that to other opportunities. I believe there is a significant role for improved renewable energy technology in Canada, and certainly hope to see that sector emerge. However, given the current rate of subsidies required, the industry is not self-sustaining, and needs another economic engine to keep it going.
Andrew
Great Answer Andrew; thanks.
I agree fully that the oil sands is *becoming* one of the very major engines in Canada’s economy, but it is not *the* engine, and it is not what I would call a ‘legitimate’ engine. I would propose, in fact, that it’s a gross error which Canada will live to regret. Besides being globally recognized as being one of the worst environmental situations in the world, it’s shaping up to be an economic albatross. The EU is currently negotiating to ban imports from the Tar Sands (1). Not only is it extremely unpopular with voters in the EU, who see it as the worst of the many black spots on Canada’s now tarnished international reputation, it’s also competing with the rapidly burgeoning renewable energy industry in Europe. Why buy unpopular filthy fuel from abroad, when you can sink your money into your own RE sector?
Even the US is increasingly uncertain it will build the blessed Keystone XL, with Obama returning to calling it the ‘Tar’ Sands, and a recent NY Times op ed, ‘No to a New Tar Sands Pipeline’ (2), driving the uncertainty home.
Despite the fact that renewables receive a pittance in government support it is rising.
Imagine if it received the federal and corporate sponsorship that oil and gas does?
Oil is a dirty industry which, besides being an ongoing environmental disaster (huge carbon emissions, spills, extraction and refinement emissions), has been the foremost source of geopolitical conflict for over a century.
Clinging on to the global addiction to it by digging deeper and deeper into dirtier and dirtier soil is not sound economic policy by a far stretch.
Thank goodness for the Googles and BrightSources for having the balls to invest in something for, as BrightSource Vice President puts it, “possibility…. meaning and importance for our country, our state, our community, our family that is here, and our children to come and their children to come…”
http://mashable.com/2011/04/12/ivanpah-google-solar-energy/
For the sake of our planet and the humans on it, may these kinds of gutsy entrepreneurs kick the asses of the bloated BPs and Suncors and Imperials reaming the earth for short-sighted profits, and may the oil industry dinosaur finally topple into the tar where it can be fossilized for future generations to marvel at.
(1) http://www.theecologist.org/News/news_analysis/829665/europe_moves_to_ban_imports_of_tar_sands_oil_from_canada.html
(2) http://www.nytimes.com/2011/04/03/opinion/03sun1.html
Thanks for clarifying. I think the competition with the EU, and even the competition with renewable energies is overblown. The key advancements in renewable energy are, for the moment, on the electricity side. As such, there are almost no consumers who can actively choose between renewable energy and oil sands. Over the long term, there will be a choice between electrification and fossil-fuel-based infrastructure, but this is not a short term issue.
I certainly agree that there are changes which need to be made to the oil sands industry, and that the industry does not need the significant government support that it receives. There are also very good reasons to continue support to the renewables industry. That said, there are significant differences between a natural endowment of a finite resource and a renewable energy industry. At best, the renewables industry in Canada is likely to evolve like the aerospace industry – a lot of jobs, few taxes, and a ton of subsidies. Right now, the major competition is not between renewables and fossil fuels but between governments trying to offer the most “competitive” environment for renewable energy production. In an industry that is easily mobile it’s hard to extract significant tax revenue. See some of the tech examples you cited, and recent discussion over property taxes and state income taxes charged on those industries.
So yes, we need to clean up the oilsands, but the competition story and the idea that somehow we are going to miss out on a lucrative boom in renewables is overblown. If anything, we will miss out on the opportunity yo overpay for today’s renewables and be able to install tomorrow’s. Ask any ENGO what the cost of solar will be in 10 years, and then ask them why we are signing 20 year contracts at 4 times that price.
Andrew
Thanks Andrew.
I appreciate your thoughtfulness and knowledge.
Re. competition:
If not the EU, how about China?
http://www.bloomberg.com/news/2011-01-27/china-winning-the-green-economy-race-un-climate-talks-chief-says.html
And, of course, I’m a believer that we owe it to our children and their children to make some sacrifices of profit in order that they have a liveable atmosphere.
China is clearly getting ahead in the green energy race, but I think we need to have a serious conversation in Canada about why that should worry us. We benefit a great deal from trade with China and other countries, and there is nothing to say that we should not be prepared to do so in this case. The key difference that people need to keep in mind with oil versus renewables like wind is that there is no scarcity rent in renewables. You can build a wind turbine anywhere, so it that sense the industry is much more like aerospace than it is like oil and gas. As you may notice, we have a leading aerospace sector in Canada, that creates a lot of jobs, and that we would quickly lose to another jurisdiction if we stopped tax credits and handouts. Look at what happens each time Pratt or Rolls wants to expand a facility – the government is there with a big cheque.
I am very much in favour of stringent carbon policy. I just happen to be one of few who believe that a global policy which would meet our targets does not need to be incompatible with oil sands.
Andrew