Proponents call them oil sands while opponents call them tar sands. Whatever they’re called, Alberta’s bitumen reserves are so massive, James Hansen warns that it could be game over for the world’s climate if all are extracted and burned.[i] We can’t do that and possibly keep the world below the Paris target of a two degrees Celsius rise above pre-industrial levels.
What to do about Alberta Sands oil is an issue for Americans as well as Canadians. The US imports over 3 million barrels of oil a day from Canada, accounting for 38% of US oil imports, outpacing the combined imports from the four next largest sources – Saudi Arabia, Venezuela, Mexico and Columbia. Sands oil comprise the majority of US oil imports from Canada.
The future of Sands oil imports became an American issue after more than 1,200 people were arrested in 2011 in front of the White House protesting the proposed Keystone XL pipeline. Shortly after, President Obama blocked and then banned the XL line to take mainly Sands oil to the Gulf coast. President Trump overturned that decision in March, allowing the Keystone XL line to be built, a move applauded by Canadian prime minister Justin Trudeau.
Big Oil faces huge obstacles getting Sands oil to major markets. In the context of today’s low international oil price, the Sands are among the costliest to produce on the planet. They emit massive amounts of extra greenhouse gases because they are heated by huge amounts of natural gas to separate oil from sand. To get from remote, landlocked northern Alberta to tidewater, Sands oil must cross political barriers – through one or more Canadian provinces or cross the border to the US. That means they need a social license – public and government support – to get to market. The future viability of the Sands then greatly depends on politics.
Rather than halt much of the dirtiest oil on the planet, governments in Canada and the US are encouraging their expansion. Prime minister Trudeau, who was enthusiastically embraced by environmentalists in Paris in 2015 for promising to take international climate leadership, approved the expansion of the Kinder Morgan TransMountain pipeline a year later. If completed it will carry mainly Sands oil to a port in the Vancouver area. Trudeau’s government also approved Enbridge Pipeline’s plan to double the capacity of its Line 3, to move Sands oil to Wisconsin on Lake Superior’s shore. President Trump’s approval of the Keystone XL line would add to Sands oil takeaway capacity.[ii]
If all three pipelines get past lawsuits and determined indigenous and other protesters, they will add a third, almost 1.5 million barrels per day (bpd) to Canada’s oil pipeline capacity (4.2 million bpd).[iii]
To remain economically viable, the expanded pipelines would depend on the extraction and export of Sands oil for the next 25 to 30 years. That’s the time it takes to pay off the costs of building pipelines. Pipeline corporations would apply political pressure to continue Sands production until mid century. But are the Sands themselves still profitable?
Their expansion is hitting a brick wall. Total ASA, France’s largest oil corporation is exiting from Alberta’s Sands and will focus instead on low cost, lower emissions oil. Its retreat last September opened a flood. Norway’s Statoil left completely in December, losing a bundle. Royal Dutch Shell, and Houston-based Marathon oil and ConocoPhillips sold off huge Sands investments in March.[iv] BP and Chevron are actively looking at pulling out of the Sands.
The value of investments in the Sands have fallen sharply since the international oil price crashed in 2014. Seventeen major Sands projects have been postponed or cancelled since then, accounting for almost half of the major, shelved oil projects in the world.[v] Plans to expand Sands production after 2020 are paltry. [vi]
Should Albertans pray for another oil boom or view its downturn positively as the start of phasing out the Sands, and phasing in a low carbon future? A phase out would be good for Canadians, Americans and all humanity. Trudeau acknowledged this in January when he said we can’t shut them down tomorrow. We need to phase out the “oil sands” to manage the transition off fossil fuels.[vii] But he showed his government has no intention of going down that path soon. Speaking to Big Oil executives in Houston in March about the Sands, Trudeau pronounced that “no country would find 173 billion barrels of oil in the ground and leave them there”. [viii]
Will the market close the Sands, likely abruptly in the future, or will the Alberta and Canadian governments pro-actively manage the transition to ensure a soft landing for the workers from across Canada who flocked to Fort McMurray, to work in the Sands? They could be retrained to do alternative work on greatly reducing Canada’s very wasteful energy use and growing the country’s renewable energy supplies.
The Sands are Canada’s fastest growing and largest single source of greenhouse gases (GHGs). Can Canada reach its Paris and G8 climate targets if it allows Sands output and emissions to grow substantially? Can a Sands phase-out learn from the ending of coal-fired electricity in Ontario in 2014, and Alberta’s plans to do the same by 2030?
This article summarizes a report I wrote for the Alberta Institute of Agrologists: “Act or be Acted Upon. The case for phasing out Alberta’s Sands” in March. The report recommends steps for a planned Sands phase-out and principles for a just transition for Sands workers.
Christopher McGlade and Paul Ekins, economists at the University of London, contend that most of the world’s carbon fuels must stay in the ground to avoid catastrophic warming. “No more than 7.5 billion barrels of oil from the [Alberta] oil sands can be produced by 2050”, they wrote.[ix] My report takes 2040 as the date for cessation of all Sands production and emissions.
Justin Trudeau and Rachel Notley, the social democratic (NDP) premier of the oil province of Alberta, contend that their climate change initiatives including phasing out coal-fired power generation by 2030, will enhance the social licence to expand the Sands by making them environmentally palatable. Their premise is dubious. Jeff Rubin, former chief economist of CIBC, Canada’s fifth largest bank, argues that it is the Sands’ costs, not their carbon trail, that jeopardizes their growth.[x]
The Sands have always been a high cost, dirty, marginal source of oil. Prospects for their success depend on: 1) falling world supply of conventional oil; 2) growing global demand for oil; 3) little serious international action to limit greenhouse gases and 4) most of all a high world oil price.
A global oversupply of oil led to a price crash from over $100 a barrel in the summer of 2014 to a low of $30 by autumn. At that price, Sands oil producers lost money on every barrel pumped. A combination of factors will likely reduce world oil demand in the medium term. Instead of peak oil supply, experts now point to peak oil demand. Weak demand will lead to a weak oil price.
Because of their high carbon intensity and current breakeven price of $55 to $65 a barrel, the Sands face head-winds from divestment and stranded assets pressures.[xi] When they reach a tipping point, divestments lower share prices, raise the cost of funding new carbon fuel projects, and lead to lower output and greenhouse gases. The divestment movement from all carbon fuels, including the Sands, has spread to 688 institutions in 76 countries.[xii] Influential economists such as Mark Carney, Governor of the Bank of England, warn that fossil fuel investments, especially the high cost and most carbon polluting ones, are becoming stranded assets. Assets become stranded when they experience unanticipated and premature write-downs and devaluations.
Whatever the future breakeven price will be for Sands projects, we cannot rely on a low international oil price to cap and phase them out. Their cost of production could fall and the international price of oil could rise. This puts an onus on the Canadian and Alberta governments to act. Only governments, engaged with citizens, can effectively map out Canada’s route to a low carbon future, one that should include stopping new Sands extraction projects and pipelines, and providing retraining with financial support, and alternative jobs for workers in the Sands.
Canada ranks 38th in the world by population but ninth by absolute carbon emissions. With just 0.5% of the world’s people, Canada currently emits 1.6% of global GHGs.
A pan-Canadian climate plan agreed to by Ottawa and the provinces in 2016 allows oil and natural gas production to emit carbon almost at will and instead goes after the smaller fish including electricity generated from coal (11% of Canada’s GHGs), and emissions from buildings (12%). It lightly slaps the wrist of transportation (23%) through very low provincial carbon taxes and cap-and-trade plans.[xiii]
The production of natural gas and oil in Canada, including from the Sands, is Canada’s largest source of emissions, comprising 26% (192 Megatonnes Mt) of the total (732 Mt). Emissions from petroleum output has risen more than fourfold since 1990. The Sands alone emitted 68 Mt in 2014. Alberta’s climate plan allows them to grow to 100 Mt, a 47% rise by 2030. Growing emissions from the production of oil and natural gas will entirely cancel out Alberta’s emissions reductions from electricity, vehicles and methane by 2030.[xiv]
Allowing Sands GHGs to grow that much will almost certainly prevent Canada from reaching its far too low 2030 Paris emissions target, unless it buys costly carbon credits from abroad. In 2009 all G8 countries, including Canada, promised to cut GHG emissions by 80% below their 1990 levels by 2050. If allowed to rise to 100 Mt and stay that high, Alberta’s Sands will take up 81 per cent of Canada’s toal GHG emissions in 2050.
While total carbon emissions fell by 8% in Quebec and Atlantic Canada, and 6% in Ontario, they grew 53% in Alberta and 66% in Saskatchewan from 1990 to 2014.[xv] A growing regional imbalance in emissions is sparking a nasty war of words between Western Canada, home to most of the country’s oil and natural gas industry, and Eastern Canada, where 70 percent of the people live. One way to reduce the coming regional clash would be for Alberta to initiate the phase-out of the Sands, with Ottawa’s backing.
Donald Trump has vowed to drill more oil, burn more coal, cancel the U.S. national climate plan and withdraw from the Paris climate pact. It’s not yet clear how much Trump will slow or reverse the reductions in US GHGs, or influence other countries to weaken their climate plans. But the rest of the world moved forward after the US unilaterally withdrew from the 1997 Kyoto climate Accord. It can do so again.
Will China pick up world climate leadership that the US is dropping? China, the world’s biggest emitter of GHGs, is cutting coal use, greatly raising wind and solar power and the sale of electric vehicles.[xvi]
International momentum has been building to end coal-fired electric power generation. Canada and seven European countries have lately announced target dates to go coal-free by 2030. Ontario’s phase-out of coal was a success, but a problematic one. It was accompanied by privatization, deregulation and overbuilding that made electricity too expensive, sparking popular opposition to additional provincial initiatives to curb carbon pollution.
The campaign to make Ontario coal free was started in 1997 by the Ontario Clean Air Alliance (OCAA) which led a very diverse coalition that campaigned around issues of health, acid rain and mercury contamination caused by coal power plants. The OCAA allied with Ontario’s doctors, the most credible actors on health issues, to successfully demonize coal emissions.
After Ontario’s public was engaged with coal as a health issue, Ontario’s Opposition Liberals won the 2003 provincial election by promising to quickly phase out Ontario’s remaining coal plants. Ontario replaced them with natural gas-fired power plants, so that ending coal did not end carbon emissions from power generation. It is arguable that Ontario could have gone straight from coal to clean by using a combination of rising power from renewables, stronger conservation to reduce demand for electrical power, and importing cheap hydro-electric power from neighbouring Quebec.
The off-coal campaign was very effective in informing and mobilizing the public, but could not determine how the Ontario government and its energy agencies acted. The deregulated and partially privatized power players massively overbuilt electrical capacity, prices soared and public support for green Ontario initiatives waned.
In many ways, Alberta’s plan to phase-out coal by 2030 is more challenging than it was in Ontario. In contrast to Alberta, resources play second fiddle to manufacturing in Ontario, which also imported rather than produced coal, meaning that there were no local coal mine owners, mine workers, or communities dependent on mining coal to contend with as there are in Alberta.
In November 2015, the Alberta government launched a climate plan that includes a broadly-based carbon tax that started in 2017, reducing methane emissions by 45% by 2025, and advancing the closing of all coal-fired power units by 2030. The latter was promoted as a way to protect oil, especially Sands oil, from detrimental actions by Ottawa and foreign buyers of Canadian oil. Alberta’s NDP government allied with four of the province’s largest oil corporations and environmental groups on the climate plan. But, because it allows Sands emissions to grow by almost 50 percent, Alberta’s overall GHGs are not expected to fall by 2030.[xvii]
As a landlocked province, the Alberta government and the oil and natural gas corporations sought support from other provinces to cross their territory to get oil to tidewater for export. The oil and gas corporations also need Ottawa’s support for expanded, exporting pipelines and to represent their interests in export markets.
Alberta-based Pembina Institute, a major environmental organization, has been a driving force behind greening Alberta’s electrical grid. It allied with Alberta doctors to frame the case mainly around health issues, by showing that air pollution from coal led to premature deaths and illnesses in Alberta. Its public campaign and recommendations were effective. The NDP government adopted many of them, but spun it to justify the growth of the Sands.
Alberta’s plan does not go far enough in greening the grid. Instead of going straight from coal to clean, natural gas is to replace 70% of coal-fired power. Renewables will replace 30%. It doesn’t make sense to waste billions on building natural gas generated capacity that will quickly become stranded. If Alberta caps Sands production at its 2017 level, the demand for electricity not need not grow and could be met by current power generation.
Economic realities in Alberta make 2017 the ideal point to start a Sands phase-out. Tens of thousands of workers have recently been laid off in the Sands and related sectors including construction, manufacturing and professional business services. It is better to stop further investment in the Sands today to spare massive write offs tomorrow.
My report explores whether the Sands phase-out can similarly be effectively framed around health issues the way it was around phasing out coal and also tying climate change to the horrific forest fire in 2016 that burned 2,400 homes and buildings in Fort McMurray, in the heart of Alberta’s Sands.
The report proposes three steps to end Sands production by 2040:
1) Place a permanent moratorium on new Sands production.
2) Give a closing time for Sands projects and units of projects that long ago paid off the capital costs.
3) Require each Sands project to lower its emissions annually by 3–4% per year (2–3 Mt) starting in 2018. Projects that fail to meet GHG reduction targets must be fined at a level higher than the costs to comply.
Government research and planning in the 1920s to 1950s launched the Sands into becoming a feasible industry. Now as the age of oil ends, the Alberta and Canadian governments must launch a similarly committed research plan for a just transition off it.
A Canadian plan of deep conservation and renewable energy can generate more jobs than Canada’s current, failed focus on carbon fuel exports. A just transition for Sands workers will require research, thought and consultations with impacted workers and communities.
The Alberta and Canadian governments have to choose between allowing the market to determine the timeline of a Sands phase-out and managing the transition off the Sands themselves so that its workers are retrained to help build a renewable energy and deep conservation future. In other words, act so that Albertans and other Canadians are not acted upon.
The Sands phase-out is an issue for Canadians to decide. But, Americans can help by launching a campaign to stop the import of any Sands oil into their country through the proposed Keystone XL line and five other already existing oil exporting lines from Canada.[xviii]
[ii] TransCanada’s 2013 environment impact statement (EIS) stated that it had firm commitments to move 555,000 bpd of heavy crude (mainly Sands oil) from Canada and 65,000 bpd of crude from Bakken (shale) oil. EIS, Keystone XL Project. March 1,2013. ES-2.
[iii] The expansion of the TransMountain line would boost current capacity from 300,000 bpd to 890,000 (Canada. Natural Resources Canada “Trans Mountain Expansion Project”). Enbridge Line 3 would rise from 370,000 to 780,000 bpd (Enbridge. “Line 3 Replacement Project (U.S.)) Keystone XL would be a new line with a capacity of 510,000 bpd (TransCanada. Keystone XL. Accessed 20 May 2017).
[iv] Laxer, “Act or Be Acted Upon” Op. Cit. pps 20-1.
[v] Peter Tertzakian, “When the oil recovery comes, it won’t look like anything the world has ever seen before,” Financial Post, 12 Apr 2016.
[vi] Suncor, the largest player in the Sands, may acquire or build new projects after 2020. Jeff Lewis, “Suncor eyes more oil sands deals but is in no rush”. Globe and Mail April 26, 2017.
[vii] Kyle Muzyka, “Trudeau’s ‘phase-out’ oilsands comments spark outrage in Alberta,” CBC Edmonton. 13 Jan 2017.
[viii] Tracy Johnson, “Analysis. Trudeau speaks to the heart of Texans in pitch for Canadian oil”. CBC News March 10, 2017.
[ix] Christopher McGlade and Paul Elkins, “The geographical distribution of fossil fuels unused when limiting global warming to 2 C,” Nature 517, 07 Jan 2015. p. 189.
[xi] Laxer, Act or Be Acted Upon. Op. Cit. p. 19.
[xii] Arabella Advisors, The Global Fossil Fuel Divestment and Clean Energy Investment Movement, Dec 2016.
[xiii] Shawn McCarthy, “McKenna’s Climate Climb,” Globe and Mail, 22 Dec 2016. A10-11.
[xiv] Environment and Climate Change Canada (2016) Canadian Environmental Sustainability Indicators: Greenhouse Gas Emissions. Consulted on 28 Feb 2017. Available at: www.ec.gc.ca/indicateursindicators/default.asp?lang=en&n=FBF8455E-1.
[xv] Environment Canada, “Greenhouse Gas Emissions by Province and Territory,” 14 Apr 2016.
[xvi] Michael J. Coren, “China is selling more electric vehicles than the US—and it’s not even close”. Quartz Media 3 May 2017.
[xviii] Existing oil exporting pipelines from Canada include TransCanada’s Keystone (not Keystone XL), Enbridge’s Southern Lights, Southern Access and Clipper, line 5 Expansion, and Kinder Morgan’s Chinook-Maple Leaf. Gordon Laxer, After the Sands. Energy and Ecological Security for Canadians. Madeira Park: Douglas & McIntyre. 2015. p. 165.