Opinion: Banning oil sands is no low-carbon panacea

Hate bitumen? You'll loathe the next-best alternative

November 09, 2011

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Don’t confuse easy sound bites with effective climate change policy. The latter might make it uneconomical to extract all but the most easily accessible oil sands deposits. The former – say, an outright ban – is a one-off policy preventing access to oil sands, and there’s no reason to believe it would, in and of itself, be a proxy for effective climate change policy or lead to lower emissions at all.

There is, by now, little dispute in the scientific community with respect to the core understanding of climate change. Environment Canada leaves little room for debate. The agency says that a) human activities are responsible for increasing the concentrations of greenhouse gases in the atmosphere, b) the Earth will continue to warm in response to past and future greenhouse gas emissions, and c) increasing temperatures will lead to changes in other aspects of the Earth’s climate, which may disrupt weather patterns around the world.

The U.S. National Research Council of the National Academies is similarly convinced. The agency’s recent report, America’s Climate Choices, found that, “The environmental, economic, and humanitarian risks posed by climate change indicate a pressing need for substantial action to limit the magnitude of climate change.”

The problem with using science to justify action is that science is quickly out of its element. Climate change is a global problem, driven by global emissions of greenhouse gases. Solving it will require a global effort matched with global enforcement. What this means is that, at some point, we have to get beyond broad calls for action, and start divvying up the responsibility – an area in which we cannot be informed by science. In fact, science tells us exactly the opposite – from a climate change perspective, the source doesn’t matter one bit.

The climate won’t change more or less because emissions come from Hummers or Priuses. Since only emissions matter, not the source, shouldn’t Canada stop all oil sands development immediately? After all, as far as liquid transportation fuels go, oil refined from bitumen is among the most emissions-intensive. Sure, it’s nowhere near as bad as coal-to-liquids plants, and maybe not quite as bad as some other sources of heavy oil, but it’s at the top end of the spectrum. Technology is improving, but not as quickly as production is expanding, and the resources being produced today are more challenging, and so absolute emissions will almost certainly increase over the coming years. Shuttering plants must be the right thing for us to do.

Well, not so fast. Just as we shouldn’t ignore what climate science tells us about emissions, we shouldn’t ignore the way energy markets function. If we do, we could make decisions that, from a climate perspective, ultimately make matters worse rather than better, or make really costly decisions which accomplish next to nothing. So, what do energy markets tell us about the consequences of a ban on oil sands?

We need to start with the view that the market for oil is global, at least in the long term. Consider the current storage backlog at Cushing, Oklahoma. It’s no secret that a dearth of takeaway capacity from the Midwest hub has driven a wedge between regional prices and international benchmarks. The spread will remain for as long, or perhaps longer, as it takes for someone to build infrastructure to take advantage of the price gap – a new pipeline from Cushing to the Gulf Coast, for example. Even then, the price gap could persist. In order to understand the implications of removing oil sands from the global supply mix, you need to look at the global demand and supply of oil, not just North American supply and demand.

While oil sands and a few other plays represent the marginal sources of oil being extracted today, it’s wrong to think that these represent the last sources of oil which would be extracted under different market conditions. It’s also wrong to think that the next-best alternatives to oil sands have significantly lower impacts per barrel of oil produced.

Data from a 2006 paper by professors Alex Farrell and Adam Brandt, formerly of the University of California, Berkeley, puts this into sharp relief. By their estimates, we have to date consumed only five per cent of the stock of fossil fuels which could be extracted for less than $100 per barrel. Potential supplies from gas-to-liquids and coal-to-liquids synthetic fuels make the massive oil sands reserves in Alberta look positively tiny. An oil supply disruption leads the market to look for new sources and substitutes for oil, and provides no direct incentive for those sources and substitutes to be lower in greenhouse gas emissions.

In economics, we talk about a second-best policy – the idea that you can reach an outcome with a policy which only provides indirect incentives. But there is no reason to believe that would be the case with a ban on oil sands to slow down global climate change. Those who advocate for sweeping policy provisions would be well-advised to think about why we have an oil sands industry in the first place – because world oil markets make it worthwhile to extract and process an expensive substitute for light, sweet crude.

While the trajectory that would bring future production levels in the vicinity of three to five million barrels per day might raise climate-activist eyebrows, an outright ban on oil sands development in and of itself is no low-carbon panacea. It may even make matters worse. In other words, stop urging for an absolute ban on oil sands, and start working on getting us back on the path to a global climate policy that would provide an advantage to lower carbon sources of energy. Prices or limits on carbon are the only policies which will do that.

Andrew Leach is an Associate Professor at the Alberta School of Business. He blogs on energy, environment, and oil sands issues at http://www.andrewleach.ca and is on Twitter @andrew_leach

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