This week the European Union will decide whether to label oil from Canada’s huge supply of tar sands as ‘highly polluting’.
Canada fears this move could set a precedent, and further hit their industry following the US Government’s move to block the Keystone XL pipeline from Alberta to Texas.
Industry also objects to the EU plan, and has put forward proposals to weaken its impact on oil production in Canada.
RTCC asked Dr Harald Heubaum, lecturer in Global Energy and Climate Policy at the Centre for International Studies and Diplomacy at SOAS to explain why oil sands are such a critical issue.
RTCC: Oil sands have received increased attention recently. Large oil companies, including Shell and BP, have grown their operations in Canada. What drives these developments?
Harald Heubaum: A lot of progress has indeed been made. This is due to high oil prices and lower production costs than in the mid-2000s. It is generally assumed that new oil sand operations require an oil price of $70 per barrel or more to be economically feasible. However, technological advances mean that some existing operations provide a return on investment with oil prices as low as $50 per barrel.
For the last three years, global oil prices have been well in excess of those margins. Brent crude, the global benchmark, stood above $100 per barrel for most of 2011 and is now above $120 following problems with Iran. It is unlikely that prices will drop dramatically in the near to mid-term future. Oil sand projects are likely to remain economically viable for some time to come.
RTCC: Economic viability does not always translate to political support. Has continued political opposition slowed down industrial ambitions?
HH: The political situation in North America is mixed. The last Canadian general election provided Prime Minister Harper with a clear parliamentary majority, the first time a sitting government has achieved this feat in more than a decade. The Harper government has been very supportive of continued oil sand development in Alberta’s Athabasca region – last December it approved Total SA’s Joselyn North mining project following a six year review.
In the United States, oil sand-derived fuel has been hotly debated for the last two years, pitting environmentalists and some landowners against business and labour groups. The issue in contention is the Keystone XL pipeline project which would transport the crude oil from its production sites in Alberta to the refineries along Texas’ Gulf Coast.
The Obama administration has rejected the pipeline for now, citing insufficient time to determine whether Keystone XL is in the national interest. However, the company behind the pipeline, TransCanada Corp., can reapply for a permit if the project is rerouted to avoid passing through the Nebraska Sandhills, which sit atop the Ogallala aquifer, the main source of freshwater in the Midwest. The Nebraska legislature recently passed a proposal to determine such a route and TransCanada has declared its intention to take the process forward.
A new proposal may well receive the administration’s support given the project’s potential for job creation and greater energy security. However, a final decision will probably not come until 2013, after the presidential election in the autumn.
RTCC: Environmental concerns have not just been raised about the routing of the Keystone pipeline but about the process of mining oil sands itself. Environmental Defence has called the Alberta oil sands “the most destructive project on Earth.” Is this large scale environmental destruction for just a few more drops of oil?
HH: The environmental impact of a barrel of oil derived from oil sands is undoubtedly high. The mining process is exceptionally invasive even when using the latest technologies and we cannot yet tell how the effects on once pristine lands and local faunas will play out in the long run. Unfortunately, as is so often the case, environmental regulation has had to play catch up with a comparatively sudden scaling-up of industrial activity.
The carbon footprint is high, too. Oil sand-derived fuel generally emits more CO2 over its entire lifecycle (“well to wheels”) than fuel produced in conventional ways. However, current GHG emissions from the oil sands industry in Alberta make up no more than five percent of Canada’s entire emissions or the equivalent of one half of one percent of total US emissions.
Canada recently left the Kyoto Protocol to avoid billions of dollars in fines it would otherwise have incurred as a result of emitting more, not less, carbon dioxide than ever before. However, it did not miss its Kyoto targets solely because of mining operations in its western province. Those emissions are actually still quite small.
RTCC: Are climate change activists barking up the wrong tree then?
HH: No, there is a real cause for concern. The question is whether oil sand-related emissions will grow, stabilize or even decline over time. Over the past 20 years, improvements in efficiency and technological advancements have already reduced the GHG-intensity of oil production in Alberta.
If implemented on a larger scale, carbon capture and storage (CCS) could make a significant contribution to cutting the carbon footprint further. However, other countries such as Venezuela, Russia and Colombia are also endowed in rich unconventional oil reserves and if these are developed without regard to climate change and appropriate regulation, the global impact will be more noticeable.
RTCC: Is a shift away from oil sands conceivable?
HH: If the world community got tough on global climate change and started to seriously wean itself off its addiction to oil as a transport fuel. Neither one is likely to happen anytime soon. COP-17 in Durban produced an agreement to agree a new legally binding treaty by 2015 which would then, ideally, come into force by 2020.
Let’s assume that this actually happens as planned. A new compliance period would then not start for a number of years, for example 2025. This would mean at least another 13 years of largely unmitigated GHG emissions and a continued legislative and regulatory patchwork around the world. There is no immediate threat unless we put a sufficiently high price on carbon.
RTCC: Let’s move on to the EU where a vote on a fuel law classifying oil sands as highly polluting is coming up tomorrow. Would a decision to label oil sand-derived fuel as one of the most carbon-intensive fuel options have an impact on consumer demand?
HH: Not directly. The proposal assigned a default GHG value of 107 grams per megajoule as opposed to 87.5 grams for conventional sources of oil but the EU does not currently import any significant amounts of this fuel so European consumers are not yet affected. There are two other principal reasons for the move. First, the Climate Commissioner and others would like to pre-empt the development of oil sands located within EU Member States such as Estonia.
Second, labelling oil sands as highly polluting would not only threaten future access to European markets but could prod other jurisdictions into taking action as well. We can see this happening in California which in early December 2011 decided to back the EU’s plans. Other states followed California’s lead on fuel-efficiency standards in the past. This could well be a similar situation.
Multinational oil companies and the government in Ottawa are rightly worried that the labelling of oil sands coupled with low-carbon fuel standards in the EU and other OECD countries would make emissions-intensive fuels less desirable and cut into profits. Hence the recent attempts to prevent the EU proposal via the UK Foreign Office and the reorientation towards Asian markets, where such regulation does not exist.
RTCC: Any prediction on how the vote will break down tomorrow?
HH: That’s hard to say. For the draft fuel law to pass the fuel quality committee, 255 votes out of 345 are needed. At this point it is not clear whether the anti-oil sand camp has those votes locked up. The lobbying and arm-twisting will certainly continue right up to the last minute. It may well pass but if there is no majority support then the Council of Ministers will take up the matter in June, so tomorrow is not a make or break.
I think it is also important to keep in mind that even if the fuel law does not pass this year, the issue will not go away anytime soon. Opponents of oil sand production have been quite effective in setting the agenda and we can expect further action despite a potential setback.