Canada’s oil sands in a carbon-constrained world

ABSTRACT

The oil sands have dominated Canada’s domestic energy conversations for most of the last 50 years. More recently, the resource has become an important factor in Canada’s foreign relations, in particular with respect to Canada’s commitments on climate change. Environmental concerns are not new to the oil sands, with endangered species impacts and tailings pond mitigation presenting pressing domestic concerns. This paper argues that climate change presents a unique challenge, even as prices for oil rise dramatically. Domestic action threatens to increase the cost of production and to erode cost-effective access to markets, and policy uncertainty has made investments more challenging. More importantly, global action will change the market for oil itself and shape the willingness of investors to commit to the oil sands. This paper examines the state of the oil sands industry in the context of Canadian and global commitments to action on climate change and the potential for a global energy transition. The paper concludes with a discussion of potential solutions and pitfalls for Canada’s oil sands in a carbon-constrained world.

RÉSUMÉ

Les sables bitumineux ont dominé les conversations sur l'énergie domestique du Canada pendant la majeure partie des cinquante dernières années. Plus récemment, la ressource est devenue un facteur important dans les relations étrangères du Canada, en particulier en ce qui concerne nos engagements internationaux en matière de changement climatique. Les préoccupations environnementales ne sont pas nouvelles dans le domaine des sables bitumineux, les impacts sur les espèces en voie de disparition et l'atténuation des bassins de résidus constituant des préoccupations nationales pressantes. Cet article soutient que le changement climatique représente un défi unique pour les sables bitumineux, même lorsque les prix du pétrole augmentent de façon spectaculaire. L'action nationale en matière de changement climatique menace d'augmenter le coût de production et d'éroder l'accès rentable au marché, et l'incertitude politique a rendu les investissements plus difficiles. Fait plus important encore, l'action sur le changement climatique modifiera le marché du pétrole lui-même et déterminera la volonté des investisseurs de s'engager à nouveau dans les sables bitumineux. Cet article examine l'état actuel de l'industrie des sables bitumineux dans le contexte des engagements canadiens et mondiaux en matière de lutte contre le changement climatique et du potentiel d'une transition énergétique mondiale. La conclusion de l'article consiste en une discussion sur les solutions et les pièges potentiels pour les sables bitumineux du Canada, dans un monde sous contrainte carbone.

KEYWORDS:

• Oil
• climate change
• oil sands
• IPCC
• greenhouse gas emissions

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For a comprehensive history of Alberta’s oil sands, see The Patch (Turner, 2017).

2 For an extensive discussion of oil and gas policies in Canada, see Plourde (2012).

3 Greenhouse Gas Pollution Pricing Act, SC 2018, c 12, s 186.

4 Technology Innovation and Emissions Reduction Regulation, 2019, Alta Reg 133-2019.

5 The House of Commons Standing Committee on Natural Resources (RNNR), 44th Parliament, 1st Session, examined the prospect of a regulatory cap on oil and gas emissions in the Spring of 2022 in meetings 4–9, 11–13, and 16.

6 The other SSP socio-economic assumptions are Sustainability (SSP1), Regional Rivalry (SSP3), Inequality (SSP4) and Fossil-fueled Development (SSP5). For more detail, see Riahi et al. (2017).

7 Section 1323 of the Energy Policy Act of 2005 created a temporary expensing provision for refinery improvements which increased the processing capacity for qualified fuels. Qualified fuels (s. 45K(c)(1)(A)) include fuels produced from “shale and tar sands” which allowed a deduction for retrofits designed to process Canadian oil sands imports.

8 Impact Assessment Act, SC 2019, c 28, s 1; Canadian Energy Regulator Act, SC 2019, c 28, s 10.

9 The impact of these rules on pipelines serving the oil sands are assessed in detail in Leach (2021), while Bishop and Sprague (2019) examine the broader impacts of the legislation on resource development.

10 26 USC 45Q: Credit for carbon oxide sequestration provides a tax credit worth up to US$50 per metric tonne carbon oxides captured and sequestered. Several proposals have been made to increase this tax credit amount (McMahon, 2021). Canada’s proposal is for an investment tax credit rather than a sequestration credit.

Additional information

Notes on contributors

Andrew Leach

Andrew Leach is an energy and environmental economist and is professor of economics and law at the University of Alberta. He has a Ph.D. in Economics from Queen's University, and a B.Sc. (Environmental Sciences) and M.A. (Economics) from the University of Guelph and recently completed an L.L.M. (Constitutional Law) from the Faculty of Law at the University of Alberta. His research spans energy and environmental economics with a particular interest in climate change policies and their intersection with constitutional law.