It’s Time for a Serious Discussion: Tar Sands, Fossil Fuels, Keystones and Gateways, and Canada’s Alternative Futures

Posted by on June 20, 2014
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Pembina-Institute-Competing-in-Clean-Energy

A 2013 report by the Pembina Institute suggests Canada could build a robust industry based on alternative energy, especially if government supports comparable to those lavished on the
fossil fuel industry were provided.  Image © Pembina Institute

It’s time.  Canadians need to begin the discussion that we have been avoiding having ever since the Harper government pulled us out of the Kyoto Accord.  Yes, there is a lot of tar sands bitumen in Alberta.  Yes, it can be made into oil at considerable expense both in energy used to get it out of the ground and processed and in environmental contamination along the way.  Yes, the actions involved in digging it up or forcing it up with steam, processing it, and shipping it out, as well as in building the infrastructure to do all these things can generate jobs and economic activity.  But is this the right thing for Canada to be doing?

The tar sands industry has been growing rapidly, and there still are not adequate regulations in place to control its environmental excesses.  The Harper government, seemingly totally in the back pocket of the multinational energy corporations, has been a cheer-leader rather than a regulator for this industry from the moment it came into office.  Canada is a net energy exporter, and IEA data confirm that the tar sands production is largely surplus to our own energy needs.

The IEA’s Key World Energy Statistics for 2013 report that in 2012, Canada was the 6th largest oil producer, sending 182 Mt oil, or 4.4% of global production to market.  That year, Canada was also the 9th largest net oil exporter, with 82 Mt oil sent to the US or overseas.  In a 2014 article, the IMF estimates 2013 Canadian oil production to be 61% derived from tar sands oil.  The way I interpret these numbers is that a) Canada is a significant oil producer, b) Canada has net exports (total exports – imports) equivalent to 45% of production, and c) 61% of production derives from the tar sands.  It’s reasonable, therefore to suggest that if Canada voluntarily ceased all export and import of oil, it could provide for its own oil needs and still cut tar sands production by 82 Mt from the current 111 Mt, retaining production of 29 Mt from this source to cover Canadian oil needs.  The arithmetic looks like this:

  Current situation Proposed change
Non-tar sands production

71 Mt

71 Mt

Tar sands oil production

111 Mt

29 Mt

Total oil production

182 Mt

100 Mt

Surplus for export

82 Mt

0 Mt

 

I am not proposing Canada disrupt its economy to this extent overnight, but bear with me while I take this line of thought a bit further.  IEA statistics also show that Canada is a net exporter of natural gas:  As the world’s 5th largest producer Canada generates 157 billion m3 of gas, and has net exports of 57 billion m3 (these amounts are equivalent to approximately 193 and 70 Mt oil in energy content).  Given that natural gas is a less polluting from of fossil fuel to use (less CO2 released per unit of energy), Canada could cease exporting natural gas, and further reduce oil production by 70 Mt.  That brings tar sands activity to a halt, while reducing production of other oil to 30 Mt!

Of course, Canada also produces and exports coal.  According to IEA data for 2011, Canada produced 48 Mt of coal, and had net exports of 17.3 Mt coal.  Since 1 tonne of coal has an energy equivalence of 0.7 tonnes oil these amounts are equivalent to 33.6 Mt oil produced and net exports of 12.1 Mt.  Given that coal is a much less desirable fuel source environmentally than oil, Canada might decide to cancel coal production entirely, replacing the 21.5 Mt oil equivalent of coal used within Canada with natural gas and using its remaining ‘excess’ gas production to replace oil.  In this scenario, tar sands production would still cease while production of other oil would drop to 51.5 Mt produced.  Again, here is the arithmetic with all amounts converted to metric tonnes of oil equivalents:

 

Current case

Cease oil exports

Cease oil and gas exports

Cease coal production

Non-tar sands oil production

71 Mt

71 Mt

30 Mt

51.5 Mt

Tar sands oil production

111 Mt

29 Mt

0 Mt

0 Mt

Oil exported

82 Mt

0 Mt

0 Mt

0 Mt

Gas produced

193 Mtoe

193 Mtoe

193 Mtoe

193 Mtoe

Gas exported

70 Mtoe

70 Mtoe

0 Mtoe

0 Mtoe

Coal produced

33.6 Mtoe

33.6 Mtoe

33.6 Mtoe

0 Mtoe

Coal exported

12.1 Mtoe

12.1 Mtoe

12.1 Mtoe

0 Mtoe

 

The point I am making here is that it is within Canada’s power to radically alter the mix of fossil fuels we produce and whether or not we export without altering in any way the extent to which fossil fuels collectively supply our own needs.  We have production at present which is sufficiently in excess of the needs of our economy that we could choose tomorrow to shut down the tar sands completely, close all coal production and cease exporting any fossil fuels.  Of course, these options are draconian, and they would seriously inconvenience our customers and the corporations that have invested in production facilities on the assumption that they would be allowed to produce.  Draconian, but not impossible, and not outside the law – these are Canadian resources until they are dug up, and as a sovereign nation, Canada has the right not to develop its resources.  If Canada needs a justification for being draconian, it could claim that it is both reducing its own CO2 emissions, and foregoing export of fossil fuels because they are environmentally damaging and should be kept out of the market.  Sounds pretty environmentally responsible to me.

Making any of these shifts overnight would be impractical, because there would need to be extensive retooling to convert power plants to gas and to increase the availability of electric and gas-powered vehicles.  These shifts would result in job losses.  They would result in revenue losses for governments, primarily the Federal and Alberta governments.  And there would undoubtedly be legal battles with the energy corporations.  On the other hand, they would result in new employment opportunities in the reshaped economy, they would ease the pressures on the Canadian environment from water, soil and air pollution, they would cut the foolhardy waste due to the permanent contamination of enormous quantities of water used in tar sands extraction, and they would make a significant impact on the need to reduce Canada’s emissions of CO2.  These are all significant pluses that need to be factored in to any assessment.

While my simplistic scenarios look radical in the extreme, I’ve partly been emboldened by a report from the International Monetary Fund that provides a far smaller economic importance to the tar sands industry than one hears from government or from industry groups such as the Canadian Association of Petroleum Producers, CAPP.  The IMF report, with the innocuous title, “Canada.  Selected Issues”, appeared in February 2014.  It deals with two issues: “The unconventional energy boom in North America: Macroeconomic implications and challenges for Canada”, and “Is ‘dead’ money alive?  A firm-level analysis of Canadian non-financial listed corporations’ cash holdings and capital expenditure behavior.”  (I’ll spare you any discussion of the latter.)  The report sounds quite positive about the value of Canada’s tar sands industry, but it identifies significant risks related to possible loss of demand, and refuses to entertain the rosy growth projections talked up continuously by the Harper government and the producers.  Hannah McKinnon, of Environmental Defense, writing in the Huffington Post dissects the report, pointing out that it sees the tar sands as worth only about 2% of Canada’s $1.2 Trillion economy rather than the enormous engine that we must help grow even bigger.

Before dismissing out of hand the kinds of changes in fossil fuel policy I’ve thrown out here, a careful economic analysis of the full costs and benefits of the tar sands industry is called for.  Those costs must include the environmental costs, and the various subsidies provided to the fossil fuel industry by Federal or Provincial governments.  That would be a useful step in deciding among alternative futures.  It has not happened, because we have not been discussing any alternatives to the scenario preferred by the tar sands multinationals and by the government – a scenario that is based on a rapid tripling of production from the tar sands, all presumably for export.  Just because the industry wants to grow very big very quickly does not necessarily mean it is in Canada’s best interest to let this happen.  The current clamor over proposed new pipelines is all about building sufficient transport capacity for a ramped up production.  Without any increase in production Canada does not have a need for more pipelines unless the eastward flow of gas and oil that would be needed to compensate for a closeout of imports would require this.

There are many other things Canada can do to act to restore some of the environmental damage we have been causing.  Laudable decisions by several provinces to alter the mix of sources of electricity or encourage energy conservation, and by the USA to regulate mileage minima on automobiles (which Harper proudly announced Canada would go along with, while ignoring the fact that we could not avoid this) mean that Canada has made some slight headway in the battle to reduce CO2 emissions.  That headway has been smaller than it might have been because of the expansion in tar sands oil production, and the federal Harper government is distinctive in having done nothing that I can see to deal with Canada’s emissions other than commit to the Copenhagen Accord and then do nothing except lie about the progress they claimed Canada was making to fulfill the pledge.

Many of the steps that can be taken have commercial possibilities building the innovative technology to make an energy infrastructure powered in completely new ways.  Some of the steps involve changing Canadian attitudes to what constitutes success, by individuals and by economies.  All of the steps that could be taken help reduce the growing costs of environmental or climatic disasters.  It’s perhaps ironic that the floods of the spring of 2013, the most costly ‘natural’ disaster in Canadian history at $6 Billion, occurred in Alberta, the Province that has grown rich on royalties paid by tar sands multinationals.

canada-gdp-growth

Canada’s economy has been growing since 2011, but very slowly

Finally, it’s perhaps timely to raise questions about the economic costs and benefits for Canada of exploiting the tar sands, because the trickle-down that industry cheerleaders talk about has simply not been trickling down.  While the Harper government constantly stresses its wise and responsible management of the economy, and while the economy has shown positive rates of growth since the first quarter of 2012, the growth rates have been anemic, especially when Canada’s rate of population growth is factored in.  A report by Jim Stanford of the Canadian Centre for Policy Alternatives released in 2012 pointed to Canada’s middling performance since the 2008-9 recession, in contrast to government claims of superior performance.  And what growth there has been since the recession seems to have been gobbled up by the top 1% which, in Canada, have captured 37% of income growth while the bulk of Canadians are less well off than they were in the past.  Never mind that most of the profits from Canada’s resources boom are whisked offshore by predominantly foreign-owned multinationals.

140501_a39hi_rci-oecd-income_sn635

Canada currently has the second greatest income inequality with the top 1% capturing 37% of total income growth.  Figure © OECD

It is time to have a serious discussion about the kind of nation Canada wants to become, about the extent to which a sound environment is valued, and about the many different ways to structure Canada’s economy.  I am certain there is more than one path forward which will restore quality of life, though perhaps not grow vast wealth, while also restoring Canada to a place among the progressive nations that work together to restore our damaged environment and climate.  Better to choose one of those paths than to trip slavishly down the only path the Harper government will yet consider; one that requires continuous expansion of tar sands production and the infrastructure to get all that oil to market, but still does not seem to be providing anything very positive for the vast majority of Canadians.

cetacealab_orca at Gil Island

Orcas photographed off Gil Island, in the channel to Kitimat, the proposed terminal for the Northern Gateway pipeline.  Photo © CetaceaLab.org

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