Restoring the Athabasca River Trumps Building Energy East: Choices in the nexus of climate, environment and economy.

Posted by on February 15, 2016
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The Athabasca River

Athabasca-River keywesttravelandtours smallKayak on the Athabasca River

There are still a few great rivers in the world. High in the Canadian Rockies, within Jasper National Park, the Athabasca River arises in the Columbia icefields. The 168 km stretch within Jasper National Park has been designated a Canadian Heritage River. It is beautiful, wild, untamed, and an exhilarating experience by canoe, kayak or raft. From the headwaters and the Park, the river flows north-east across Alberta to the Peace-Athabasca delta and Lake Athabasca. Water from Lake Athabasca then flows north via the Slave River to Great Slave Lake, and thence to the Mackenzie River and the Arctic Ocean. The Athabasca alone is nearly 1400 km in length; the total voyage from the Columbia icefields to the Arctic Ocean is some 4000 km. It used to be, and could again be a truly wonderful journey.

The Athabasca/Peace/Slave/Mackenzie watershed, at 1.8 million km2, is far and away the largest river system in western Canada, and the 10th largest river system in the world. Much of it is untamed, but the lower Athabasca passes through Alberta’s tar sands, and it would be naïve to pretend that tar sands mining has not had negative environmental impacts. The good news is that over the next couple of decades, pollution of this river system is likely to be reduced as the great tar sands mining experiment is shut down and cleaned up. Few people are talking about this transition yet, but it is coming and Canadians need to ensure that the clean-up undertaken is done appropriately.

 

tar-sands-2-1000 Dodge PembinaMight all this get cleaned up sometime soon? Photo © David Dodge/Pembina Institute

Energy East

Far from discussing a shut-down of the tar sands, most people in the fossil fuel business are talking expansion, and the need for new pipelines. Of the four recent pipeline proposals in Canada, Keystone XL, Northern Gateway, and Trans-Mountain are dead or dying. Energy East remains the one most likely to be worth building. There are several pluses in building it: The construction jobs would be welcome. All that accumulated pipe littering the North American landscape could get used. There is refinery capacity in the east, and some of the oil could be used to displace coal in electricity production in eastern Canada. Most of it could be exported. Pipelines are useful for transporting oil, and definitely preferable to transporting it by train.

But Canada already has considerable pipeline capacity. Canada cannot decide on Energy East, on any other pipeline, or on policy for the oil industry in general, without also considering what is needed to bring climate change under control. Therein lies the rub. And that is why I believe the Athabasca River will soon run clean again.

The Trudeau government has indicated that consideration of upstream and operational greenhouse gas emissions must be a factor in any evaluation of a pipeline. That is a considerable step forward in favor of environmental responsibility compared to the attitudes of the Harper government, even if it does not also include consideration of downstream emissions as many environmentalists would prefer. Those downstream emissions are rightly the responsibility of whoever purchases and uses the oil once it reaches eastern Canada. Just as we have tended to not hold gun manufacturers responsible for murders committed using firearms, we should not hold pipeline operators responsible for emissions generated when the oil has been delivered and is now being burned. While there is the issue that provision of new pipeline capacity might stimulate tar sands production, the fact is that the approvals process and the construction effort assuming approval is granted will mean that the new capacity appears well down the road, and the present price of oil is not generating tons of profits to pump back into exploration and development of new capacity. Given the improved safety of using pipelines instead of trains, it seems likely that a reasonable case can be made for Energy East if this is as far as the examination goes. In a post last November, I offered tentative support for this argument.

But I said that the decision on Energy East needs also to factor in what Canada needs to do to be a responsible global citizen in responding to climate change. When this is considered, the case for Energy East (and for the tar sands) becomes far more problematic.

Canada’s Climate Mitigation Task

To help achieve a maximum of 2oC global temperature increase, Canada has got to reduce its emissions substantially further than it has as yet proposed doing. In January, I commented on Climate Interactive’s Rachet Success Pathway for getting from the commitments made in Paris to zero emissions globally by 2100 (their formula for keeping global warming below 2oC). I pointed out that the Paris accord was just the first tiny step. Canada’s INDC (our commitment under the Paris accord) states baldly that we will reduce annual emissions to 30% below 2005 levels by 2030 with no clear indication of how rapidly or by what means we propose to reduce them. Given that emissions in 2013 were only 3.1% below those in 2005, Canada has a way to go just to meet that self-imposed commitment – a point that was emphasized in an article in The Observer on 10th February by Charles Mandel. Still, with appropriate effort it is achievable; it works out to a 2.1% reduction each year from now to 2030.

Meeting the more demanding goal of keeping within 2oC via the Ratchet Success proposal would require Canada to up that performance to 3.7% per year until 2030, then increase to a 5.1% reduction every year from then to 2100. Here I take a slightly different approach to Climate Interactive to arrive at a need for Canada to reduce emissions by 5.5% per year every year from now to 2100. My approach uses the 650 gigatonne CO2 allowable total budget of cumulative emissions that can be emitted across the world before we move past the 2oC limit. (I explained the 650 gigatonne budget last December.) I also assumed that Canada will want to perform at least as well as the average nation, reducing its emissions at the same rate as the rest of the world has to if this limit is observed. With these assumptions, Canada, which currently emits 0.726 gigatonnes CO2 equivalent per year (2.02% of global emissions), could continue for 18 years at its current rate, and then stop cold turkey (a totally unrealistic prospect), or it could reduce emissions 5.5% per year, every year to 2100, or it could reduce emissions more rapidly, and cease reductions sooner (a route with possible economic benefits later on?). For political reasons, Canada should reduce emissions more rapidly, reaching zero before 2100, because as a developed country, we should lead in this decarbonization process. All of these possible paths involve substantially more aggressive cutting of emissions than Canada has achieved to date, or was contemplating when formulating its INDC.

What Canada cannot do is allow its emissions to grow just because it is too ‘difficult’ to rein them in. Making excuses (Canada is a large country with a cold climate, Canada is an energy producer) will not result in Canada being given a pass on emissions reductions (at least in the court of public opinion), so the task in front of this country is pretty demanding. (It is much the same task that faces every major country on the planet.)

Canada’s oil and gas sector now accounts for 25% of emissions, and expectations have been that this sector’s share of emissions will grow. While the per barrel rate of emissions has been cut by 28% since 1990, nearly all of that reduction was achieved prior to 2005, and production meanwhile has increased 224%. Until recently, expectations were for production to increase a further 187% by 2020. Fortunately for the environment and our climate, that is now not going to happen.

 

PembinaFig4 emissions trends by sector CanadaTrends in GHG emissions by sector for Canada, realized to 2010 and projected to 2020. Image © Pembina Institute

Canada has made some progress on reducing emissions in the electricity sector, and in transportation. It has at least reduced emissions intensity in housing and in most other sectors. The oil and gas sector stands out as the largest producer of emissions, and the one that has grown emissions year after year. It is unreasonable to expect that the oil and gas sector is going to be permitted to continue to expand, and grow emissions, while the rest of Canada is working to reduce emissions overall. (Especially when we discover how difficult it is to reduce emissions 5.5% per year, year after year.) Either oil and gas will develop new technologies that reduce the per barrel emissions rate sufficiently rapidly to permit expansion of production while also lowering emissions, or they will have to curtail any growth in production, and begin to wind production back as soon as possible. Either that, or Canada once again will fail to live up to its promises on climate – not because it is impossible but because it is inconvenient for our energy sector. Remember, we do not need this oil to power our economy; most of it is intended for export.

The Special Universe of the Energy Sector

Should anyone doubt it, there are ample signs in the past few months or so that the Canadian energy sector is still living in a universe in which perpetual growth and growing pollution are acceptable and normal ways to live. In June 2015, the Canadian Association of Petroleum Producers, CAPP, released its annual crude oil forecast. Noting the growth in global oil stockpiles, and therefore the lower prices (WTI sat at $58.94 per barrel at the time), they downgraded their projection for total Canadian oil production in 2030 to 5.3 million barrels per day. They had projected 6.4 million barrels per day 12 months earlier. Production stood at 3.7 million barrels per day in 2014, so the 5.3 number still represents long-term growth. CAPP also noted the need for timely development of new transport infrastructure.

On 27th January, Canada’s National Energy Board released its own report on energy demand and production to 2040. Canada’s Energy Future 2016 provided 6 alternate projections, and while it made the point very clearly that projections are not forecasts, the overall assumption by NEB that growth in the oil and gas sector will continue, no matter what, is also very clear. And this is done in a current climate in which every barrel of oil being sold is being sold at a significant loss. A TD Securities report recently estimated the break-even point for most tar sands production to be north of $40 per barrel. Today WTI stands at $27.30. Fact is, the tar sands producers are still producing because it costs money to shut production down, and because some cash coming in is better than no cash coming in, but they are losing money rapidly.

In its baseline or reference projection, NEB reports that oil production will increase 56% from 2014 to 6.1 million barrels per day in 2040, while gas production will increase 22%. At 2030, the NEB projection includes about half a million barrels per day more than CAPP’s despite the fact it was made at a time when the WTI price sat at $27! The increase in oil production is almost entirely due to expansion in the tar sands.

NEB Canada Energy Future 2016 oil productionGraph showing anticipated growth in Canadian oil production to 2040. Virtually all the increase is in the Alberta tar sands which represent 79% of all production by 2040. Figure © National Energy Board

The expansion of production is dependent on assumed improvements in price from the present very low levels, good access to markets (i.e. more pipelines), and lack of constraints due to climate requirements. Even under what they call unfavorable conditions NEB still projects an increase overall! (Their ‘low price’ scenario shows growth plateauing after about 2019.)

 

NEB Canada energy future 2016 effects of priceGraph showing the anticipated change in rate of production from Alberta tar sands operations in the reference case, and under high and low price alternative futures. Graph © National Energy Board

4 alternate scenarios for oil production NEB reportGrowth in total oil production under four alternative scenarios. The ‘constrained’ case is one where none of the four major pipeline expansion projects currently being considered get built (Keystone XL, Northern Gateway, Trans Mountain, Energy East). All cases project expanded production from present levels. Graph © National Energy Board.

In fairness, in preparing this report, the NEB was careful to spell out the considerable uncertainties facing oil producers at the present time. Prices alone are problematic (the NEB low price scenario uses a price range from about $55 to $80 per barrel vs today’s $27) and will have effects on investment and therefore on production. Shipping by rail, which might become increasingly necessary if pipeline capacity is not expanded, is also more costly, driving down investment and production. Neither NEB nor CAPP considered climate implications, although NEB stated that the climate commitments made in Paris could also impact production. But still, the NEB is assuming growth through 2040 under all possibilities considered.

Shorter-term forecasts, such as that from the Petroleum Services Association of Canada, report declining activity in Canada’s oil industry. PSAC has just revised its projection for the number of wells to be drilled this year downward by 5%. However, the US Energy Information Agency, in reporting global growth in oil production of only 0.5% per year 2015 through 2017, notes that Canada is one country that will see significant growth during that time. And every article discussing the Alberta economy reports that oil will come back. For most, it is inconceivable that it won’t. A thoughtful report by Christopher Ragan in the Globe & Mail on 10th February referred to Alberta’s two blessings and one curse. The curse is the relatively high cost of oil production in the tar sands, while the blessings are the sheer quantity of oil there, and the talents of the Alberta people. In Ragan’s view, Alberta’s intellectual talent will solve the day by making tar sands oil cheaper and cleaner to extract. In other words, oil will continue to drive that economy. I wonder if that is realistic?

Future Oil Production and Energy East

How might oil continue its preeminence in supporting Alberta’s economy? The short answer is “it probably won’t”. In the short run, low prices for oil are killing off investment thereby killing future growth in production. In the longer run, Canada’s need to cut CO2 emissions will require an absolute reduction in emissions from this industry. That translates into either an absolute reduction in production, or very substantial further reductions in emissions intensity (emissions per barrel of oil produced). While Alberta may have a pool of talent capable of developing technologies to reduce emissions intensity, such technology will likely further increase the cost of production, thereby making the effects of lower prices even more of a problem than they are already.
It’s also possible that there simply are not any new ways of further reducing the emissions intensity of tar sands crude – even very clever people have to live within the rules set by physics and chemistry. That improvement in emissions intensity plateaued in 2005 suggests new approaches are proving hard to find, and under such circumstances, any increase in production from present rates brings with it an increase in Canada’s total emissions – the one thing Canada certainly does not need and must not accept. In this context, while Alberta Premier Notley’s recent announcement on oil royalty rates was politically understandable, in the longer term it will be seen to have been unwise. She announced that the royalty charged for tar sands extraction will not be increased at this time.  The industry needs all the encouragement it can get to be persuaded that its dream of endless growth is now over.

 

TransCanadaGascoynePipeDepot1 Bret ClantonThere sure is a lot of pipe scattered across North America. This batch in North Dakota was intended for Keystone XL. Are there alternate uses for pipeline pipe because the pipelines are not going to happen? Photo © Bret Clanton

An article by Barry Saxifrage in The National Observer uses CAPP’s own 2015 crude oil forecast to point out that the low growth scenario they projected (due to low oil prices dampening investment) resulted in rates of production that could be accommodated with no new pipelines. He argued convincingly that the worsening prices since mid-2015, and the climate demands have made their low growth scenario optimistic, if not unrealistically high. His conclusion – there is no need for new pipeline capacity in Canada, because there will be little if any growth in production in Alberta once projects now under constructing come into operation.

A recent article on Rabble.ca by Gordon Laxter, a political economist and former Director of the Parkland Institute, University of Alberta, argues in similar vein, pointing out, among other things, that there is ample Newfoundland oil to supply the Irving oil refinery in St. John, New Brunswick and that the recently up-graded Enbridge Line 9 can supply the Suncor refinery in Montreal and Valero’s refinery in Quebec City. In other words, the oil refineries of eastern Canada can be supplied with Canadian oil without Energy East, and the oil needs of eastern Canada can be fully supplied that way.

Yes, the construction of the eastern portion of Energy East will create construction jobs. Yes, the pipeline is a safer and less costly way to ship oil than using trains. But building the pipeline also carries capital costs that have to be recouped during its operating life. Has Trans-Canada looked at a cost-benefit analysis under the assumption that Alberta is not going to be shipping much more oil than it already does, and that its production is going to ramp down, not up? Maybe there is a solid business case for cancelling this project after all?

Wither Alberta?

The intellectual talent in Alberta will certainly be a blessing in the difficult years to come; so will the other forms of expertise that have congregated there because of the oil boom. But they will be a blessing because they will be developing Alberta’s new economy, while winding down its flirtation with the dirtiest oil on the planet. There is ample need for innovation in environmental restoration and in solving the problem of all that polluted water contained in tailings lakes. There is room for innovative drilling technology to develop geothermal energy or to provide for carbon capture and storage. And there is room for innovation in all aspects of green energy capture, energy storage, and energy transport. But oil is nearly over because it is too costly to produce from tar sands, because it is too environmentally costly for Canada as we work to bring our emissions down, and because we actually do not have to export oil just because we have immense stores of it locked up in our tar sands. And if we do not produce it, other countries will not be able to use it.

Once Canadians all realize we can just leave it in the ground, once we understand that we must leave it in the ground, we can move on to creating the vibrant economy that our human resources can sustain in a green-powered Canada. Decommissioning the tar sands will be an important task for the energy sector and an important source of interim employment in Alberta; I hope the corporations have saved some of their immense past profits to pay for this. And once we clean up the environmental damage that has been done, then the Athabasca River can become a Canadian Heritage River along its entire 1400 km length, building an expanded tourism and recreation sector, and generating lasting cultural and esthetic value for the lives of people who live there, and for all other Canadians.

oil-pump-fossil-fuels GristThe age of fossil fuel is coming to an end, not because we ran out of it, but because we could not afford the environmental damage using it would cause. Photo © Grist

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