Alberta: Fossil-fuel belt or green powerhouse?

Parkland Institute will be hosting the Edmonton book launch of After the Sands: Energy and Ecological Security for Canadians on November 21, as part of our 19th annual fall conference. Written by Parkland Institute founder and former director Gordon Laxer, After the Sands proposes a bold strategy to ensure that all Canadians have sufficient energy at affordable prices.

If you're interested in purchasing a copy of After the Sands, Parkland Institute has copies available for sale at our office for $25, with a special reduced price of $20 for Parkland Institute supporters.

Below is an excerpt from Chapter 5 of After the Sands.

Alberta: Fossil-Fuel Belt or Green Powerhouse

It is dangerous to place all one’s eggs in a non-renewable resource basket. Premier Rachel Notley, like Peter Lougheed before her, recognizes this. But if Alberta continues to rely mainly on the Sands, it may well suffer a fate like the auto rust belt in Michigan and southwestern Ontario. In the 2030s, people will shake their heads about the folly of Alberta having madly excavated its way down into a “fossil fuel belt,” while everyone else stopped buying or shipping dirty Sands oil and moved on to a low-carbon society.

Alberta’s economy will be left with little but the detritus of closed Sands projects and leaking tar pits. This is not Alberta’s inevitable future. The Alberta Premier’s 2011 Council for Economic Strategy acknowledged the danger of Alberta failing to diversify its economy. It warned that “the creation of an affordable, environmentally friendly alternative to oil would be a great thing for the world. It could be economically devastating for Alberta if, when it happens, we are still heavily dependent on oil exports.”

A Gap the Sands Can’t Fill

The International Energy Agency says the world needs to add 4.5 to 5 million barrels a day of new oil each year to replace declines in old fields. Alberta’s Sands have been touted as a “game changer,” a major new source of oil that will enable the US to get off Middle Eastern oil and achieve energy security. Are the Sands that important? What would happen if we took them off the table? In 2015, the Sands’ output was 2 million barrels per day, about 2 percent of the global total. The Canadian Association of Petroleum Producers (CAPP) forecasts Sands output at 4.8 million barrels per day by 2030. I doubt that the Sands will reach that level, because of opposition to importing “dirty oil,” limits to pipeline take-away capacity, the possibility of hard international caps on carbon emissions, shortages of water and eventually natural gas, and the high cost of Sands production. But if we accept CAPP’s forecast, 5 percent of expected world output is just enough to replace a year of world oil depletion. The Sands then cannot deliver enough oil to appreciably prolong the age of easy oil.

Political obstacles to the shipment of Sands oil are rising within Canada. Citizens’ movements to stop pipelines to the Pacific and Atlantic coasts have mushroomed in the past few years and are starting to influence provincial governments. The strongest broadsides are likely to come from international refusals to buy Alberta bitumen. Uncertainty caused by the oil price crash of 2014 is slowing Sands’ expansion. New Sands projects already partly built are proceeding, but up to $60 billion in new projects were put on hold after the price slump. In February 2015, the International Energy Agency cut its growth forecast for the Sands by 430,000 barrels per day, or 35 percent, saying they will not revive quickly even if oil prices rise.

A fall in world oil production will spike oil prices and curtail globalization as “the death of distance” for trading goods. Low wages in Asia will no longer compensate for much higher transportation costs. It will not be feasible to import many goods from the other side of the world. Jobs that were exported in the past three decades will return to Canada. Inwardly directed development will become the new paradigm again. What was old will be new again. The question is whether and how quickly Alberta will get off the export mentality and embrace the new.

Can the Sands Be Greened?

The Sands serve no urgent purpose, as they produce mainly for export. The US doesn’t need Sands oil. A New York Times editorial argued that the “Keystone XL pipeline is not only environmentally risky, it is unnecessary” because there is already sufficient pipeline capacity to double us imports from Canada. The US wastes more oil than it imports. The US doesn’t need Canadian or any other foreign oil. Sending Americans the dirtiest of Canadian oil further raises carbon emissions.

We’ve seen that Canada can’t let Sands production grow as forecast and still reach Parliament’s 2008 pledge to cut greenhouse gas emissions by 80 percent by 2050. Ramping up Sands output by three times while lowering overall emissions by 80 percent means the Sands would take up all of Canada’s emissions room. Canadians would have to stop heating their homes and driving to work to reach the target. Sands extraction is shifting from mining toward deep in-situ methods, requiring more natural gas use and accompanying emissions. The business-as-usual scenario is for Sands output to rise as forecast, with Canadians continuing to use twice as much oil per person as Swedes and Britons. If so, forget the “dirty oil” label; Canada would become the world’s environmental rogue state.

The Government of Alberta website states that Canada releases only 2 percent of the world’s GHGs, which is true but misleading. At 2.3 percent of the world’s emissions, they’re more than four times Canada’s 0.5 percent of the world’s people. With 12 percent of Canada’s people, Alberta produces 30 percent of its emissions, four times the per-person level of the rest of Canada. Only Saskatchewan’s per-person emissions are as bad. The Sands can’t be greened using current technology at reasonable cost. Their production emits much more GHGs than conventional oil.

The US Environmental Protection Agency estimates that Sands emissions are 82 percent higher on a wells-to-wheels basis. That’s not counting destroying swaths of the boreal forest and wetlands that cover the Sands and sequester large amounts of carbon, nor heating bitumen to move it through pipelines. Emissions on an extra 900,000 barrels per day on the Keystone XL pipeline would be 27 million metric tons, “roughly equivalent to annual CO2 emissions of seven coal fired plants,” according to the Environmental Protection Agency. Other estimates peg the Sands’ extra carbon emissions both lower and higher.

Carbon capture storage was the comeback for Alberta Conservative governments. Let the Sands grow but capture much of their emissions. Have your cake and eat it too. The plan never made much sense and Big Oil wasn’t interested because carbon capture storage is more costly than releasing carbon. The World Wildlife Fund estimates that carbon capture storage may capture 90 percent of the carbon emitted by new, coal-fired electricity generators, but only 3 to 15 percent from the Sands. Carbon from the Sands is too diffuse to capture effectively. Alberta’s carbon capture plan was a very expensive public relations reply to cries of “dirty tar sands oil.” The Notley government sensibly plans to kill carbon capture and transfer the funds to public transit. The latter will reduce more emissions but, like carbon capture storage, will do nothing to reduce the Sands’ growing emissions. A much better solution is not burning Sands carbon particles in the first place.

Importing countries are becoming likely to refuse to take “dirty” Sands oil. The European Union has a fuel quality directive to reduce the life cycle of carbon emissions on vehicles. Although Europe imports virtually no Canadian oil, the EU has seesawed about slapping a dirty fuel label on Sands oil. The debate puts pressure on European oil giants Shell, BP and Statoil to divest their Sands holdings. With its Low Carbon Fuel Standard, California may curtail Sands oil imports. The provinces, including Alberta, should adopt similar standards on oil. Ottawa has no Plan B. It’s wiser to embrace the coming low-carbon economy than to gamble on dirty oil exports continuing.  

De-globalization Is Coming

Ottawa and the oil corporations don’t see de-globalization as a possibility. [Former] Prime Minister Harper expects Alberta’s Sands to turn Canada into a global energy powerhouse. For those of this mindset, a soaring world oil price would be a golden opportunity to realize the full potential of the high-cost Sands. Even if pricey oil causes global economic turmoil and reduced growth, they assume Alberta would have a long boom, fuelled by high oil demand. Canada possesses “the most attractive combination of circumstances for energy investment of any place in the world,” Harper has said. Only a massive dose of reality or political defeat will get Canada’s petro-elites out of their dream world.

Alberta and Canada are currently caught between two powerful forces: the pressure to increase Sands output and rising counter-pressures to cut CO2 emissions. Deep conservation—using less carbon fuel—is the only realistic way out of the dilemma. If they were truly “conservative,” governments that call themselves Conservative would embrace conservation and thrift. Even some British Conservatives get it, or claim to. The party’s Quality of Life Policy Group noted that “material prosperity has not made us a contented society,” and “beyond a certain point material gain can become not a gift but a burden.” The group began its “Blueprint for a Green Economy” with a 1756 quote from founding conservative philosopher Edmund Burke, who criticized the insatiable pursuit after more.

Globalization is built on cheap oil. Its end will mean relocalizing and renationalizing society. Distance will matter again and act as a huge tariff-like barrier against distant products.

Lloyd’s of London, a risk assessor for three hundred years, advises countries and companies to prepare for disrupted energy supplies and costly oil. A Lloyd’s white paper on sustainable energy security states that “the more efficient will have an important competitive advantage in times of high and volatile energy prices.”

But miracle seekers keep looking for new technologies to reverse the depletion game. Richard Heinberg explains how the imminent scarcity of easy oil and natural gas once we burn through shale gas’s temporary boom is often misportrayed as “running out”: “What we are really talking about are the inevitable consequences of...resource extractors [taking] the low-hanging fruit first and [leaving] difficult, expensive, low-quality and environmentally ruinous resources to be extracted later.” We have built a society, Heinberg continues, “on the basis of cheap energy and materials....As we move down the layers of the resource pyramid, rising commodity prices and increasing cleanup costs…will undercut both demand for resources and economic activity in general.” Labour costs will fall and raw materials rise in this century, the opposite of twentieth-century trends. It will take time for people to realize that “conventional economic growth is over. Done.”

Globalization is built on cheap oil. Its end will mean relocalizing and renationalizing society. Distance will matter again and act as a huge tariff-like barrier against distant products, as it has for most of history. What will the economy look like when oil prices soar again and—after sharp gyrations and countertrends—stay aloft? As Jeff Rubin puts it, “The world’s cars and trucks and ships and planes run on oil. That means the global economy runs on oil, because the global economy is about moving things around the world. And the reason the global economy has put all its eggs in one basket is that there is no other basket....When the price of gasoline goes up, you drive less. When the price of clothes or computers or anything else goes up, everybody buys less. And when everybody spends less, you have a recession.”

Rubin argues that many manufacturing sectors that recently deserted the Global North will return, creating an opportunity to produce things here that we started importing. It will especially be heavy, low-value products that costly transportation will relegate to local production. Wages in China are rising and will no longer offset long-distance transport costs. Rubin foresees the steel and furniture industries returning to Canada. Alberta won’t likely get much of the steel industry, but should have a plan to get more of the conventional oil parts and equipment business. Canada and its provinces should strategize to attract the most viable industries that return from the low-wage Global South. High transport costs will also lead to relocalization and smaller firms, which by their nature have little capital. This shift will create many more jobs per dollar invested.

An Alternative Future for Alberta

Regional battles over energy and the environment loom. Who will win and who will lose when Canada shifts to a low-carbon future? If Albertans see a positive, job-creating plan that gradually weans their province off the Sands, they will react differently than if they see themselves as the big losers. Peak oil, general resource depletion, climate change disasters and energy security in a post-9/11 atmosphere cast new light on national unity and regional issues.

“Shut down the tar sands,” says Greenpeace. While I agree with the sentiment, it would be a disaster if it happened right away. The Sands are too central to the economy and lives of Albertans. The challenge is to convince many Albertans and the Notley government that the present course is no longer viable, that phasing out the Sands is pro-Alberta and pro-Canada.

The Premier’s Council, a group of corporate executives and former Conservative cabinet ministers, urged Alberta in 2011 to plan for a post-Sands economy. “We must plan for the eventuality that oil sands production will almost certainly be displaced at some point in the future by lower cost and/ or lower-emission alternatives,” the group warned. Despite the council’s pedigree, the call fell on deaf ears. The stick-with-the-Sands crowd still runs Alberta’s economy and may well tame its NDP government.

After flying over the Sands in 2006, Peter Lougheed, the man who started Alberta’s Conservative dynasty (1971–2015), remarked: “I was just up there on a trip, just helicoptering around, and it is just a moonscape. It is wrong in my judgment, a major wrong, and I keep trying to see who the beneficiaries are. Not the people in Red Deer, because everything they have got is costing more. It is not the people of the province, because they are not getting the royalty return that they should be getting.” Lougheed also said it was time to “consider an increase in corporate and personal taxes” and orderly development—not more than two Sands projects at a time. And if the oil companies didn’t like that, he stated, “we are the owner and we have the mandate to do that.” Lougheed advocated processing as much bitumen as possible in Alberta.

The Alberta NDP’s “Green Energy Plan” calls for similar things. Mandating that “at least the value added/upgrading for all bitumen mined in Alberta be done in Alberta,” the NDP also calls for a “Green Energy Fund” based on higher royalties to support renewable energy. It’s a strong environmental and pro-union variant of Lougheed’s strategy. Why did Alberta’s NDP adopt Lougheed’s position? It’s not that Lougheed shifted left after leaving the premier’s office, but that the Conservative Party he led moved so far right. Equally, Canada’s left-wing party, which used to advocate nationalizing the oil industry, something supported by half of Canadians as recently as 2005, has shifted rightward.

The Lougheed/NDP strategy of upgrading and refining resources in Alberta assumes that a narrowly based resource economy cannot afford to wait for markets or corporations to magically discover that Alberta’s comparative advantage lies in diversifying the economy. Instead, they call on governments to lead in creating a comparative advantage beyond extracting raw resources. Lougheed put it this way: “You always have to keep in mind that we’re the owner of the resource, the people. We should always be in a position where we could change the royalty rates....[When I was premier, our government] would not give licences for oil sands development that were just in the mining side, but [would give licences] that required an upgrader. It’s crucial to pace the boom to reduce inflationary pressures and get higher economic rents for the owners and the government.”