Inspired by Prime Minister Justin Trudeau’s musings last week about an orderly phaseout of Canada’s tar sands/oil sands, two CBC business reporters from Calgary are grasping for the third rail of the country’s energy politics, asking what it would take to shut the industry down.
The spoiler is in the subhead to the story: “If oilsands production were to stop,” CBC notes, “it won’t have much to do with government action.”
Tracy Johnson and Kyle Bakx open with the conventional wisdom that the tar sands/oil sands are too big and important to shut down—the predominant view, they say, that helped Alberta’s business community absorb Trudeau’s comments at a Peterborough, Ontario town hall meeting with “not much of a ripple.”
“To phase it out would take many, many decades,” said Martin King, director of institutional research at GMP FirstEnergy. “It’s such a huge revenue and economic generator, not just for Alberta, but the whole country. They pay a lot of royalties and taxes. There’s a lot of Canadian technology, a lot of steel, a lot of smart people from out east, from the west coast. It’s not something that is going to be phased out in very short order.”
In his response to Trudeau’s original statement, Greenpeace Canada’s Keith Stewart noted that “no one, including Greenpeace, is saying shut down the oil sands tomorrow. What we are saying is that if Trudeau is serious about his commitments to fight climate change and respect Indigenous rights, then he can’t grant pipeline permits that lock in a massive expansion of oil sands production.”
But Johnson and Bakx write that the investors behind the tar sands/oil sands “went through an arduous and expensive review process and spent billions of dollars because oilsands projects last for 30 years or more and there is time to recoup their investment. Canada’s reputation as a place to invest would be destroyed if the rug were pulled out from those companies.”
The other issue, CBC notes, is the cost of decommissioning tar sands/oil sands facilities—a number that has yet to be calculated, but begins in the tens of billions of dollars.
The second factor shaping the future of the tar sands/oil sands is when global oil demand will peak. The International Energy Agency expects that day to come in 2040—or to accelerate to 2020, if countries are serious about their commitments under the Paris Agreement. Either way, Canada’s expensive bitumen production will be an early victim as falling demand drives down oil prices.
“It’s more expensive [to produce], and when consumption declines, the price of oil will also decline, so Canada’s oil will not be competitive when other countries start getting serious about reducing their emissions,” University of British Columbia political scientist Kathryn Harrison told CBC.
“If we’re really in a peak demand world and we’re moving towards other technology or transportation, then, yes, there’s going to be a phase-out for higher-cost sources of oil,” agreed Eurasia Group CEO Robert Johnston. “But if not, and if demand keeps growing in emerging markets, and other sources of oil are politically unstable, then it’s not going to be phased out.”
(In the last 11 months, analyses by Bloomberg New Energy Finance, Fitch Ratings, Deloitte, and fossil industry consultants Wood Mackenzie have all pointed toward the bottom falling out of the market sooner, rather than later.)
In the Globe and Mail, columnist Gary Mason was critical of activist-actor Jane Fonda’s celebrity visit to the tar sands/oil sands, but had much more patience for Trudeau’s remarks at the Peterborough town hall.
“The fact is, the Prime Minister is right. There is increasing pressure on all countries to reduce their emission footprints and evolve to a low-carbon future,” Mason wrote. “It is something wise governments need to be thinking about now, instead of adopting blinkered reliance on one industry in the way Alberta does today with oil. The latest downturn in crude prices should have been all the evidence the province needed of what happens when there is outsized trust on a single resource, the value of which you can’t predict.”
In a separate post in the Globe, meanwhile, Fonda made the case for her Alberta visit last week.
“Even if we do everything needed to make a managed and compassionate transition to a low-carbon economy, climate change that we have already caused will have a dramatic effect,” she wrote. “We will experience an escalation in an already severe refugee crisis, experience more forest fires like the one last year that brought such heartbreaking devastation to Fort McMurray, longer droughts, more storms, hurricanes, tornadoes, flooding, the disappearance of entire island nations and coastal cities, and the extinction of numerous animal and plants species. And that’s a best-case scenario.”
Against that reality, “I was stunned when the PM approved two new pipelines that would bring tar sands oil to British Columbia and to Wisconsin, traversing through Indigenous territories and waterways,” she added. “Now Mr. Trudeau is considering working with Donald Trump, our Perpetrator-in-Chief, on reviving the Keystone XL pipeline…
“I, like many others, struggled to understand how Canada’s Prime Minister could make such damaging approvals in a time of reconciliation and tremendous climate crisis, so I went to Alberta to stand with First Nation leaders at the source of these projects to add my voice to the many who oppose these decisions.”