Companies extracting synthetic crude from Athabasca bitumen can probably stand to measure the social cost of carbon emissions—but only if accounting is focused limited to their production emissions, and if consumers, government, or the environment pay the cost.
Otherwise, say two Alberta researchers, it’s game over for the tar sands/oil sands.
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“Any future oilsands projects are likely not viable if the social cost of carbon (SCC) is fully incorporated into their costs,” JWN Energy reports. If producers bear most of the costs from life cycle emissions, energy economist Andrew Leach and University of Alberta School of Business colleague Branko Boskovic found, new production will be uneconomic “even under optimistic future price forecasts.” Projects will be feasible only “if most of the carbon costs associated with refining and combustion are borne by consumers, or if they remain external to both producers and consumers.”
In other words, the two write, the future viability of tar sands/oil sands operations “depends on an assumption of limited action on greenhouse gases, or on the costs of those actions being borne largely by oil consumers.”
Their research examined a range of estimated social cost of carbon values, from $11 to $105 a tonne, with a mean value of $36. “At that rate,” JWN explains, “a regulation that prevented one tonne of CO2 emissions would generate $36 in benefits.”
If the levy were applied to production emissions only, the effect on the sector’s viability would be small, even with the highest SCC calculation. “However, when carbon pricing applies to life cycle emissions, including from refining, transportation, and combustion, with costs borne by the producer, the effect becomes significant,” Leach and Boskovic determined. “At the typical SCC rate, the project would require sustained pre-carbon tax WTI [West Texas Intermediate] oil prices of $100 to earn a typical investment rate of return of 10%.”
The study comes at a time when Canada is inching toward a national price on carbon and, as JWN notes, “many of the super-majors have sold oil sands properties—including Royal Dutch Shell, ConocoPhillips, Marathon Oil Corporation and Statoil—while Chevron and Total SA are said to be looking to divest oil sands assets.”