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Features

January 4, 2011

The Tar Sands: Canada’s Dirty Oil Bonanza

by Robin Wylie

Oil Sands

For the last two years, the global Climate Action Network has named Canada the world’s ‘Fossil of the Year’. Canada ‘achieved’ this award by systematically sabotaging the Kyoto Protocol to reduce greenhouse gases. The result has been the practical abandonment of Kyoto, with defined reduction goals, for the voluntary Copenhagen Agreement.

At the heart of Canada’s opposition to fighting global warming is dirty oil – and all the money dirty oil will bring as the global fossil energy economy approaches the peak oil era. So, despite making up only 0.5% of the world’s population, we are the world’s number eight producer of greenhouse gases.

Currently, Canada is among the top ten fossil fuel producers, with energy exports making up 9% of total GDP. With the Tar Sands oil of Alberta, Canada will move into the top five, and become the single biggest exporter to the world’s top energy consumer market, the United States.

To become one of the world’s top fossil fuel producers, Canada is making a dramatic transition from conventional oil (light crude) to bitumen oil production from Alberta’s Athabasca Tar Sands. The National Energy Board (NEB) notes that Canada produces 2.7 million barrels of oil per day, 45% of this being tar sands oil. By 2020, the NEB estimates that Canada will produce over 4 million barrels a day with 80% of this being from the Tar Sands.

To do this, Tar Sands production is to be raised by 1.2 million barrels a day to 3 million plus barrels a day by 2020. This is making Alberta, Edmonton’s Upgrader Alley, and Fort McMurray and the Woods Buffalo Region, the single greatest focus of investment capital in the nation.

But at what price? As Andrew Nikiforuk writes in his book Tar Sands, bitumen oil production raises enormous questions about extraction, production or upgrading, waste, human impacts, and managing mineral resources as a public good.


Externalities or Who Pays for Development?

One of the key ways capitalism operates is to offload costs, and maximize profit; by making others pay the costs of development. Companies do this through borrowing at others’ expense, public subsidies, cheapening the cost of human labour power, and using nature as a virtually free source of materials and a no-cost place to dump waste. The Tar Sands are, unfortunately, an excellent example of how markets ‘externalize’ costs.

The Athabaska Tar Sands potentially contain oil reserves equal to all of the world’s conventional reserves. But the oil is locked up as bitumen, that is, the oil lies in a complex mix of soils that need to be extensively processed before it can be used as a source of energy.

As world oil prices advance, however, ‘externalized’ market economics to extract and process bitumen look more and more attractive. Oil companies, who estimated that 10% recovery in the 1990s was only feasible, now believe that up to 60% recovery is possible, with better technology and oil at $100 a barrel.

But bitumen recovery is only possible by treating nature as an extremely cheap input.

Eighty percent of the tar sands oil is mined by what is called in situ methods. In situ mining consists of steam draining the oil out of the tar sands. This requires three barrels of fresh water for every barrel of heavy oil created. This water is drawn from the Athabaska watershed system, at virtually no cost through a provincial licensing system.

Once the oil slurry is created, it is processed to remove the oil. The now contaminated water is then piped to a tailings pond. These tailings ponds, a noxious brew of life threatening chemicals that exceed water quality standards by three to four times, become a permanent toxic dump which have unknown effects on groundwater and the surrounding ecology (such as migrant fowl).

In fact, in contrast to fifty square miles of tailings ponds, only 0.2% of the mined land has been certified as reclaimed.

The bitumen oil that has been extracted is then re-manufactured to remove carbon and add hydrogen to make it the equivalent of conventional oil.

To do these two operations, it is estimated that in future 20% of Alberta’s natural gas will be required, a fact that adds more carbon emissions – including acid rain in Northern Saskatchewan’s lakes.

To offset how much carbon is released by heavy oil manufacture, the federal and provincial governments have committed to a Carbon Capture Strategy (CCS), i.e., to burying increased carbon emissions in the ground. But this is an unproven technology, with questions about costs, leakages and groundwater-soil impacts that have no answers.

Such is the demand for natural gas at the Upgraders, there is a government discussion to build CANDU nuclear reactors to provide a ‘clean’ energy alternative to burning natural gas in the manufacture of heavy oil.

As Nikiforuk points out, nuclear power comes with its own cost burdens: extensive public subsidies for extremely expensive capital projects, water withdrawals, waste management, and a history of regulatory neglect as witnessed at Ontario Hydro.

Then are the human impacts – on aboriginal communities and on the heavy oil work force.

As Nikiforuk reveals, there has been persistent anecdotal evidence of deformed fish and abnormal cancers among Fort Chipewyan people who live off the land – which governments refuse to systematically examine. There is also a question about community divisions as some Treaty 8 leaders have formed their own oil sands companies to participate in the boom.

Fort McMurray, from a few thousand people, has now grown in the last generation to over 100,000. This has put extraordinary pressures on the cost of housing, a lack of services in education and health, and created an alienated culture where drugs and violent behaviours, especially spousal abuse, are rampant.


Petro-Politics

The Tars Sands are the primary national investment project of the 2010s. Virtually every major oil company from East Asia, Europe, and the United States has committed over $200 billion to 91 projects. At a conservative estimate, this investment is equal to 15% of Canada’s total GDP.

This is big money and it draws government protection, beginning with one of the lowest royalty tax regimes on the planet and concluding with one of the most laxly regulated energy industries among developed countries.

Given Canada’s decentralized federal political system, where provinces are the primary owners and regulators of natural resources, the province of Alberta is the chief public custodian of the Tar Sands.

Alberta has responded to this duty by enacting an extremely low royalty tax regime.

Alberta historically followed a low regulation, low tax regime – from Social Credit, who established the Energy Resources Conservation Board, the chief regulatory agency, to Peter Lougheed’s Conservative regime of the 1970s, which did establish an oil tax based Heritage Fund (with 33% of provincial royalties deposited for long term investment purposes), and a public oil corporation, Alberta Energy. In 1987, however, the province ceased putting oil revenue in the Heritage Fund and, in 1996, sold off Alberta Energy.

If the Lougheed regime did practice some state intervention, it kept royalties to a maximum of 40% of oil industry revenues. In comparison, developed nations have royalty regimes from 52% (United Kingdom) to 76% (Norway – where over 90% of royalties are put in a Heritage Fund).

Since the Klein Conservative era of the 1990s, and the 1996 ‘Declaration of Opportunity’ policy, Alberta’s royalty rate has fallen to 15% of revenues. Oil Sands revenue that is in development, which all companies claim to be in, is taxed at only 1% of revenues.

Alberta politicians on oil investment tours abroad in fact proclaim that the province’s oil management policy is ‘to give away’ the resource. Is it little wonder that despite having one of the world’s greatest oil reserves, the province actually faces a debt crisis – for public infrastructure to support oil industry activities?

The other public policy dimension to the Tar Sands industry is the lack of comprehensive and systematic environmental monitoring. Even the Royal Society of Canada in its 2010 special report on the Oil Sands, a green wash account of the industry, had to state that neither the provincial nor the federal government collected information on this transformative industry, let alone regulated it.

One other broader political consequence of a resources boom is the impact on democratic governance. As many students of Alberta politics have pointed out, oil revenues free governments from accountability.

In the context of an oil boom, the level of employment and public subsidies are quite high for ordinary citizens. Even better, governments don’t have to tax. Witness Alberta being the only province with no sales tax as 30% of public revenue comes from energy royalties. This also means that there is money to build extensive client networks among local elites and to buy votes at elections with tax and cash rebates.

Such an atmosphere tends to produce disengagement. Only 40% of the electorate even bothered to vote in 2008, the lowest electoral participation rate in major Canadian elections since confederation.

In such a stable environment, provincial governments tend to be extremely long-lived and very authoritarian – especially on the question of regulating the goose that laid the golden egg of energy revenues. This makes external regulation a major priority.

But, when one gets federal government that is rooted in Alberta petro-politics, as the current minority Harper Conservative government is, there is even less pressure on Alberta to treat oil as a public good - with no plans for a national Heritage Fund or an energy development policy. In fact, one could argue that Petro-politics have begun to influence national politics with sales tax cuts funded by heavy oil royalty revenues.


What Could Be Done?

As Nikiforuk, and many previous energy critics, have argued, planning is the keystone to any rational energy policy.

A more gradual development of Canada’s heavy oil resources would allow for a rational environmental impact assessment process, better supports to aboriginal and resource community workers, and for treating one time only mineral resources as a source of capital for the development of renewable energy sources, while minimizing the disruptive impact of a resource boom (and bust).

But don’t expect Canada’s political elites to go down that road. Western Canada’s business class engineered a transformation of Conservative politics in defence of market energy development after the Trudeau Liberals introduced the National Energy Policy (NEP) in 1980. This defence resulted in the Mulroney Conservatives abolishing the NEP in 1985 and the rise of Reform and today’s Harperite Conservative governments.

Some Conservatives even threatened separation with the current Prime Minister arguing at one point to "wall off" Alberta from the rest of the country if planning reappeared.

Neither the Ignatieff Liberals nor Layton’s NDP have even raised the planning argument in deference to what they perceive as the dominance of market forces and ideas as a result of these experiences. But raising the argument for a planned energy economy is critical to the health of the majority, both humans and nature.