Tar & Feathers: Even Investors Should Be Wary of Canada's Dirtiest Oil

This week in Ottawa, Prime Minister Stephen Harper will try to sell
President Obama on a North American agreement on global warming and
energy that shields the carbon-heavy tar sands industry from punitive
measures. He's sure to lobby for an tar sands exemption to Section 526 of
the US Energy Bill, which prohibits federal agencies from purchasing any
transportation fuel whose lifecycle greenhouse gas emissions exceed those
of conventional petroleum sources. His argument will sound something like
this: Canada is one of the few remaining places on earth where oil
reserves are not only abundant (Canada is second only to Saudi Arabia in
oil reserves) but easily accessible to Western oil producers. America
desperately hopes to reduce its dependence on foreign oil and is already
the largest importer of Canadian oil. Why rock the boat; it's a match
made in heaven.

Except that it isn't. While Canada is a much more attractive trading
partner than OPEC, a pact with Canada that fails to penalize the heavier
carbon contributions of tar sands relative to conventional oil is the
equivalent of a public policy that encourages smoking filtered instead of
unfiltered cigarettes because the latter are sold by rascals.
Building the tar sands' presence in the US energy landscape would place a
huge impediment toward President Obama's ability to make progress on the
climate front. Tar sands emit three times the amount of greenhouse gases
than conventional oil does during the production process, and the
end-product burns dirtier as well.[1] Tar sands
operators have no fix for this the dilemma, except to point to carbon
capture and sequestration technology, which is expensive, unproven, and
many years away from widespread application if and when all the kinks are
worked out. Not even industry executives are claiming it's a magic bullet
for neutralizing their climate footprint.

Regional impacts are heavy as well because refining the dense, mucky tar
sands is an enormously resource-intensive process. It requires
either landscape-obliterating surface mining or an energy-intensive
steaming process that is currently drawing from the Athabasca River twice
the amount of water used annually by the population of
Calgary.[2] A total of twenty square miles of
toxic tailing ponds dot the landscape - the same ponds that made
headlines last spring when hundreds of migrating ducks swam into them and
couldn't swim out, and similar to the coal plant holding ponds that
flooded communities across Tennessee in the Tennessee Valley Authority
catastrophe this winter. First Nations communities living downstream from
tar sands operations have reported elevated cancer levels that are under
investigation.

This bad rep has produced a growing backlash not just among
environmentalists and indigenous groups, but with investors as well. Last
June, shareholders at ConocoPhillips and Chevron voted on proposals
calling for greater disclosure on the environmental and social impacts of
the companies' expanding tar sands operations (filed, respectively, by
the authors' firms, Trillium Asset Management Corporation and Green
Century Capital Management). Because many institutional barriers exist
that depress voter support of shareholder-initiated proposals, such
environmentally-themed resolutions are lucky to attain double-digit
support in their first year on the ballot - but these proposals received
nearly 30%. Shareholders, whose motives seldom include tree-hugging or
altruism, are starting to see the word "risk" written all over the tar
sands - not just the risk of litigation or reputational harm, which oil
company shareholders develop a high tolerance for - but the very real
risk that consumers will reject products with such a high carbon output
once the U.S. implements carbon constraints.

Another risk clear to investors: oil price volatility. Because the
process is so expensive, tar sands do not become economical to develop
unless oil prices are $80 per barrel.[3] As a
result of the collapse in oil prices, companies have shelved $230 billion
in planned capital spending on the tar sands.[4]
The Globe and Mail recently recommended that we seize this moment
to reassess the industry's full-speed-ahead approach during boom times.

The risks involved with exemption of the tar sands from Section 526 are
substantial.
President Obama is eagerly setting the US up for long-awaited climate
leadership on the global stage, with plans to introduce a national
low-carbon fuel standard and other carbon-regulating legislation. An
exception made in US policy for the tar sands' particularly dirty oil
will undermine his important efforts to promote clean, renewable
energy.

[1] Ethical Funds. - needs citation.
[2] Pembina - needs cit.
[3] Merrill Lynch - needs cit.
[4] "In the past six months, dozens of companies have
halted, suspended or outright cancelled $230-billion in planned capital
spending, according to the Canadian Energy Research Institute, which
calculated that
Alberta could now produce half as much oil by 2015 as expected a year
ago, at the height of the boom." - NATHAN VANDERKLIPPE Globe and Mail
Update, February 12, 2009