End of an oilsands love affair

In less than 20 years, the oilsands have gone from nearly unknown to inspirational to intensely divisive. The journey reveals much about both the future of the energy sector and the potential of the environmental movement to make change. At its heart lays a single pipeline project — Keystone XL. 

By: , /
October 15, 2015
Simon Prades

Passers-by stopped to stare; Ralph Klein did not. The onlookers must have been astonished as, overnight, the world’s largest mining truck took up residence on the Washington Mall, a stone’s throw from the U.S. Congress. Half the height of the White House itself, the truck could comfortably fit an entire mid-sized car in each wheel.

This mine truck, parked in downtown Washington in the summer of 2006, was a triumph of political salesmanship by Klein, then Alberta’s populist pro-business premier, in support of his province’s oilsands industry. He had watched trucks exactly like this one many times before, in the company of foreign dignitaries and magnates, accompanying them as they toured the deposits near Fort McMurray. He was used to the size, scale and shape of truck. He had seen dozens of them in tandem motion, as, one at a time, they would receive staggering shovel loads of sticky black bitumen mixed with sand, and drive their 300-to-400-tonne payloads out of man-made canyons to dump the bitumen into a gigantic centrifuge. In his time as premier, he had seen the enormous tailings pools in the north of his province fill with a mixture of water, sand, oils and clay. He had witnessed the high-temperature alchemy that transformed the tarry bitumen into some of the world’s lightest and sweetest crude, along with the denser mixes of dilbit, synbit and a host of other products called oilsands. More than anyone, he knew the royalty potential of the oilsands, the jobs and the opportunities they meant for Canada, the U.S. and especially Alberta. If only more investors would come. If only the markets could be secured. 

Klein did not stop and stare because he was responsible for the truck being on the Washington Mall and he had business to attend to — on this particular occasion, selling Alberta’s oilsands at the Smithsonian Institute’s annual Folklife Festival.

Klein called upon U.S. business leaders and politicians to look to their friendly neighbour to the north for energy security.

At the height of the first Gulf War, Premier Klein did the rounds in D.C., at a time when it was dominated by Texans, getting the message out that the province and its oilsands were ‘open for business.’ Back then, the potential of the oilsands was known to energy insiders but it was completely off the map for the wider public. Klein called upon U.S. business leaders and politicians to look to their friendly neighbour to the north for energy security. He presented the oilsands as a symbol of the special relationship between the two countries. He pointed to the massive mine truck as the embodiment both of the scale of the potential resource and the innovation needed to unlock it.

What Klein likely did not expect is that the heavy hauler would be the call to arms for what has become the most significant battle between environmental groups, policymakers and the fossil fuel industry this decade — the battle over the Keystone XL pipeline.

Nearly a decade later, in February 2015, U.S. President Barack Obama said would personally veto a bilateral bill to approve the Keystone XL pipeline. That a sitting U.S. President would engage himself in infrastructure decisions is surprising. That he would come out against it, in spite of personal appeals from the prime minister of his country’s closest ally and in opposition to members of his own party, is astonishing. More recently, in mid September, U.S. presidential candidate Hillary Clinton declared she, too, opposed it, and not with business or domestic issues in mind. “I don't think it's in the best interest of what we need to do to combat climate change," she said.

Some activists are already declaring victory. After Obama’s veto, Greenpeace U.S. Executive Director Annie Leonard noted that the president only needs to instruct the State Department to “put the final nail in the coffin of Keystone XL.”

But, with oil worth half what it was a year ago, Keystone’s importance to the growth in the Canadian oilsands industry has grown even as the case for it has been eroded by a glut of U.S. shale oil. Current Canadian Prime Minister Stephen Harper and Liberal Party leader Justin Trudeau, who face election Oct. 19, both support the project, with Harper stating during a leaders’ debate in late September that Keystone’s "adoption is inevitable.”

Still, a shadow of fear has crept over Alberta this past year. Could the oilsands’ moment have come and gone? And is there any way to reconcile the imperative for curbing global greenhouse gas emissions with continued development of Canada’s oilsands?

Pundits speak in knowing terms of how the Keystone XL pipeline decision will profoundly change both the oilsands and the environmental community.

The reality is that it already has.

How the boom began: From “no dice” to “no brainer”

At the dawn of the 21st century the oilsands were known in the industry as a sure place to find oil — and to lose money.

This began to change when “supermajor” Shell announced in 1999 that it would move forward on the first new oilsands mine in 20 years. At the time, two mines and one steam injection project collectively produced about 700,000 barrels a day of crude oil, dwarfed by conventional production from the rest of Canada.  Regardless of their vast scale, no one was beating a path to Northern Alberta. 

Shell itself had twice sent the project back to the drawing board. Concerns included the big upfront investment with uncertain returns, and the potential negative reaction from environmentalists over the project’s greenhouse gas emissions. In context, these concerns make sense. At the time, oil prices were at about $10 per barrel in today’s U.S. dollars, and some thought it likely they would fall to as little as half of that. Natural gas, which is the main input for separating oil from the sands, was about twice as expensive as today. At the time, the world appeared poised to make firm commitments on carbon, with the European governments set to launch an international emissions trading system in 2005. Shell’s play was high risk, and everyone on the project team knew it.

What motivated Shell to take the risk was a contrarian insight: the oilsands’ business case is the opposite to the oil production business case in almost every other part of the world.

Most of the world’s remaining recoverable oil lies in inhospitable environments (i.e. deep under the ice and waters of the Arctic) where drilling an accurate hole into a known reservoir is almost impossible. Or the oil is in countries where big publically traded oil companies are unwelcome. Big international oil companies bring technical expertise and financing, but also potentially unwelcome transparency to regions where oil production should benefit the monarchy not the shareholder. In the few situations where independent oil companies are allowed to operate, they usually only get a “postage stamp” fee of a few dollars a barrel for delivering oil from the ground to a local refinery or port. So reducing costs does not mean making more money, and technology investment is a low priority. On top of this, investments are subject to the whims of national and family politics. 

In contrast, Alberta’s oilsands are a vast and well-delineated resource, virtually no ‘dry holes.’ With its stable democratic government, independent judiciary, and transparent tax regime, Alberta has little of the political uncertainty that marks many other possible opportunities. This makes oilsands a sure bet to balance riskier plays in a portfolio.

What distinguishes the best oilsands projects from the worst is the quality of the sands acquired for development, and the execution of the project to extract the bitumen, with its combination of financing, technology, management and refining strategy. This favours deep-pocketed, sophisticated companies over small debt-leveraged entrepreneurs, or lumbering politically-motivated state behemoths. And the technology upside in the oilsands is tremendous. If you can figure out a way of getting oil out of the oilsands more cheaply, you keep every dollar of that cost difference.

In spite of the attractions, a series of technological and financial innovations were needed before Shell and others would come to the table with the necessary megascale investments. Here, the government in Alberta showed more foresight and gumption than nearly anywhere else in the world.

In 1974, Alberta’s government established an arm’s-length organization, the Alberta Oilsands Technology and Research Authority (AOSTRA), to develop technology for getting oilsands out of the ground and transforming them into valuable products.  Today AOSTRA is the stuff of legends. It is often, and rightly, applauded for being a model of industry-government collaboration. The keys to its success included its political support, its independence and its single-minded focus on advancing the oilsands. 

Unlike the large oil companies who spread their research dollars across many opportunities, AOSTRA had the single goal of making the oilsands viable, with the aim of generating jobs and royalties in Alberta. As a consequence, AOSTRA could go it alone and invest when companies would not. This marriage of industry, politicians and academics allowed the organization to toil for well over 10 years spending the equivalent of over $1 billion in today’s money from the public purse, considerably more if contributions-in-kind from industry are tallied up. AOSTRA developed many of today’s dominant oilsands production technologies, including the in-situ thermal process for recovering resources too deep to mine. Many of its alumni sit in prominent positions in the oilsands sector today. AOSTRA also had a direct voice in all policy discussions:  it was required to have one board member as a sitting member of the Alberta legislature, while the other directors had extensive industry and academic experience.

Advancing the technology was necessary but not sufficient. To make the oilsands economically attractive, a new fiscal regime would be needed, that could balance the interests of Albertans with the need to overcome the cost barrier and uncertainty associated with deploying these novel technologies.

In 1993, the Alberta Chamber of Resources convened the National Oilsands Task Force, representing industry and government to draft such a framework. Its 1995 report set out a 25-year game-plan for growing the sector to a then-ambitious 1.2 million barrels per day of production by 2020, through a generous royalty regime and favourable federal and provincial tax breaks. These were adopted in 1997. While the original SAGD patent — the technology for developing the deep, previously uneconomic oilsands reserves — was awarded in 1969, the implementation of these incentives were likely helpful in enabling its first commercial deployment in 1996.

Even with this technological and fiscal support, many thought Shell’s oilsands mine would be a bomb.

But oil prices soon spiked, led by China’s dizzying growth, while natural gas prices began to fall. By the time Shell’s project got over its initial hiccups, Shell and its partners were well in the money, and oil companies from around the world started piling in.

Under pressure from Alberta’s leadership, the U.S. Energy Information Agency and the influential Oil and Gas Journal reclassified the quantity of economically recoverable bitumen.

And, with a stroke of a pen, Canada’s oilsands became the second largest single-reserve in the world next to Saudi Arabia.

Premier Klein’s message had found receptive ears in the investment community. Between 2006 and 2008, global markets and world oil prices continued their dizzying rise, and each week brought new dollars to Canada’s oilsands. Production from the oilsands was forecast to grow from roughly 1.2 million barrels per day then to roughly 3 million barrels per day by 2015. Some suggested that on the back of the oilsands, Canada could eventually meet 40 percent of U.S. oil import demand.  From about 2000 through the financial crisis of 2008, oilsands fever was a reality.

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Enter Keystone, and the environmentalists

A roster of blue chip projects were in line to produce the oilsands. With that in mind, TransCanada was being sensible when in 2008 it proposed a dramatic expansion of its Keystone pipeline project to the Gulf Coast. Its refiners increasingly needed to buy Canadian bitumen, and the Midwest was becoming oversupplied.

Refineries are designed for a narrow diet, a specific mix of inputs with limited variance, which they convert into a slate of products: gasoline, diesel and jet fuel. Many of the refineries in North America are built for heavy oil such as the oil produced in Canada’s oilsands, in Venezuela, or in Mexico. But a combination of political intervention and state sponsored mismanagement meant that production in both of the Latin American countries was becoming increasingly unreliable, a curse word in the oil industry. The refineries were willing to pay a significantly better price for Canadian heavy oil if it could only find a way there. The only bottleneck was the limited pipeline capacity. At the same time, light oil production from the U.S. was growing quickly, and infrastructure to move this was simply unavailable. By carrying both, expanding Keystone would scratch a lot of backs. 

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It was no wonder then that in 2011, hailing Canada’s rise as an emerging “energy superpower,” Prime Minister Steven Harper called the approval of Keystone XL by the U.S. State Department a “no-brainer.” 

Premier Klein’s salesmanship ignited the imagination of the global investment community, but also captured the attention of the international ENGO community (Environmental Non-Governmental Organizations). These environmental advocates saw the oilsands as “Canada’s single largest contribution to global warming,” and the physical proximity of the mine truck to the White House as a clear indication that both the U.S. and Canada were doubling down on what they viewed as dirty oil.

Oilsands are megaprojects in a democracy. Their footprint and financials can be viewed by anyone with access to the internet. Because of the enormous size, and the geographic proximity of one project to the next, they are uniquely un-photogenic. And in terms of public trust, survey after survey has oil companies ranking at the bottom.

It is no wonder that ENGOs did not focus on pipelines at the start of the campaign, but rather on well-known oil companies and their iconic megaprojects. Initially, they drew attention to the scale of development in the oilsands and to the local (First Nations) and global (climate change) repercussions. The aim here was to raise legitimate concerns about the pace and scale of development and their impacts on host communities, to close gaps in regulation that were demonstrably subsidizing oilsands development, and to call out the increasingly-blatant inconsistency between Canada’s international carbon reduction commitments and the rapid growth in emissions from this one sector. 

Tactics included tallying up carbon emissions, benchmarking crudes from around the globe against those from Northern Alberta, and forecasting the total expected footprint of oilsands on globally significant watersheds and migratory birds. ENGOs began drawing attention to the ever-growing risks posed by seepage or failure of the tailings ponds, held in place by some of the largest earthworks dams in the world, to downstream communities. Effective interventions in the project-by-project review process governing mines and thermal projects served to create costly delays, to widen the set of environmental aspects under consideration, to force assessment of the cumulative effects of development, and even to ratchet up environmental performance obligations in operating permits.

Other groups targeted national and global public opinion. ENGOs engaged in street-level protest, media-friendly direct actions like street theatre and costumed sit-ins. Some groups conducted commando-like raids into the oilsands projects themselves, where activists scaled oilsands infrastructure to unfurl massive banners for aerial photographers.  

These efforts kept the environmental risks posed by oilsands in the public spotlight, but offered only modest returns; the public reviews did not result in a single project being denied permission to proceed.  ENGOs continued to engage diligently with the scientific community, forecasting that cumulative environmental impacts would surpass regional statutory limits and accelerate the decline of ‘at-risk’ species. But these findings would be insufficient to drive rejection of individual projects. And while interveners could delay projects, dent economics, and ratchet up regulations over time, they were unable to curb the appetite for new oilsands projects as crude prices continued to climb.

The coming tide of bitumen meant that a vast network of oilsands export pipelines, including Keystone XL, and a significant retooling of the U.S. refinery fleet, would be needed. This set off alarms. The price tag for this enabling infrastructure was a staggering US$379 billion. ENGOs and their advisors became increasingly concerned that, once built, this huge capital outlay would lock North America into a high-carbon trajectory for generations to come.  

This is when activists began to innovate:  ENGOs would go for the veins and arteries instead of the heart. 

Increasingly ENGOs began to target oilsands’ access to markets, and finance. An example of the former was opposition to BP’s planned retooling of the Whiting Refinery, in Illinois. In part due to sustained campaign pressure, the project was delayed for three years in regulatory reviews, and reported US$1­billion in additional costs. Advocacy groups would also support a set of legislative measures in the U.S. and EU, lifecycle-based fuel standards that sought to penalize crude imports with a disproportionate upstream footprint in favour of lower-emission alternatives. 

On the financial side, ENGOs began to publicly link banks and other investors to the oilsands and their associated environmental and social impacts. The aim was to increase the cost of capital for oilsands and related pipeline projects, by elevating the reputational risks to the banks, and by forcing these financial supporters to scrutinize risks with more vigour. In one famous example, ENGO activists unfurled a two-storey banner in front of the RBC head office pleading with the wife of RBC’s CEO to talk to her husband about investment in the oilsands.

In 2010, the U.S. Senate killed the national carbon cap-and-trade bill, which had been the focus of the U.S. environmental community. With U.S. cap-and-trade all but dead, environmentalists started looking for a winnable fight. Emerging analysis suggested that it would be necessary to keep 80 percent of the known reserves of oil, gas and coal in the ground to stop dangerous climate change.

It was this “terrifying new math,” as described by activist Bill McKibben in the pages of Rolling Stone, that had motivated him to convene what has since become the largest series of environmental protests to date, starting with a mass rally and arrest in D.C. targeting the State Department’s Keystone XL review in 2011.

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A fight on four battlegrounds

When it comes to pipelines, there are many distinct entry points for determined monkey wrenchers. Because they impact many landowners, each with potentially diverging concerns regarding safety, environment and commercial arrangements, a pipeline like Keystone XL offers multiple avenues for opposition.

The battle over the Keystone XL pipeline would be fought in at least four distinct domains.

A first battleground was over risks to the safety and local environment of those landowners and communities that would have a pipeline in their backyard. By 2011, a plague of well-publicized pipeline spills and leaks had undermined U.S. public trust in pipelines, and in particular in Canadian pipeline companies trafficking in oilsands. TransCanada’s peer, Enbridge, was the owner of the pipeline which in 2010 released bitumen into the Kalamazoo River, becoming infamous for the most expensive onshore spill in U.S. history and what an independent review labelled a “Keystone Kops” response. While it is perfectly true that pipeline safety and integrity is a high priority for oil transporters, and that 99.9995 percent of liquid hydrocarbons transported by pipeline was done so safely over the last decade, no land owner or community on the route wants to be one of the .0005 percent.

As a consequence, TransCanada found itself stymied by an unlikely alliance of conservative libertarians, local and national environmental activists in Nebraska, who gummed up their efforts to secure a right of way through Nebraska’s Sand Hills region, over the sensitive Ogalla aquifer.

A second battleground was over the extent and allocation of economic benefits from the pipeline.  Most oil projects, pipelines included, take massive manpower to build and little to run. Keystone XL itself is forecast to create 1,950 construction jobs. Once complete, only 35 permanent American jobs according to TransCanada. Jobs not only factor into the economic well-being of a country, but they figure strongly in a time when economic disparities are the subject of bestsellers and — as we have witnessed recently — elections. 

As for the wider economic dividends, the oil transported to the Gulf Coast would be refined there. Much would be consumed in the U.S., which could lower the U.S. consumers’ price at the pump somewhat. Outside of property tax paid by TransCanada, the economic activity, taxes and jobs associated with the operation of the pipeline would be localized to the refineries on the Gulf Coast. But the lion’s share of the benefits would arguably go to the oilsands producers back in Alberta. President Obama would say in late 2014, “I think there has been this tendency to really hype this thing as some magic formula to what ails the U.S. economy and it is hard to see on paper where they are getting that information from. It’s very good for Canadian oil companies, and it’s good for the Canadian oil industry but …it’s not even going to be a nominal benefit to U.S. consumers.” 

A third battleground is politics. For Republicans, Keystone is a ‘wedge’ issue that pits organized labour against environmentalists, weakening the Democrats.  The Republican Party positions the pipeline as an engine of economic growth (tweeting about the #KeystoneXLJobs bill, for example), and presents the Obama Administration as opposing job creation at a time of high unemployment. On the other side, Democrats use the threat of approval of the pipeline by Republicans to mobilize pro-climate voters.

The final battleground is environmental.

The final battleground is environmental. Keystone’s direct environmental impacts, assuming no spills or leaks, are pretty similar to that of the thousands of kilometers of other large pipelines running throughout North America. So when advocates against Keystone talk about the environment they are actually drawing attention to the full lifecycle of a barrel of oil, from the decline of Caribou in Alberta’s boreal forests to the greenhouse gases associated with driving a car.

This position would be criticized loudly and repeatedly. Win or lose, it was argued, the pipeline won't in itself materially change global carbon emissions, and so the protesters have been seen as misguided.   

Yet these criticisms may betray a misunderstanding of the catalyzing power of the oilsands and this pipeline. As a senior journalist from Time magazine put it, questioning activists in their choice of Keystone as a target is like telling Rosa Parks that it was wrong to go after the bus system in the fight against segregation.

Advocate Bill McKibben agrees:

“This pipeline…won’t by itself kill the climate…What we’re trying to do is send a message to stop exploitation of unconventional fossil fuels…and this is the clearest place to make the fight.”

The pipeline has been a uniquely powerful unifier of voices across borders and sectors, and just as powerful a divider.

And, in the meantime, oil prices today have fallen to half of what they were just a year ago.

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Reports of My Death are Greatly Exaggerated

Activists claim to be winning the fight. Maybe they are, but it is usually premature to call a fight before the final punch is thrown. What is clear is that the oilsands are in a crisis. Every week of 2015 has brought another announcement of oilsands project delay or cancellation, layoffs and consolidation, and with it triumphant ENGO statements regarding the imminent extinction of oilsands. The Natural Resources Defense Council suggests advocacy groups and supporters take a celebratory bow. “By delaying the proposed Keystone XL pipeline, which would ship tar sands oil across the Midwest to refineries on the U.S. Gulf Coast, [you] have helped make digging up Alberta’s boreal forest an increasingly bad investment.” 

The reality is that oilsands’ current lull is driven by a combination of low oil prices, spiraling project costs, and continued pipeline opposition. But whether untapped bitumen reserves remain permanently in the ground depends mostly on the demand for fossil fuels. A drop in oil prices actually incents people to use more oil, precisely the opposite of the environmentalists’ intention that the world step into Teslas, onto public transit or ride their bicycles. Stopping Keystone does nothing directly to affect the demand side of the equation. 

If oil prices swing back around, as they are more than likely to do, the survivors of today’s malaise will have found new techniques and technologies to bring these projects back into contention for investment. Some projects may even come back into play thanks to the fall in land, labour and supply costs in Northern Alberta.

Adding to this challenge, producers will not simply turn off the taps. Production of bitumen at the end of 2015 will almost certainly be higher than it is today, in spite of the low oil price, and by 2020 higher still. This rise in production will continue until the backlog of projects partway through construction get ‘worked through.’ Surprisingly, existing projects are far cheaper to keep in production than to shut in. The steel, concrete, and giant yellow diesel toys have been paid off. With comparatively little investment, these projects can be kept operating for generations. Indeed, it is possible that companies will never shut-down some of these projects, since the ever-escalating cost of full reclamation would land like a bomb on their balance sheets.  

A cap on pipelines, if a Keystone rejection inspires more such rejections, is in reality only a cap on the pace of extraction, and is neither a cap on emissions or production. The total amount of oilsands that is ultimately produced, and thus the emissions, is likely to be around the same and will simply take a lot longer. Projects will just source bitumen from further afield and with different recovery enhancements, to keep the existing pipelines and refineries fully supplied. So long as willing buyers of the product can be found, the current roster of mines and thermal plants will continue to chug along with the economics of the business shifting from growth to boring utility-like returns.

Outside of the pace of production, nothing fundamentally will change — no assets will be stranded — unless the framework governing both production and consumption is transformed.

Today’s low oil prices are far from a final nail in the oilsands coffin.

Today’s low oil prices are far from a final nail in the oilsands coffin. As Mark Twain once remarked “reports of my death are greatly exaggerated.” The environmental community may win the Keystone XL battle and celebrate a symbolic victory, one which adds fuel to the oil divestment campaign and strikes fear in the hearts of pipeline developers everywhere. But this victory is in reality at best a pause. Whether it can be translated into a lasting change that keeps carbon out of the atmosphere will depend on whether a wider resolution of the tensions between fossil fuel dependence and climate limits can start to emerge.

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Shifting sands, transformative technology

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As the Keystone XL debate enters its final chapter, it is clear that Premier Klein’s advocacy nearly a decade ago helped lift the question of oilsands growth from Alberta into a question of national significance in the U.S. It has transformed the tactics of the ENGO climate campaign, transmuting the pipeline into a headline-grabbing proxy war over climate policy, and a rallying cry for grassroots protest. Yet while ENGOs have slowed the momentum of the industry, they have not stopped it. Oilsands production will still grow to 2.3 million barrels a day by the end of 2015, and many of the bottlenecks to market access that inspired the Keystone XL proposal have been resolved in the interim.

Keystone still matters to both Canadian and U.S. governments since this large pipeline would make access to tidal waters cheaper than trucks and barges, and possibly less risky than rail. If built, it would certainly improve the economics of existing projects, and potentially lift some suspended projects out of the mothballs. That result, however, seems increasingly unlikely.

In Alberta, change has already come, with the end earlier this year of a 40-year monopoly on power by the Conservative Party. Driven by a collapsing oil price, by the calamitous decline in resource revenues, and by the inability of the Conservatives to meet earlier campaign promises, the spring election placed a left-leaning, climate-friendly New Democratic Party (NDP) in charge of the oilsands province.

Similar changes are possible at the federal levels, with both the U.S. and Canada going to the polls over national leadership —Canadians just days away from the Oct. 19 vote — and momentum is building towards the Paris Climate Conference at the end of next month. The Keystone debate, once based on two camps on concrete and opposed bases, is moving onto shifting sands.

One consequence of political change is that Alberta’s leaders will no longer reflexively support new oilsands infrastructure and production. Another is they are getting more serious about carbon emissions. 

In 2007, the Alberta government imposed a carbon price of $15/tonne on 12 percent of large emitters’ greenhouse gases, becoming the first jurisdiction in North America to do so. In spite of the criticism it has received, Alberta’s Specified Gas Emitters Regulation (SGER) remains in place while other more ambitious policy efforts have withered on the vine. Among its first acts, the new government in Alberta has doubled the stringency of the reduction target to 20 percent and increased the price of compliance to $30/tonne.

The funds collected for emissions have been placed into an investment fund that has placed over CAD$1 billion into innovative carbon reduction projects and technologies, roughly double that amount if you include funding from other sources. Through its ‘Grand Challenges’ approach, Alberta’s carbon funds are also being used to incent a global competition to crack one of the greatest challenges impeding progress on carbon emission reductions, the pathway to transform CO2 from a waste product into an economically-valuable commodity. The intent is that Alberta will host the groundbreaking early deployments. The punch of this fund will be greatly enlarged under the amended regulation.

Responding to the unprecedented pressure and uncertainty plaguing them, oilsands developers are, haltingly and unevenly, developing a new approach to innovation, and potentially, establishing a new and better template for resource development.

In 2007, a small group of leading oilsands developers established the Oilsands Leadership Initiative (OSLI),  “to achiev[e] tangible improvements in environmental, social and economic performance through collaboration and technological innovation.”  Their insight was that environment was a collective problem that requires collaboration and not competition; there was no incentive to “win” environment. These companies chose to collaborate rather than compete, something that is rare in any bottom line-focused industry. OSLI became the springboard in 2010 for the launch of a novel collaboration encompassing virtually all of the major project developers to accelerate deployment of new environmental technology, the Canada’s Oilsands Innovation Alliance (COSIA).

At its core, COSIA works to reduce barriers to the sharing of experience and research between all producers, as well as to accelerate deployment and wider diffusion of successful environmental actions or technologies across the sector. Working closely with the innovation arm of the Alberta government, COSIA has reached out within its members and more widely for the best ideas, and is working frantically to bring those ideas to a commercial scale. But whether a larger group means greater heft, or lowest common denominator, remains to be seen.

At the same time, and with the help of substantial federal and provincial subsidies, Alberta has become a world-leading jurisdiction for development and deployment of Carbon Capture and Storage. In 2015, Shell will officially turn on the $1.35 billion-dollar “Quest” Carbon Capture and Storage project at its oilsands refinery/upgrader complex. It has several additional initiatives in the works, including a pipeline to collect from capture sites and a range of technology pilots. In tandem, it has worked through a notably consultative process informed both by science but also by stakeholder concerns, to develop regulation to govern CCS deployment. These regulations are reportedly being closely studied by other jurisdictions. 

The focus on environmental technology innovation in Alberta highlights the limitations of these efforts, in spite of their good intentions. It is the production process itself, not the carbon, land, tailings or water management techniques, which offers the greatest opportunity for environmental improvement. Yet collaborating on production is a third rail due to anti-trust concerns. The historically low price of natural gas is far more significant in preventing the implementation of more-efficient technology than anything reasonably contemplated in terms of carbon price. And, even with the right incentives, industry-wide use of new technology in the oil and gas sector historically has taken decades. COSIA is likely to make it possible for companies to partner in the piloting of novel technology more rapidly than if they went it alone, but commercial scale deployment would still be decades away due to the slow cycle of new capital investment, stalled by today's low oil and natural gas prices. In spite of its successes and foresight, AOSTRA invested less than 1 percent of its funds over its 18-year existence on environmental research. There is clearly a gap in public investment too great to fill with the recycling of a modest carbon tax. 

New technologies often carry additional costs, and pose new and potentially unforeseen risks to the public and the environment. Providing operators with the necessary rewards for deploying unproven technologies, and providing regulators with the discretion needed to allow for those technologies’ uncertain performance relative to permits and statutory limits, calls for an overhaul of both the fiscal and regulatory approval structures. 

Looking outward amongst like-minded governments (Norway, the UK, the Netherlands), and outside of government (First Nations, ENGOs) for innovation models is quietly being discussed in Edmonton today.

One model that needs little government action is gaining traction in Latin America. Inspired by the success of fair trade and sustainable forest product and coffee certifications, at least one oil certification scheme is emerging. This market-driven approach aims to reward progressive oil companies for their greater investments in environmental and social performance by charging willing consumers a premium and passing a portion back to the company and its host communities.


Some suggest that Alberta shift its focus to new energy sources

Some suggest that Alberta shift its focus to new energy sources, leveraging its unusually high quotient of engineers and megaproject financiers, and synergies between renewables, oil and gas. With vast untapped potential for hydro, geothermal and solar energy, and wind power that already is arguably at cost parity with coal, Alberta could become a clean power leader.

Would any of these initiatives be sufficient to buy a thumbs-up for Keystone from a new U.S. president? Prime Minister Harper suggested to President Obama that they collaborate on oil and gas greenhouse emissions as a quid pro quo for market access, in a letter back in 2013. But two years on, so far as the public knows, this letter remains unanswered.

While giving credit to Alberta’s regulators, industry and new government is appropriate, there are still the facts. Environmental impacts from the production and consumption of hydrocarbons have never been higher and thirst for all fossil fuels in transportation continues its steady climb. The path we are on locks the oilsands into a slow burn; it is unlikely they will be the financial magnet they once were. But the oilsands will be produced and burned, to the detriment of the climate, until something fundamentally changes on the demand side.

In a world that sets limits on global emissions, some carbon reserves will stay in the ground. This coming hammer, if it falls, does not threaten all oil producing regions, or each individual project in a region, equally. Like a game of musical chairs, the question will be who is most likely to be left standing when the music stops. For Alberta and for the companies invested in oilsands, the challenge is to position some portion of their reserves to be consistent with a carbon constrained world, either by being first to find a seat, or by being faster — lower-carbon — than the competition.

Finding a path that delivers climate benefits and space for oilsands to prosper will require collaboration and innovation across sectors and at a scale that may be tough given the entrenched and adversarial positions of many of the key players. 

If such a path can be found, it offers the opportunity to pivot Alberta towards a leadership role in the emerging green economy, and to set a global high water mark for extractive sector development. But it calls for nothing less than making the oilsands into a laboratory for the terms under which fossil fuel development and carbon constraints are reconciled.

As an oilsands insider put it, “downside risk is all in Alberta, but upside potential is in Alberta and across the globe.” 

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This article was also published in installments with Corporate Knights.