Canadian Oil sands Are Filthy, But Canada Doesn’t Care

Another celebrity has slammed the oil sands of Canada, the heartland of the country's hydrocarbon industry.

This time, it was Archbishop Desmond Tutu, global champion of the oppressed and recipient of the Nobel Peace Prize and the U.S. Presidential Medal of Freedom for his role campaigning against the hated apartheid regime in South Africa.

Tutu was in Fort McMurray, Alberta, Canada on May 30 as a guest of the Fort Chipewayan First Nation and a Toronto law firm. While in town, he told around 200 people who were attending an oil sands conference: "The fact that this filth is being created now, when the link between carbon emissions and global warming is so obvious, reflects negligence and greed." He added, "The oil sands are emblematic of an era of high carbon and high-risk fuels that must end if we are committed to a safer climate."

Tutu is a climate change activist and critic of the Keystone XL pipeline that has been proposed to move oil sands crude from Alberta to refineries on the U.S. Gulf Coast.

That puts the Anglican archbishop in the company of other famous opponents, including "Titanic" director James Cameron, American actor Robert Redford -- who released a video urging U.S. President Barack Obama to reject Keystone -- and Canadian folk music icon Neil Young, who, in a characteristic polemic, proclaimed that "Fort McMurray looks like Hiroshima."

Of course, Desmond Tutu's legacy as a leading opponent of one of the most oppressive regimes in modern history is beyond reproach, and most observers have taken great pains to tiptoe around any criticism of the octogenarian campaigner. Beyond the rhetoric, though, his message that the oil sands are "dirty" - a common refrain among the industry's opponents - is one that can, and has been, analyzed and reported on with a certain degree of scientific accuracy.

Oil sands proponents often make the argument that, while mining the viscous, tar-like crude oil trapped in the "oil sands" (if you're for them) or "tar sands" (if you're against) does take more energy than conventional drilling -- the deposits either have to be strip-mined using fossil-fuel-guzzling earthmoving machines, or melted using steam and horizontal directional drilling, a process that uses huge amounts of natural gas and water -- the carbon footprint of the sands needs to be compared against the total carbon cost of importing overseas oil, which may be equally, if not more, dirty if they come from countries with laxer environmental standards than Canada.

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In fact, a recent U.S. Congressional report proves that Tutu is right: Canadian oil sands crude is indeed dirtier than competing crudes sold in the United States. The report, released in March, analyzed the life-cycle emissions of oil sands crude and concluded that "wheels to wheels" greenhouse-gas emissions of gasoline produced from the oil sands are 17 percent higher than gasoline derived from the average transportation fuel sold in the U..S. When production-only figures were analyzed, oil sands crude produced an average of 80 percent more greenhouse gas emissions than competing crudes, such as Middle Eastern Sour, Mexican Maya, and Venezuelan Conventional.

So yes, the Canadian oil sands are "filthy", but the Alberta and national governments elected to manage them don't especially care, at least in any truly meaningful sense. Why? Because Canada has a petroleum-based economy that is addicted to oil production, whose health is ultimately tied to fossil fuels.

Tutu, and left-leaning Canadian politicians may demand that the oil sands be shut down, but in reality, politicians know that this is not in anyone's best interests, least of all their own.

Ottawa relies on a steady stream of oil tax revenues from Alberta to pay transfer payments to "have-not" provinces, and it is not about to slow the tap, let alone turn it off, based on criticisms from outsiders like Tutu. According to a 2012 report by the Canadian Energy Research Institute, the Alberta government stands to collect $1.2 trillion in royalties from the oil sands over the next 35 years.

In importance to the Canadian economy, mining plus oil and gas extraction rank third, behind only the real estate and manufacturing sectors. Combined, energy and mining contribute roughly 8 percent to Canada's GDP, versus manufacturing's 10 percent (2012 numbers).

In the first quarter of this year, the Canadian economy grew by just 1.2 percent, the slowest since the fourth quarter of 2012. But if it wasn't for mining and oil and gas, the growth would have been even more anemic; that sector grew 0.9 percent during the quarter, three times that of manufacturing.

The ruling Conservative government knows how important the energy sector is and has firmly backed oil sands expansion as a driver of economic growth, despite critics who say that Canada has contributed to, rather than slowed, the escalation of global warming, underscored by Canada's rejection of the Kyoto Protocol in 2011.

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Knowing its benefits to Canada, Prime Minister Stephen Harper and his key ministers have pressed the United States to approve the Keystone XL pipeline. Farther north, a joint review panel last December gave conditional approval to the Enbridge pipeline, which proposes to send oil sands crude across northern British Columbia and Alberta for export to Asia. This comes despite a chorus of opposition from environmental groups and local Indian bands who have promised to tie up the project in the courts for decades if the Conservative government approves the project, as it is expected to, this month.

These pipeline projects are not only meant to open Canada's oil exports to Asian buyers, since producers are currently 100 percent beholden to the United States as a purchaser of Canadian oil, but also to free up bottlenecks in the North American distribution system that push down the price of Canadian crude compared to international benchmarks. Removing those bottlenecks will be good for prices and Canadian oil producers.

Amid all these developments, it is interesting to contemplate whether Canada is on the wrong side of the climate-change and energy mix debate compared to its most important trading partner, the United States. The big news this week is President Obama's new climate change policy, whose goal is to reduce greenhouse gas emissions by 2030. The policy is mostly directed at the coal industry and imposes emissions limits on power plants, which still rely on coal to provide an astonishing 38 percent of America's electricity.

Will Canada follow suit and put similar restrictions on oil and gas production to limit carbon emissions? That seems unlikely.

GlobalNews.ca recently asked Anders Hayden, an assistant professor of political science at Dalhousie University, that very question, and his answer revealed the paradox of Canadian energy production: Canada wants to grow the industry, not put caps on it, even though it knows that doing so will increase carbon emissions, which will likely draw the ire of hydrocarbon opponents and drive a policy wedge between it and the United States.

"We're going guns-a-blazing in the wrong direction by seeking to maximize the development of the oil sands,"  Hayden said. "And right now, there's no way to do that and bring your emissions down. As long as we make that our economic priority, we don't have an answer."

By Andrew Topf of Oilprice.com