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Winter Issue — February 2007

Alberta’s Oil Sands: Treasure Chest or Pandora’s Box?

Playing second fiddle only to Saudi Arabian reserves, Alberta’s oil sand deposits were declared by Time Magazine to be one of Canada’s greatest treasures. Yet, getting to this treasure exacts quite an extraordinary environmental price. Extracting the oil from the sand requires much more energy than exploiting traditional oil wells and the process subsequently ends up emitting a lot of greenhouse gases.

As people become increasingly aware of the state of the environment and the changing climate, the high environmental stakes involved in exploiting Alberta’s oil sands are creating economic debates at a fevered pitch.

Are we opening a treasure chest or Pandora’s box?

With the recent explosion of investment in Alberta’s oil sands, Leslie Shiell of the Department of Economics, is asking himself the same question. In a forthcoming paper to be published in Canadian Public Policy, Shiell will expose the cost of the environmental damages caused by the exploitation of the Alberta oil sands, and expects that his paper will prove to be a catalyst for public debate on the issue.

Environmental economists concern themselves with – among other environmental issues – both market and non-market damages caused by pollution. Market damages include the reduction of crop yields for farmers and the changes in prices brought about by this reduction, as well impacts on the forestry industries and the fisheries. Non-market damages take into account the human health effects, changes to the hydrological cycle, climate change, and the ill effects of pollution. Since the latter do not involve market transactions, they are difficult to evaluate in monetary terms.

In spite of the challenge, Shiell and graduate student Suzanne Loney examined the level of greenhouse gas emitted by Suncor Energy as it worked to develop the oil sand deposits in northern Alberta – and derived estimates for equivalent monetary damages. They wanted to know if Suncor would still be profitable if it had to pay for the damages its activities caused to the environment.

Shiell’s findings were astonishing; if Suncor had to pay for damages caused by their greenhouse gas emissions, profits would plummet by approximately 27 per cent per barrel.

“What is more, we only looked at greenhouse gas emissions,” emphasizes Shiell. “We did not include all the water used by such companies to extract the oil, which is becoming a more contentious issue in Alberta by the day as the province’s water supply continues to decline.” Shiell’s findings suggest that the costs of exploiting oil sands may far outweigh any benefits to society that they may provide.

Shiell believes Suncor will respond to his findings by highlighting their awareness of the problem and dedication to finding solutions. The energy company is indeed exploring the option of using sequestration techniques to reduce the impact on the environment, a technique that involves trapping the gas before it escapes into the atmosphere, and putting it to better use. CO2 gas can be used to re-pressurize old oil wells, thus extending their life. It can also be used in a process known as coal-gasification, whereby natural gas is produced from coal without the emissions normally associated with the coal exploitation.

While oil sands producers are not currently using these techniques, pilot projects are underway. Would the wider use of CO2 sequestration techniques make a difference in the economic equation for the environment?

Shiell is of the strong opinion that the widespread use of these techniques would indeed reduce negative impacts to the environment, and the social cost associated with exploiting fossil fuels.

With Alberta looking into water conservation and the federal government studying climate change and the reduction of greenhouse gas emissions, the oil sand industry will need to adapt to these contemporary concerns. Shiell hopes that his study will serve as an economic model that will help to take into account the social costs of the oil sand industry and reduce the damage to the environment.

“We need to make sure that our means of producing energy is profitable not only from a corporate point of view but also from a social point of view,” says Shiell. “We need to ask ourselves what this is doing to our environment.”

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