Background

The Council on Foreign Relations is an independent, highly respected think tank and New York-based publisher dedicated to providing information regarding the world and the foreign policy choices facing the United States and other countries. In its Special Report The Canadian Oil Sands Energy Security vs. Climate Change, by Michael A. Levi, the CFR explores the energy security and climate change implications of expanded oil sands production. This report provides a well-balanced view of the role the oil sands play in the sometimes conflicting priorities concerning energy security and climate change. The author acknowledges that, “energy security and climate change do not always align: many important decisions in areas including unconventional oil, biofuels, natural gas, coal and nuclear power will involve complex trade-offs and force policymakers to carefully navigate the two goals.” The purpose of the Report is to advise American policymakers regarding the American approach to Alberta’s oil sands. This article presents an intellectual and fact-based argument that the oil sands exploitation is neither essential for energy security nor catastrophic in affecting climate change.

Since 2004 Canada has been the largest source of U.S. oil imports. Future oil sands development will depend on factors shaped by physical and political conditions including international oil prices and worldwide availability of oil. Based on the U.S. Energy Information Administration’s projections, oil sands production may well triple by 2030, to 4.3 million barrels/day. This is remarkably similar to the Canadian Energy Research Institute’s projection that production will rise to about 4.2 million barrels/day by 2030.

Impacts of the Oil Sands on Energy Security:

The report makes it clear that, “[u]nderstanding the actual security benefits of increased oil sands production is essential to developing policy that balances those [benefits] with the related climate damages.” There are many factors that come into play when making the determination that using Canadian oil sands would increase energy security, including the following:

  1. Canadian oil sands growth, if it displaced oil production elsewhere would weaken adversarial states and OPEC in particular,
  2. money spent on Canadian oil is more likely to return to the U.S. through spending on U.S. goods and services than would money spent on oil originating elsewhere and imported to the U.S., and
  3. Canadian sources are likely to be more secure against disruptions caused by nonstate actors.

However, oil is traded on a global market and therefore the impact of the oil sands on the security of energy supply may not be as great as some would think. The report suggests that exploiting the oil sands will not fundamentally change global oil supply. “Perhaps the greatest impact of expanded oil sands exploitation would be a diversion of revenues away from adversarial governments—an important outcome—though this benefit would exist regardless of whether the United States was the ultimate consumer.”

Impacts of the Oil Sands on Climate Change:

Although greenhouse gas emissions from the oil sands (particularly those associated with upgrading) are greater than those associated with conventional oil, technological improvements have decreased and are continuing to decrease average oil sands productions emissions. The roughly 1,200,000 barrels/day of current oil sands production is responsible for a “premium” of about 40 million tons of CO2 emissions annually compared to conventional oil. This represents about 5% of Canadian emissions, 0.5% of U.S. emissions from energy use and less than 0.1% of global emissions. If oil sands production increases as expected and average oil sands productions emissions are not decreased, the oil sands contribution to CO2 emissions will roughly triple by 2030, making oil sands a huge relative contributor to Canadian emissions, but still a relatively marginal one in the U.S. and global contexts. At this time, emissions from the oil sands represent a small portion of global emissions and, with a bias favouring technological improvements, one might reasonably expect a lowering of greenhouse gas emissions associated with oil sands.

Principles for balancing the goals of energy security and diminished climate change; Joint CAN-AM Action:

The report encourages policymakers in the U.S. and Canada to balance the goals of greater energy security and decreased climate change by incentivizing decreased emissions without discouraging production. It is acknowledged that the oil sands do not represent the complete picture with respect to these goals; however, their consideration as part of broader strategies is encouraged.

There is an expectation that Canadian and Albertan policy will continue to support oil sands production while simultaneously imposing tougher emissions regulation. While it is not surprising that domestic Canadian policy currently plays the largest role in oil sands development, the impact of U.S. policy is expected to grow because the U.S. is the natural market for oil sands products. The United States and Canada are encouraged to work together to meet the twin goals of minimizing climate change and increasing energy security.

Reasonable and prudent carbon pricing is anticipated to be the central tool for balancing energy security and climate change concerns. The Report notes:

“That would provide polluters incentive to cut their emissions while maintaining support for open energy markets; done right, it would also avoid driving up global (pretax) oil prices or inflating the market share of low-cost producers (notably those in OPEC). In practice, political trends suggest that both the United States and Canada are likely to eventually adopt economy-wide cap-and-trade systems. Integrating those systems is the best way to ensure that the oil sands face carbon prices that are neither too low nor too high.”

As continental neighbours who share many of the same goals, there are compelling reasons for harmonizing the U.S. and Canadian carbon pricing schemes. The simplest way of accomplishing this aim would be to allow trading between the two cap-and-trade systems which would lead to prices on greenhouse gas emissions being the same on both sides of the border.

Going Forward

Michael Levi, the Report’s author, proposes that a smart strategy, ensuring that energy security and climate change were balanced in U.S. policies as they would affect the Canadian oil sands, would combine four elements:

  1. Link U.S. and Canadian cap-and-trade systems. Fair and stable carbon pricing in Canada would help both countries reap the benefits of oil sands exploitation while mitigating associated damages.
  2. Tread carefully with any low-carbon fuel standard because an ill-designed scheme could burden the oil sands in ways that would damage U.S. energy security without commensurate climate benefits.
  3. Focus U.S. technology support on higher-payoff areas. The scale of other energy and climate problems facing the United States demands that U.S. energy innovation support focus elsewhere (particularly in respect of coal-fired power production facilities).
  4. Resist the misuse of other U.S. environmental regulations to constrain oil sands. So long as the oil sands (are expected to) face a fair and reasonable carbon price, the United States should resist attempts to use U.S. environmental regulations to block permitting of oil sands-related pipelines or refineries for reasons that are effectively CO2 emissions concerns.

The Report would suggest that oil sands have a bright future. The United States is being advised to take a well-balanced and collaborative approach toward the impact the oil sands will have on energy security and climate change. Extracting oil sands will increase energy security and the corresponding impact on climate change is manageable. Linking cap-and-trade systems across the United States-Canada border, carefully regulating a low-carbon fuel standard, focusing American technology support on higher-payoff areas and resisting the misuse of environmental regulations to constrain oil sands production are all elements of an intelligent strategy that will ensure a competitive balance between American/continental concerns regarding energy security and climate change.