November 24, 2005

Environment Hurt by Oil Sands Boom: Report

CALGARY, Alberta -- The rush to develop Canada's vast oil sands resources has hampered the country's ability meet commitments to cut greenhouse gas emissions and shortchanged the public purse, an environmental group said in a report issued on Wednesday.

The Pembina Institute, an Alberta-based organization that concentrates on energy, said oil sands projects are Canada's biggest single contributors to growth in emissions of such gasses as carbon dioxide, which are blamed for global warming.

Developers of such projects, which now produce more than a million barrels a day of crude oil, have cut emissions by 26 percent per barrel over the past decade, the institute said in its 76-page report, "Oil Sands Fever: the Environmental Implications of Canada's Oil Sands Rush."

However, the brisk pace of development to meet a huge North American thirst for secure energy supplies has more than overshadowed those gains, it said.

In 2002 -- to the scorn of many in the energy industry -- Canada ratified its participation in the Kyoto Protocol on climate change, agreeing to cut greenhouse gas emissions by 6 percent below 1990 levels between 2008 and 2012.

However, by 2003, emissions had jumped 24.2 percent over 13 years, according to the United Nations Framework Convention on Climate Change.

More than C$100 billion of investment in new projects and expansions is now aimed at the oil sands, which rival Saudi Arabia's conventional reserves in size but are more energy-intensive and expensive to develop.

This month alone, such companies as Canadian Natural Resources Ltd., EnCana Corp. and Shell Canada Ltd. have detailed investment plans for northeastern Alberta projects worth more than C$30 billion.

The Pembina Institute, based in Drayton Valley, Alberta, said the immense economic potential touted by the oil industry, government, energy analysts and the media has far overshadowed discussion of the environmental risks.

"Managing the environmental impacts arising from this pace and scale of development is a considerable challenge that must be urgently addressed, particularly in light of the new goal of producing five million barrels per day by 2030," wrote Marlo Raynolds, the institute's executive director.

The institute said the federal government should make developers use the best technology available to ensure a meaningful contribution to meeting Canada's emission-cutting obligations.

It also said Ottawa should require all projects to be carbon-neutral by 2020, through actual reductions and offsets.

The report said the Alberta and federal governments have not been getting an adequate return from oil sands production, pointing to royalty and tax arrangements set up in the mid-1990s to encourage investment.

It said oil market conditions have improved considerably since then, with crude prices recently hovering well over $50 a barrel. New technology, meanwhile, has improved operating costs for oil sands.

"Now outdated, unnecessary and increasingly detrimental, the royalty and tax regimes create a powerful incentive for rapid reinvestment and growth," the report said.

It urged governments to set timelines for eliminating tax advantages for the oil sector and redirect subsidies and fiscal breaks to energy efficiency technology and renewable energy.