November 24, 2005

Environment hurt by oil sands boom

CALGARY, Alberta (Reuters) - 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 the federal government should make
developers use the best technology available to ensure a
meaningful contribution to meeting Canada's emission-cutting

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.