Hidden Pitfalls of Increasing U.S. Dependence on Canadian Oil Sands

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This slide show explores environmental and national security impacts of increasing U.S. dependence on imports of oil from Canadian oil sands, and discusses some pitfalls for policy makers and …

This slide show explores environmental and national security impacts of increasing U.S. dependence on imports of oil from Canadian oil sands, and discusses some pitfalls for policy makers and investors.

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  • 1. More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Hidden Pitfalls of Increasing U.S. Dependence on Canadian Oil Sands Posted January 9, 2011 Terms of Use: These slides are made available under Creative Commons License Attribution—Share Alike 3.0 . You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics , from BVT Publishers.
  • 2. U.S. Imports of Canadian Oil Canada is now the leading source of U.S. oil imports About half of all Canadian oil output, and an increasing share of U.S. imports, comes from oil sands What are the economic, environmental, and security implications of increasing U.S. dependence on Canadian oil sands? Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 3. The Production Process Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Tailings pond Surface mine Sulfur stockpiles Processing plant Most “oil” from Canadian sands (more accurately, a heavy hydrocarbon called bitumen ) is produced by surface mining. This photo shows Syncrude’s base mine in Alberta. Some bitumen is also produced by subsurface operations. Photo source: http://commons.wikimedia.org/wiki/File:Syncrude_mildred_lake_plant.jpg
  • 4. Oil Sands Have a Big Carbon Footprint Data from the U.S. Department of Energy National Energy Technology Lab shows that oil from Canadian sands has a bigger carbon footprint than U.S. domestic crude or other sources of imported oil Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Download the full report from http://www.netl.doe.gov/energy-analyses/refshelf/detail.asp?pubID=227
  • 5. Oil Sands Have a Big Carbon Footprint (details) These data measure “carbon footprint” in terms of emissions of greenhouse gasses (GHG) per unit of diesel fuel produced from various sources The chart shows a “well-to-tank” measure that covers only the production and refining phases of the energy cycle US domestic crude is “light” and “sweet,” and produces relatively little GHG Most imported oil is “heavy” and “sour”. Transportation adds more GHG. Some imported crude (e.g. Nigeria) is nearly as dirty as oil from Canadian sands Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 6. The Well-to-Wheels Approach This chart shows GHG emissions from the complete well-to-wheel fuel cycle, including vehicle operation, the source of the bulk of GHG emissions in all cases Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 7. Picking the Number that Looks Best Supporters and opponents of oil sands both “mine” the scientific data for numbers that best support their case A well-to-tank comparison with US domestic crude suggests that Canadian oil sands are 2.5 times dirtier A well-to-wheels comparison with imported Nigerian crude suggests that Canadian oil sands are just 4% dirtier Both numbers are based on the same underlying data, but taken out of context, they leave the reader with very different impressions Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com
  • 8. Not Just Greenhouse Gasses Greenhouse gasses are not the only environmental damage from oil sands Toxic tailings ponds and land disturbed by mining must also be reclaimed Canadian authorities require escrow deposits to ensure that restoration pledges will be met, but some Canadian environmentalists claim the regulations are inadequate Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com “ If a bird flies over a river near the oil sands, the bird dies just from flying over the river. It's that toxic. They are just dumping all the waste into the waterways. If you did that in the U.S. you would be in jail.” — Candice Beaumont Oil industry consultant http://seekingalpha.com/article/236566-oil-sands-could-delay-peak-oil-candice-beaumont
  • 9. National Security Concerns Supporters cite national security concerns as a benefit of importing energy from Canadian oil sands They point out that oil price spikes caused by crises in unstable oil producing countries can damage the US economy Also, in some cases oil revenues may go to authoritarian governments, arms programs of hostile nations, or even terrorism directed at U.S. interests Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Photo source: http://upload.wikimedia.org/wikipedia/commons/5/5e/Flickr_-_The_U.S._Army_-_Security_in_Iraq.jpg
  • 10. But Canadian Oil Provides only Limited Security Benefit However, importing oil from Canada instead of more volatile countries provides only limited security benefits Even if the US gets its oil from Canada, a crisis anywhere in the world would cause oil prices to spike globally, since the world oil market is a single pool Prices would rise in the US, unless kindly Canadians agreed to sell their oil at cheap, pre-crisis prices Rising world oil prices would still enrich dictators and terrorists, even if other customers were the ones buying their oil Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com World Oil Prices are Highly Volatile Source: http://www.eia.doe.gov/emeu/cabs/AOMC/Overview.html
  • 11. So, What are the Hidden Pitfalls? The hidden pitfalls of increasing U.S. dependence on Canadian oil sands For policy makers: The comfort of convenient and secure Canadian oil supplies could make it easier to put off the hard work of developing an optimal energy policy For investors: Investing in oil sands means making a bet that both Canada and the United States will continue to pursue present suboptimal energy policies Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com A Pitfall Trap Photo source: http://upload.wikimedia.org/wikipedia/commons/b/b2/Barber_pitfall_trap.jpg
  • 12. The Pitfall for Policymakers An optimal energy policy would account for the full cost of every unit of energy from every source, including environmental and national security costs, and impose those costs on the end user through higher prices. Retail prices would increase for many types of energy, but oil from Canadian sands would take one of the biggest hits Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Photo source: Ivo Shandor, http://commons.wikimedia.org/wiki/File:Standard_Oil_Gasoline_Station2.JPG
  • 13. The Pitfall for Investors Oil from Canadian sands has high capital costs and high production costs If either Canadian or U.S. policy were to impose the full environmental costs on oil sand producers, investments could quickly become unprofitable Just as BP’s gulf oil spill set public opinion against offshore drilling, a dramatic climate event or a major toxic waste spill could turn opinion against oil sands At such time, politicians run for cover and policy can quickly turn from overly permissive to overly restrictive Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com Photo source: Norman Einstein, http://commons.wikimedia.org/wiki/File:Athabasca_Oil_Sands_map.png