Alberta Extraction

Climate and competitiveness in the tar sands

Anytime the oil barons and baronesses are smiling for the cameras with NGOs and politicians, we should at least be interested, if not outright worried. Was the release of Alberta’s new climate change strategy just an occasion for the oil execs to ham it up for the cameras pretending all is well or do they have truly something to be smiling about?

Now, because I don’t want to constantly feel like the asshole at a party—complaining about children ingrates at a baby shower, enumerating an ex-husband or wife’s flaws at a wedding, laughing at a funeral—here’s an important positive: Alberta plans to use half of the money raised by its new broad carbon tax for “just transition” policies. A large chunk of the money will go towards supporting now-more-expensive heating, fuel and other consumption for poor and working families, while some will go towards retraining and other opportunities for those who lose their jobs. Just introducing the phrase “just transition”, which appears in the climate document four times, into the mainstream is a success.

I want to, however, focus on another phrase, much more dominant in the report: “competitiveness”. The report worries about the competitiveness of the tar sands with more stringent climate policies. Oddly enough, in a world of low oil prices, Alberta’s oil industry is already relatively uncompetitive. The biggest recent competing source of “unconventional” oil, fracked oil from US shale formations largely concentrated in North Dakota, has seen huge efficiency gains and falling break-even prices. This means that it is profitable to extract oil there at ever-lower global oil prices. In short, the tar sands are today having hard time keeping up with the pace of innovation elsewhere. Today, the lowest-cost producers of US shale oil can produce profitably at lower oil prices than producers in Alberta’s tar sands.

One of the major concerns implicit in the Alberta climate change document is that big, new tar sands projects already under construction should be completed and go into production. As I’ve written before, this is a major concern of the tar sands producers and they appear to have gotten their wish. Despite rosy stories in the environmental news about projects being shelved (more in the tar sands than anywhere else globally), on-going projects that taken together will double tar sands production are most likely going ahead.

The strategy released this week helps in two ways. First, the current cap on emissions is roomy enough for an additional 43% growth in emissions from the tar sands, which combined with efficiency improvements means that the vast majority of projects started today will be completed unless further policy changes are made or there is some even greater drop in oil prices.

Second, there is a major instrument to help the tar sands industry maintain profitability: subsidies. While the carbon tax that will apply to nearly all greenhouse gas emissions resulting from essentially all economic activity has gotten much of the press, subsidies to “large emitters” will consume (the other) half of the revenues it generates. Over half of these subsidies, so over a quarter of total carbon tax revenues, will go specifically to tar sands producers. This is a hand-out plain and simple: corporate welfare for an industry whose expansion and even existence is considered incompatible with 2C warming by climate scientists.

It is important to remember that Alberta has had a form of carbon pricing in place since 2007. The old levy, however, only applied to large emitters and only to some emissions. The Globe and Mail ran a piece in the wake of the release of Alberta’s climate report noting that “the carbon price for existing mining projects and those that use steam to melt bitumen is set to rise to a range of 50 cents to 75 cents a barrel, versus a range of 26 cents to 65 cents a barrel under the previous structure.” The most efficient tar sands operations will actually see their costs go down.

Subsidies will limit the cost increase to producers. So while everyone pays the carbon tax, corporate subsidies end up being a transfer from all of society to the tar sands industry that counteracts the transfer from industry to society from its share of the tax. Optimists will say that the point of the carbon tax is to nudge behaviour rather than explicitly limit emissions, raise lots of money or, more drastically, shut down a toxic industry with justice for workers. This is the politics of the 21st century: nudging over regulation, corporate power over public power.

So should the oil barons and baronesses keep smiling? Those with more efficient operations at least should. The push for competitiveness is a push for disciplining an industry looking out for its long-term health in a global climate and for individual players who have made the biggest efficiency gains looking to get an edge over local competitors.

Of course, the major argument from industry and its supporters will be that this split of carbon tax gains maintains jobs and ends up benefiting workers. This is a low bar, however, because it ignores two major sources of alternatives. First, even if tar sands producers directly hire a small number of workers, what could these workers be doing otherwise given a more ambitious strategy? Second and related, what are the alternative uses of the carbon tax revenues that are going to corporate subsidies?

Last and perhaps most worrisome is that a major concern with competitiveness means that Alberta is on track to miss the already weak goals set out in Stephen Harper’s federal climate (non-)plan, the same one Justin Trudeau is taking to the Paris climate talks. Alberta has moved up a few spots on the climate ladder but it is still involved in a game of chicken where fossil fuel-dependent jurisdictions are afraid to get off the straight path of climate disaster for fear of losing competitiveness.

Competitiveness is an important metric when business interests dominate not just the interests of the planet but those of the social majority in Alberta itself. The focus on competitiveness also means that moving forward is not a question of better science or policy; it is a question of power. Here are some political questions to keep asking and keep organizing around:

  • What are the capacities of the fossil fuel sector in Alberta to extract not just dirty oil but political favours from elected officials? On the one hand, the oil industry employs (relatively) few people given its economic footprint, which itself taken as a percentage of GDP is not that large; on the other hand, this sector has outsize influence across the provincial sphere and in federal trade and foreign policy goals (see Keystone XL as a major plank of Canada’s foreign policy vis-a-vis the US).
  • What are the capacities of ordinary people to fight for a different Alberta not held hostage by the competitiveness of the extraction industry? Who are the agents of a just transition? How do we develop power at the level of communities to push for the further-reaching and faster change that climate science all but dictates?
  • What are the capacities of the provincial (and federal) government to effect large-scale change? Where could it exercise its “relative autonomy” given popular pressure? There is an upcoming review of royalties, there is the potential for harder caps on emissions and an industrial strategy driven by a “just transition” that moves rather than nudges.

So, yes, “Alberta”, “climate” and “strategy” are three words not often seen in the same vicinity, and, yes, the very fact that other phrases like “just transition” appear in the framing of the province’s climate strategy is a positive. But to complement these symbolic gestures, we need a good dose of realism. This Sunday, there appeared a lever where there was none; it must be pushed much harder, and quickly.

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