Environmentalists get a kick out of high oil prices because they make renewable energy technologies economically attractive. (Not to mention that they also give peak-oil doomsayers that special thrill of imminent Armageddon.) But high oil prices aren't just good for solar- or wind-power enthusiasts. They also give a boost to the profit-making potential of fossil fuel deposits that may once have been too costly or technically difficult to extract. And that's not necessarily a good thing at all.
Exhibit A: Canada's massive oil-sands deposits. These vast mixtures of sand and bitumen used to be known by the more accurate name of "tar sands" until the provincial government decided that moniker was too dirty. But whatever you call them, they are huge: There are proven reserves of some 174 billion barrels of oil in the province of Alberta, giving Canada oil reserves second only to Saudi Arabia.
Even before President Bush's State of the Union address calling for an end to Mideast oil dependence, Canada's oil sands were benefiting from high oil prices and maturing extraction technologies. The fact that oil-sands mining is conducted by private companies has also made the sector very attractive to foreign investors looking to lock up future sources of energy. Chinese oil companies have already cut three separate deals with Canadian companies, including one to build a pipeline from Edmonton to the West Coast. On Jan. 30, India's oil minister announced plans to invest a billion dollars in Canadian oil-sands production. Since the SOTU speech, stock prices of Canada's big energy companies have shot up with a vengeance -- what better place could the U.S. turn to for new sources of oil than its next-door neighbor?
Is there enough oil for everyone? Currently, oil-sands production is rated at about a million barrels a day, and is expected to rise to 5 million by 2030. Whether that will really make a dent in the world oil markets is anyone's guess, but if worldwide demand keeps growing at its current rate, Saudi Arabia certainly has nothing to worry about. The larger issue is that extracting oil from Canadian oil sands is possibly the most environmentally destructive form of mining ever practiced. High oil prices: good for solar, but also good for the wiping out hundreds of thousands of acres of pristine boreal forest.
Oil-sands mining involves separating out the tar, or bitumen, from the sand. Where the deposits are relatively shallow, this involves the complete removal of everything on the surface -- strip mining on a nearly inconceivable scale. Where the deposits are deep, a different process is employed, known as "in situ" mining, that is only marginally less destructive. All together, oil-sands mining is hugely energy intensive, causes massive air pollution, consumes vast amounts of fresh water, and results in gigantic concentrations of toxic "tailings" -- the leftover sludge that remains after the bitumen has been successfully extracted. Canada has been a vocal supporter of the Kyoto accords, but if Albertan oil-sands production continues to surge forward at predicted rates, the greenhouse gas emissions and other pollution caused there will dwarf any cutbacks in emissions elsewhere in the nation.
It's an environmental disaster in the making, and the example is likely to be repeated all over the world, as higher and higher oil prices make once-marginal deposits of fossil fuels more economically alluring. The peak-oil gloom-and-doomers have reason to furrow their brows. We really haven't seen anything yet in terms of the environmental stresses that our "addiction to oil" will cause.
But there's one little thing about the Canadian oil-sands story that you don't hear too much about. In today's New York Times, conservative columnist John Tierney pooh-poohed Bush's support for alternative sources of energy, parroting that tried-and-true attack on industrial policy: "governments shouldn't be picking winners and losers." Except, the history of Canadian oil-sands production is a clear triumph of government targeting. The federal government has given massive tax breaks for oil-sands production, allowing the complete writing off of capital costs related to development. The Alberta government also collects a mere 1 percent royalty on oil-sands profits until all capital costs have been recovered. All told, according to Stephane Dion, a former minister of the environment, the incentives and tax breaks since the 1960s add up to some 40 billion (Canadian) dollars of government support.
Huh. Maybe government can pick winners. As long as the environment is not included as one of the lucky prize-getters.