The Canadian Oil Sands Energy Security Vs. Climate Change
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The Canadian Oil Sands Energy Security Climate Change vs. Council Special Report No. 47 May 2009 Michael A. Levi Council on Foreign Relations The Canadian 58 East 68th Street Council No. 47 Special Report New York, NY 10065 tel 212.434.9400 Oil Sands fax 212.434.9800 1779 Massachusetts Avenue, NW Washington, DC 20036 Energy Security tel 202.509.8400 fax 202.509.8490 www.cfr.org vs. Climate Change The Canadian Oil Sands Energy Security vs. Climate Change Council Special Report No. 47 May 2009 Michael A. Levi The Canadian Oil Sands Energy Security vs. Climate Change The Council on Foreign Relations (CFR) is an independent, nonpartisan membership organization, think tank, and publisher dedicated to being a resource for its members, government officials, business execu- tives, journalists, educators and students, civic and religious leaders, and other interested citizens in order to help them better understand the world and the foreign policy choices facing the United States and other countries. 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For information, write to the Publications Office, Council on Foreign Relations, 58 East 68th Street, New York, NY 10065. To submit a letter in response to a Council Special Report for publication on our website, www.cfr.org, you may send an email to [email protected]. Alternatively, letters may be mailed to us at: Publications Depart- ment, Council on Foreign Relations, 58 East 68th Street, New York, NY 10065. Letters should include the writer’s name, postal address, and daytime phone number. Letters may be edited for length and clarity, and may be published online. Please do not send attachments. All letters become the property of the Council on Foreign Relations and will not be returned. We regret that, owing to the volume of correspondence, we cannot respond to every letter. Cover Photo: A dump truck carries a 400-ton load of oil sands ore in a mining operation in Fort McMurray, Alberta, Canada (Larry Macdougal/Getty Images). This report is printed on paper certified by SmartWood to the standards of the Forest Stewardship Council, which promotes environmentally responsible, socially beneficial, and economically viable management of the world’s forests. Contents Foreword vii Acknowledgments ix Acronyms xi Council Special Report 1 Introduction 3 Status, Prospects, and Challenges 5 Energy Security and Climate Change 15 Policy Recommendations 28 Endnotes 41 About the Author 44 Advisory Committee 45 CGS Advisory Committee 46 CGS Mission Statement 48 Foreword Rhetoric in Washington often focuses on areas where energy secu- rity and climate change, two increasingly prominent elements of U.S. domestic and foreign policy, align. Many important decisions, though, will require difficult trade-offs between them. The Canadian oil sands —a massive but emissions-intensive source of oil—presents policy- makers with precisely such a challenge. Unfettered production in the oil sands would increase greenhouse gas emissions but strengthen U.S. energy security with a supply of oil from a friendly and stable neighbor. Sharply curtailed oil sands operations would harm U.S. energy security but cut emissions. This Council Special Report, authored by Michael A. Levi, explores both the energy security and climate change implications of expanded oil sands production. It assesses current and future trends in the oil sands, including in the scale and cost of production and in the oil sands’ impact on world oil markets. The report concludes that the oil sands are neither critical to U.S. energy security nor catastrophic for climate change. It also argues, though, that their security benefits and climate costs cannot be ignored. The report’s recommendations focus on poli- cies that would provide incentives to cut the emissions generated in producing each barrel of crude from the oil sands, but in a way that is careful to avoid directly discouraging increased production. The recom- mended measures do not fully satisfy narrow energy security or climate change concerns, but instead seek to balance them. The Canadian Oil Sands: Energy Security vs. Climate Change makes an important contribution on a subject that will be central to energy and climate debates. Canadian policymakers and global oil markets will directly shape the oil sands’ development, but because the United States is the natural destination for many oil sands products, U.S. vii viii Foreword decisions will inevitably play a critical role. This report offers a nuanced and thoughtful examination of the relevant issues and of options for U.S. policy. Richard N. Haass President Council on Foreign Relations May 2009 Acknowledgments I am most grateful to the members of this report’s advisory commit- tee, and in particular to Ernest J. Moniz for chairing the group. The advisory group’s members’ spirited debates and individual advice were invaluable. In developing this Council Special Report, I also interviewed a vari- ety of individuals who were supportive of, ambivalent toward, and opposed to oil sands development. These included individuals from governments, industry, and nongovernmental organizations. I thank them all for sharing their time and insights. I am thankful to my research associate, Katherine Michonski, who skillfully supported my research and writing, and provided consistently thoughtful feedback as I was developing my ideas and arguments. I thank CFR President Richard N. Haass for his comments on a draft of this report. Thank you also to Patricia Dorff and Lia Norton in Publications, and to Lisa Shields and Anya Schmemann in Communi- cations and Marketing, for their efforts in producing and disseminat- ing this study. This report was made possible by a grant from the Rockefeller Foun- dation and through David M. Rubenstein’s generous support of CFR’s work on the critical international challenges involving energy and the environment. The statements made and views expressed in this report are solely my responsibility. Michael A. Levi ix Acronyms ANWR Arctic National Wildlife Refuge CCS carbon capture and sequestration CERI Canadian Energy Research Institute EIA Energy Information Administration IEA International Energy Agency LCFS low-carbon fuel standard LNG liquefied natural gas mb/d million barrels per day NAFTA North American Free Trade Agreement NRDC Natural Resources Defense Council OPEC Organization of Petroleum Exporting Countries RD&D research, development, and demonstration SAGD steam-assisted gravity drainage WTI West Texas Intermediate WTO World Trade Organization xi Council Special Report Introduction Half a decade of high and volatile oil prices alongside increasingly dire warnings of climatic disaster have pushed energy security and climate change steadily up the U.S. policy agenda. Rhetoric in Washington has emphasized opportunities to deal with both challenges at once. But energy security and climate change do not always align: many impor- tant decisions in areas including unconventional oil, biofuels, natural gas, coal, and nuclear power will involve complex trade-offs and force policymakers to carefully navigate the two goals. Ongoing and heated debates in the United States and Canada over the future of the Cana- dian oil sands—touted at once as an energy security godsend and a cli- mate change disaster—highlight that tension and emphasize the need to intelligently address it. The oil sands (often referred to as tar sands) are largely contained within the Canadian province of Alberta.