Winding down oil sands production to achieve our GHG targets and as a defensive measure against a collapse in oil prices must be seen as a national project.
At the Paris climate conference in December 2015, Canada reaffirmed its target of reducing greenhouse gas (GHG) emissions by 30 percent from the 2005 level by 2030. The Liberal government was roundly criticized by environmental groups and some opposition politicians for not going beyond the “weak” target of the previous Conservative government, but even today — two years later — there is still no plan in sight for how Canada could achieve its target by 2030, given that current total emissions are about the same as they were in 2005. At the same time, the oil industry is planning an expansion of oil production from the oil sands — one of the highest CO2-emitting sources of oil in the world on a per-barrel basis — and the federal government has approved contentious new pipelines to facilitate that expansion.
We examine two interrelated questions here. First, is any oil sands oil production consistent with Canada’s 2030 emissions target, given the implications of continued production for the required emissions reductions in other sectors? Second, could Canadian domestic oil demand be reduced through automobile and truck fuel efficiency and other measures, as part of the effort to achieve our 2030 emissions target, to the point where domestic demand could be met entirely by domestic conventional oil production?
As our calculations show, only with a complete phase-out of oil production from the oil sands, elimination of coal for electricity generation, significant replacement of natural-gas-fuelled electricity generation with electricity from carbon-free sources, and stringent efficiency measures in all other sectors of the economy could Canada plausibly meet its 30 percent target.
However, expected improvements in the performance and reductions in the cost of electric vehicles, combined with across-the-board improvement in the efficiency of cars and trucks, could see a permanent collapse in the price of oil by 2030, if not sooner, rendering oil sands oil a permanent money loser. Thus, the most urgent task related to the oil and gas industry in Canada is to plan an orderly phase-out of oil sands oil production — before such a phase-out is imposed by external economic forces. Doing so would align Canada’s international climate promises with its economic well-being.
In 2016, the federal department responsible for tracking Canada’s GHG emissions, Environment and Climate Change Canada (ECCC), provided a breakdown of 2005, near-present (2014), and projected future (2030) national GHG emissions by sector and by GHG, along with the corresponding quantities of oil, refined petroleum products (RPPs) and natural gas liquids produced, imported and exported, and a breakdown of the amounts consumed by sector. We use a 2017 update of the emissions and energy flows in the 2016 analysis.
In their first four data columns, tables 1 and 2 show the ECCC oil and natural gas amounts, respectively, while table 3 shows the ECCC numbers for GHG emissions. ECCC’s 2030 projections already assume substantial energy efficiency improvements and fuel shifting from 2014 to 2030:
- The average on-road fuel intensity of passenger light duty vehicles (LDVs) decreases by 42 percent.
- The average fuel intensity of freight trucks decreases by 11 percent.
- Electricity production from coal and oil drops by 84 percent and 80 percent, respectively, in absolute terms.
As a first step in approaching Canada’s 2030 target, we assume no improvement in energy efficiency beyond that embedded in the ECCC scenarios, but we consider the following sequence of actions:
- Freeze oil sands oil production at the 2014 level.
- Phase out all oil sands oil production by 2030.
- Phase out all oil sands oil production and shift all coal- and oil-based electricity generation to natural-gas-based electricity generation.
- All of the above plus shift half of the resulting natural-gas-based electricity to carbon-free electricity.
The results are shown in figure 1 in relation to Canada’s 2030 target, along with the 2014 emissions breakdown. The dominant change from 2014 to ECCC’s 2030 baseline scenario is a substantial increase in oil sands GHG emissions that is largely offset by a decrease in electricity-related GHG emissions (due to a planned phase-out of coal for electricity generation in Alberta and a near-phase-out in Nova Scotia). There is very little change in emissions from other sectors (in spite of population and economic growth), so the overall result is only a 1.3 percent increase in total emissions from 2014 to 2030.
Simply freezing the oil sands oil production at the 2014 level (scenario 1) reduces emissions by 7 percent relative to the 2030 baseline, while phasing out such production (scenario 2) reduces emissions by 16.7 percent — going more than halfway to our 2030 target. Replacing all coal and oil used for electricity generation with natural gas (scenario 3) brings a small additional reduction; replacing half of the resulting natural-gas-fuelled electricity with electricity from carbon-free sources (scenario 4) boosts the reduction to 19.5 percent — two-thirds of the way toward Canada’s 2030 target with no improvements in energy efficiency beyond those already embedded in ECCC’s 2030 projection.
We next derive from the ECCC numbers the combinations of efficiency and electricity supply measures that would be needed to exactly meet Canada’s 2030 target, for three oil sands oil production scenarios that we call Increase, Freeze and Phase-out. The results are shown in the final three columns of tables 1, 2 and 3. The oil consumption and natural gas consumption in each end-use sector need to be reduced by 16 percent, 29 percent and 39 percent from the 2030 levels for the Increase, Freeze and Phase-out scenarios, respectively. All coal- and oil-based electricity generation must be shifted to using natural gas, and 25 percent, 30 percent or 37 percent of the resulting total natural-gas-based electricity generation must then be shifted to carbon-free sources for the Increase, Freeze and Phase-out scenarios, respectively. Figure 2 gives the emissions breakdown by sector for each of these scenarios.
We regard the emissions reductions required for other sectors in order to achieve the 2030 target for the Increase and Freeze scenarios (39 percent and 29 percent, respectively) to be unachievable, as they are in addition to the emissions reductions that are already embedded in the ECCC 2030 baseline scenario. Even the 16 percent emissions reduction relative to the 2030 baseline that is required under the Phase-out scenario would require a substantial effort, but — with a coordinated effort involving building codes, a national building renovation program, stringent efficiency standards for automobiles and trucks without loopholes, and other timely measures — it should be achievable.
Under the Phase-out scenario, in which domestic oil demand is reduced by 16 percent below the ECCC projection, the supply of conventional oil and natural gas liquids would be sufficient to meet the domestic demand for refined petroleum products of 1.41 million barrels/day plus net RPP exports of 200,000 barrels/day, but with no net import or export of crude oil (see table 1). Thus, Canada could be self-sufficient in oil (in fact, have a small surplus) while phasing out its carbon-intensive oil sands oil production and honouring its climate change commitment.
In the Phase-out scenario, gross natural gas production falls from 571 million cubic metres/day (Mm3/day) in the 2030 ECCC scenario to 387 Mm3/day — a reduction of 184 Mm3/day, half of which (91 Mm3/day) is from the elimination of natural gas use for oil sands operations (see table 2). Net exports decrease slightly (from 137 Mm3/day to 112 Mm3/day), although liquefied natural gas production and export of 71 Mm3/day are completely eliminated. These reductions in natural gas production contribute more to GHG emissions reduction than the additional reductions (relative to the ECCC 2030 baseline) from the entire buildings sector (see table 3).
Although our focus here is Canada’s 2030 target, we must not lose sight of the fact that Canada’s Paris emissions reduction pledge and those made by other countries are intended only as a first step in achieving the overarching goal, adopted by Canada and every other country in the world at the Paris meeting, of limiting global mean warming to no more than 2.0°C above the preindustrial mean. Compliance with this goal requires that net anthropogenic CO2 emissions fall to zero by about 2060. Long before that, stringent global fuel efficiency standards could dramatically reduce oil demand: an advanced hybrid electric vehicle would require three to four times less fuel per kilometre in urban driving than today’s conventional vehicles and two to three times less in highway driving. An advanced plug-in hybrid electric vehicle in electric mode and an advanced all-electric vehicle would require about 10 percent as much energy (as electricity) per kilometre as today’s conventional vehicles use (as fuel). Furthermore, these vehicles could be less costly than conventional vehicles on a life-cycle basis by 2030.
There will be political pressure (the Paris target) to reduce GHG emissions to near zero by mid-century, the technical means exist to do so in the transportation sector, and this transition could be economically attractive in its own right. In such a world, expensive, carbon-intensive oil from the Canadian oil sands would be one of the first fuels to be cut.
As discussed by Chris Turner in The Patch: The People, Pipelines and Politics of the Oil Sands (2017), the development of the oil sands has been a national project going back to 1913, and it has provided significant economic benefits both to Alberta and to all of Canada. Winding down oil production from the oil sands, both to achieve our own climate targets and as a defensive measure against the inevitable permanent collapse in oil prices as the world makes the necessary transition to a post-carbon economy, must equally be seen as a national project — a matter of concern to the entire country and not just to the producing regions and industry.
Overall, oil sands operations do not represent as large a fraction of the Canadian economy and even of the Alberta economy as one might think: the direct contribution of the entire oil, gas and mining sector to Alberta’s 2016 GDP was 16.4 percent, of which oil sands mining and processing was likely about one-third (or 5 to 6 percent of total provincial GDP). Oil sands royalties accounted for only $1.2 billion out of $42.5 billion of provincial revenue in 2015-16 (2.9 percent of the total), and oil sands oil production is estimated to account for only 2 percent of Canadian GDP.
With a gradual (12-to-15-year) phase-out of oil sands operations, workers and capital can be redeployed to emerging sectors (renewable energy and building retrofits, among others). Nevertheless, we need to begin a national conversation now about how to wind down the tar sands operations in an equitable way, and we have little time to lose.
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