Yes, some oil will have to stay in the ground

On the face of it, the recent remarks made by Toronto Centre NDP candidate Linda McQuaig should have been uncontroversial. Banal, even. When McQuaig said on CBC television that a “lot of the oilsands oil may have to stay in the ground if we’re going to meet our climate change targets,” she was repeating what anyone familiar with the economics of the oilsands already knew. More precisely, the first part of that sentence was unobjectionable: most oilsands oil will stay in the ground. It’s the second part that requires some unpacking.

No one has ever seriously claimed that all of Canada’s oil should be extracted and burned. Canada’s “proven reserves” of 170 billion barrels (bbls) is an estimate of the total amount that can be feasibly recovered given prevailing prices and technology; about 40 billion bbls of these reserves are being actively developed. Estimates for the total amount of oil in the ground are around two trillion bbls, more than 10 times greater than our proven reserves. The “extract every barrel” scenario is typically used as a way of exaggerating estimates for the environmental costs of oilsands development, not for amplifying their economic benefits. So in a context in which more than 90 per cent of Canada’s oil was already expected to be left unrecovered, saying that a lot of oil “may have to stay in the ground” should raise relatively few eyebrows.

Nor should anyone be surprised to hear that — everything else being equal — an effective plan to reduce greenhouse gas emissions (GGEs) would slow the pace of oilsands development. If GGEs become more costly to produce — by means of a carbon tax, a cap-and-trade system or regulations — then it is likely that some oilsands operations will no longer pass the cost-benefit test. In other words, some oil that might otherwise have been extracted in the absence of a policy to reduce GGEs would indeed be left in the ground.

So why the fuss?

It helps to put McQuaig’s remarks in the context of an environmental movement that has often called for a moratorium on the development of the oilsands. “Leave it in the ground” is a popular slogan in certain circles and “a lot of the oilsands oil may have to stay in the ground” could be interpreted as a thinly disguised appeal to that sentiment.

The case for shutting down the oilsands got a boost from a peer-reviewed letter written by climate scientists Christophe McGlade and Paul Ekens and published in Nature magazine in January. This sentence in particular received much attention in Canada: “85 per cent of Canadian bitumen reserves remain unburnable if the 2C limit for global temperature changes is not to be exceeded.” (In this case, the “reserves” referred to are business-as-usual production between 2010 and 2015, not all proven reserves.)

The University of Alberta’s Andrew Leach noted that this result got rather more attention than it really deserved. If these cuts were a necessary condition, it would not be possible to keep global temperatures from increasing by 2 C without these sharp reductions in oilsands production. If they were a sufficient condition, these cutbacks in production would guarantee that the target would be met. Professor Leach notes that while the 85 per cent figure was an outcome of their preferred model, it was neither a necessary condition nor a sufficient condition for keeping climate change in check. These reductions in Canadian oilsands production would account for a temperature change of 0.02 C, about one per cent of the global target.

But perhaps the real issue is that the “leave it in the ground” line is part of a broader narrative in which greenhouse gas emissions are seen as a problem for the oil and gas sector alone to solve, not Canada as a whole. But it hardly makes sense for a sector that accounts for 25 per cent of GGEs to be obliged to bear 100 per cent of the reductions.

Reducing GGEs requires cutting back on activities that generate emissions. The reason why economists prefer market-based approaches to climate change reduction is that putting a price on carbon takes the decision of which activities should be shut down away from the government (and their lobbyists) and gives it to the market. Firms that cannot cover the costs of their emissions will be forced to shut down and emissions will continue to be generated in the sectors that generate enough value to cover their costs.

An effective climate change policy will almost certainly reduce the pace of oilsands development and some projected operations will likely get cancelled. But these disruptions won’t be — and shouldn’t be — limited to the oil and gas sector. McQuaig could easily have said, “some marginal auto plants may have to close if we’re going to meet our climate change targets,” or even, “those new refineries may have to stay unbuilt if we’re going to meet our climate change targets.”

The atmosphere doesn’t care which sector generates greenhouse gases. Neither should politicians.

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