Life After Oil Is Coming... But Will We Be Ready?
By Murray Sinclair
The coming 'post-carbon' economy doesn't have to be the end of Alberta's prosperity
The year is 2040. Symbolic of Edmonton’s rust-belt economy, electric cars whiz by an abandoned, derelict Refinery Row, although there are plans to turn part of the old complex into a petroleum heritage site. In a nearby run-down café, Chad and John talk about the boom years of their youth. They recall the time before Alberta got left behind, as governments and consumers worldwide turned away from dwindling oil and coal energy sources in a mass response to global warming and other environmental concerns. They discuss the time before downtown Calgary became an abandoned shell of empty buildings, before Fort McMurray turned into a ghost town, before so many of Alberta’s youth moved to Atlantic Canada to take plentiful jobs in the red-hot tidal-power industry. “We never thought Alberta’s boom would end,” says John. “Yeah,” replies Chad, looking philosophical. “But the Stone Age didn’t end because we ran out of stones.”
This future shock scenario may sound far-fetched, especially with all the hype about Alberta’s current petroleum-driven boom and seemingly unending supply promised by the province’s oil sands.
But environmentalists are predicting a post-carbon or “carbon-constrained” future, when the world will use significantly less fossil fuels to the point where they will no longer be a main source of energy.
“We’re at the very beginning of the end of the oil age,” said Lindsay Telfer, director of the Sierra Club of Canada’s prairie chapter. “Our own government’s trying to struggle with it.”
After hearing the fictional dystopia described above, an analyst with the Pembina Institute replied “I don’t know if things would happen that dramatically.”
Jaisel Vadgama said the more likely conversation would be “if we had started planning, we could still have a vibrant economy, or a boom based on something else.
“We are certainly at risk of being left behind on new technologies,” Vadgama admitted. “Alberta could shoot itself in the foot.”
Carbon-based fuel sources like oil and coal are fingered for warming the climate when they are burned and release greenhouse gases, named for their environmental effect on the atmosphere.
Much of the discussion about dealing with global warming has centred around 1997’s Kyoto Protocol, ratified by 173 countries, which commits Canada to cut its greenhouse-gas emissions to six per cent below 1990 levels.
Telfer said many European countries are well ahead of that goal, with the UK exceeding its Kyoto target and Sweden massively investing in alternative fuels.
“There’s an acknowledgement of serious problems and repercussions” related to global warming, she said.
But Kyoto is considered just a first step, and many US states and European Union countries are targeting greenhouse-gas emission cuts of 60 to 80 per cent from current levels in the next 40 years.
“By 2050, global emissions must be reduced by up to 50 per cent compared to 1990, implying reductions in developed countries of 60 to 80 per cent by 2050,” specifies a document approved in January from the EU, which cites “considerable scientific evidence from the Intergovernmental Panel on Climate Change” to back this goal.
“Many developing countries will also need to significantly reduce their emissions,” Telfer said. “It’s critical that the quickly developing countries of India and China start to face reductions for the post-Kyoto period of 2012-20, which will be globally negotiated next.”
The Europeans have backed the cuts scientists have said are a needed step to stabilize the climate at two degrees Celsius above pre-industrial levels, to ultimately deal with global warming.
“Now people are thinking more long-term,” said Vadgama. “It’s certainly not too late to be doing something about it.”
Japan is also asking the world to take its lead on the Cool Earth 50 plan, which aims to halve the country’s greenhouse gases by 2050, but from current instead of Kyoto’s 1990 levels.
“The 50 per cent off 1990 works out about the same as 60 per cent off 2006,” explained Lynn Brunette, a spokeswoman’s for Canada’s environment ministry.
In this country, greenhouse-gas cuts have continued to be a hot political potato, with the former Liberal government that signed Kyoto accused of doing nothing to implement it, while the country's emissions grew to the current 30 per cent above 1990 levels.
Prime Minister Stephen Harper’s minority Conservative government pulled out of Kyoto, but in its Clean Air Act targeted greenhouse emissions cuts between 45 and 65 per cent by 2050, using 2003 levels as a baseline.
The act was heavily rewritten by the opposition parties, which have a majority in the House of Commons, while an opposition bill asking the government to implement Kyoto became law last week.
But the Tories say the law lacks teeth, as it prescribes no funding, and the government has not acted on the rewritten Clean Air and Climate Change Act that sets 60 to 80 per cent reductions by 2050, based on Kyoto’s 1990 levels.
Harper has instead introduced a set of regulations, which are silent on the 2050 target, but aim to cut Canada's greenhouse gases by 20 per cent by 2020, this time compared to 2006 levels.
While Parliament plays with the numbers, the City of Toronto announced in March it was going much further, targeting an 80 per cent reduction from the 1990 emission level by 2050.
This month, the Saskatchewan government said it will cut the province's greenhouse gas emissions 80 per cent by 2050, using a 2004 baseline instead.
But the biggest obstacle worldwide to greenhouse-gas cuts has been the administration of American President George W Bush, who pulled his country out of Kyoto and rejected firm targets proposed at this month’s G8 summit of industrialized countries.
Still, the US’s largest state, California, has announced plans to reduce the emissions to 80 per cent below 1990 levels by 2050, while New Jersey passed a law to cut emissions by the same amount by then, using a 2006 baseline instead.
Telfer said even presidential candidates for 2008 from Bush’s Republican party, like John McCain, are talking about firm targets restricting greenhouse-gas emissions.
“Carbon will likely be capped globally,” she predicted. “Ultimately, it’s going to be inevitable. These 60 to 80 per cent caps are going to be stringent, and should send a clear signal to energy companies and consumers.”
But consumers have already been buying gas-electrical hybrid and hydrogen-powered vehicles, which have emerged on the market with little or no government incentives.
“In many respects, consumers are going ahead,” said Telfer, who noted declining SUV sales but still predicted that politically imposed carbon caps will come first.
“Citizens are making demands to step up (government action on climate change),” she continued. “You need government to send the signal and significant consumer demand.”
Automotive observers anticipate that hydrogen vehicles will be commercially available within a decade, while a “hydrogen highway” of filling stations has been planned from California to British Columbia.
Bio-fuels like ethanol made from farm crops and fat from livestock and restaurant waste are other emerging oil alternatives to power future vehicles and industry. In April two giants in the oil and meat production fields, ConocoPhillips and Tyson food, announced a joint venture to produce fuel from beef, pork and poultry fat to market to American trucking fleets.
Vehicles running on alternative fuels would have a significant impact, as transportation accounts for 20 per cent of all greenhouse emissions in Canada, while an equal amount is spewed out for fossil fuel production.
Telfer said transportation uses up 75 per cent of the oil derived from the oil sands, which themselves produce 85 tonnes of carbon dioxide per barrel during extraction, three times the amount from conventional oil development.
Globally, fuel oil and gasoline gobble up 84 per cent of petroleum production, with other petrochemical products like plastics using the rest.
But scientists are also seeking alternative feedstock sources for plastic, with one company genetically modifying canola to produce a natural plastic.
Another sign pointing to a post-carbon economy is “peak oil,” referring to the time when all the world’s available oil will be discovered, leading to a gradual fall in petro-production.
The CEO of Calgary’s Talisman Energy recently predicted that global oil production had already peaked, meaning that prices of the non-renewable resource will inevitably climb.
Telfer agrees, but noted that some feel production peaked as far back as 1990, while others say it will arrive later.
“We need to use less carbon. That’s going to hit us” before peak oil arrives, predicted Vadgama.
Conventional wisdom suggests that the post-carbon economy is slated to hit Alberta hard, as Canada’s largest producer of both oil, and coal for electricity.
“It’s a central part of the Alberta economy,” said Alberta Energy spokesman Jason Chance, confirming that one in six Albertans work for the industry directly or indirectly.
He noted the $14.7 billion paid to the treasury for 2005-06 in oil and gas royalties and taxes, a figure that doesn’t include income tax or other economic spin-off effects.
University of Alberta economist Andre Plourde said roughly a third of provincial government revenues come directly from the industry. The sector makes up between 15 to 40 per cent of Alberta’s economy, the professor said, depending on what factors are measured.
“We’re big producers and consumers of hydrocarbons,” said Plourde.
Alberta was a lot less dependent on fossil fuels in the 1980s and ’90s, he said, speculating that the province is now at roughly the same point it was in the early ’70s.
Alberta is responsible for around 40 per cent of Canada’s emissions, with oil and gas spewing 33 per cent of the provincial total, and our mostly coal-based electricity production contributing another 22 per cent.
Nationwide, about 85 per cent of total Canadian greenhouse-gas emissions are “associated with energy consumption, production and distribution,” reads a federal government energy outlook.
In February, former oilfield businessman and provincial Energy Minister Mel Knight said he didn’t see worldwide environmental pressure shaking Alberta’s link to an industry that has provided so much wealth.
Chance said the provincial government does not think a post-carbon economy is imminent, calling the concept speculative, and saying the industry will remain a key part of Alberta’s economy, which he noted benefits Canada as a whole.
Like the spokesman, Plourde rejects the view that peak oil has happened or will soon, arguing there’s “all kinds of places that have not been explored” worldwide.
High gasoline prices equaling more than $1 at the pumps may be attributed to bottlenecks in refining, he said.
The economist agrees with Vadgama that governments should start to put a price on carbon that factors in the environmental harm inherent in its production.
But he noted that the 2050 date for mass greenhouse-gas cuts is far away, leaving much time for a gradual transition.
No government would legislate an abrupt change away from fossil fuels, Plourde predicted, and he doesn’t foresee a similar shock from any sudden shift in consumer preferences.
When asked about the post-carbon economy, Canadian Association of Petroleum Producers (CAPP) president Pierre Alvarez warned to “be careful to say things are necessarily over.”
While hard emission caps “clearly will have an impact if they come,” he pointed to a Shell study showing fossil-fuel production stabilizing due to new demand coming from the developing world, and then declining slightly.
Sure, the day will come when there’s a transition towards more alternative fuels, said Alvarez, but he wondered how ready these alternatives will be for the market in today’s “energy-intensive economy.”
Saying there’s a “great debate” over peak oil, Alvarez admitted conventional oil extraction has “certainly” peaked, leaving harder-to-extract oil like that found in Alberta’s oil sands.
The technology and labour intensity needed to get this oil can drive up the price, making alternative fuels more attractive to develop, and Alvarez acknowledged oil could start to price itself out of the market.
“That’s what markets do,” he said, noting how the oil industry has a long history of weathering upheavals. “Everybody has to adapt to this.”
Alvarez added that the province is aware of the changing dollar figures and related royalties involved as the ways of getting fossil fuels out of the ground change.
“Financially, there’s a crunch coming,” warned Vadgama, who lamented Alberta’s lack of a long-term energy strategy in favour of mass extraction as soon as possible. “The money coming in (now) isn’t going to be coming in over 20 years.”
Earlier this month, Alberta’s Energy and Utilities Board announced its belief that the province’s production of natural gas, a top government royalty-earner, peaked in 2001 and will continue to drop.
Chance acknowledged Alberta’s need to take into account the changing landscape.
“We’re also looking to the future,” the spokesman said.
He called Alberta a national leader by producing Canada’s highest amount of wind power per capita, while the province is supporting bio-fuels and more efficient coal plants.
Chance also touted Alberta’s climate-change legislation, which includes a carbon-trading system but has been panned by opponents for being “intensity-based,” meaning greenhouse emissions could go up as companies expand their output.
“The government is trying to shelter the industry from the world market,” said Vadgama.
He said when the government, which rallied hard against Kyoto, sets up a doom-and-gloom scenario warning that new green laws will destroy the economy, environmentalism gets blamed when there’s an economic downturn.
“People have a vested interest in a global economy that requires a lot of petroleum,” said the analyst, adding that dealing with a post-carbon economy is an interesting question in Alberta.
“Does Alberta say ‘let’s get ready, and make sure it’s not a sudden shift that takes us by surprise?,” he asked. “It makes more sense to adapt to change than plugging our ears.
“In Alberta, there’s a lot of potential to decouple economic growth and greenhouse-gas intensity,” he continued. “Alberta is energy-rich in fossil fuels, but also abundant in solar and wind resources. Everyone can have solar panels on their houses.”
Conservation and efficiency can be tied-in to better design of communities, Telfer added, to make them less vehicle-dependent.
Vadgama agreed with Alvarez that wind-power reliability is literally linked to how often the wind blows, but he said better battery technology could solve this problem.
“There are these major technologies that will come over the next 40 years,” predicted the analyst. “We could put into place all of [these technologies]].”
In line with the idea of putting eggs in different baskets, Vadgama listed knowledge as a new technology Alberta could develop, perhaps with money saved from the present petro-based boom.
“It doesn’t happen overnight,” he warned, “and it’s going to be more expensive.”
New environmental technologies developed in Alberta could be exported, he said, noting Denmark’s industry spreading the nation’s know-how from its well-developed wind-power industry.
Economic diversification has long been a political dream in Alberta, but Plourde warned that developing an alternative economy isn’t as simple as having some sort of Plan B to be easily pulled out when Plan A fizzles.
CAPP wants developing new technology instead of a carbon-trading system, but Alvarez said the new technology could be combined with fossil-fuel extraction, suggesting the oil sands could be tapped to help produce hydrogen.
He pointed out that his association’s energy companies are the biggest users of solar, wind and ethanol fuel, for example with solar panels powering remote wells.
Environmentalists are wary of clinging on to old technologies, with Telfer warning that powering electric vehicles with coal would cut into their ecological benefit.
But Vadgama still foresees a role for some fossil fuels, pointing out how it may be hard to power an airplane with sources other than oil-based fuel.
As supply and demand for oil shrinks, he said Alberta would remain in a good market position as a politically stable supplier that is close to the United States.
But the analyst said the remaining oil produced here would have to be extracted in an environmentally sound way, for instance by capturing and storing the carbon released by the oil sands, at a cost Pembina estimates to be $2 to $3 per barrel.
Even Alvarez speaks about Alberta’s ultimate transition to an “energy economy from an oil-and-gas economy.”
But he said it’s very unlikely that the revenues generated from fossil fuels will be replaced dollar per dollar by what will come in from less lucrative wind or solar power.
The province will remain an energy superpower, the president predicted, but “it won’t be the same superpower.”
Regardless of what happens to the provincial economy, environmentalists say the fight against global warming will continue.
“There’s very little change of the status quo,” said Vadgama. “The effects of global warming are going to be severe. We will experience less predictable weather.”
He added that the rest of the world is feeling the effects now, predicting up to five billion people will be affected, for instance with rising sea levels in heavily populated coastal regions of Bangladesh. The analyst pointed out that the US and British governments are now factoring the security implications of environmentally displaced people into their defence and foreign policy calculations.
Earlier this month, United Nations Secretary-General Ban Ki-moon partly blamed climate change for the conflict in Sudan's Darfur region, noting the area’s droughts and related fighting over water sources.
Vadgama, who spent last year in Africa, said developing-world areas hurt by the sort of pollution Alberta produces are looking at the province and saying in an incredulous tone of voice, “‘you’re telling us you don’t have the economic capacity to change?’”—although he readily admitted that “We don’t hear about that story.”