Number Crunchers from the U of A wrote a feature for Maclean’s magazine titled “How the oil sands could very quickly become unviable.” This is irresistible click bait! Too bad for all the greenies, it wasn’t a silver bullet to stop the flow; instead it was a foreboding warning for stock investors about the carbon bubble, which “may be over-valued as a result of not accounting for potential future limits on fossil fuel extraction imposed to fight climate change.” Translation, YOUR STOCKS AREN’T SAFE UNLESS YOU FIGHT THE FIGHT ON CLIMATE CHANGE.

Oil sands emissions only account for 20% of the emissions from the lifecycle of a barrel of oil; “up to 80% of the life-cycle emissions from oil sands occur from refining and combustion, not from extraction and upgrading.” It makes sense that big oil shouldn’t pay for all the carbon tax just to pass it on to everyone else. An engineering friend of mine recently explained burning it, and therefore releasing all those fumes, is the stupidest thing you can do. Oil is used or lots of different purposes like lubricants, plastics, and even ice cream.

But, and this is a big BUT the author is making, even if we acknowledge that the oil sands account for a fraction of the emissions of oil, imposing even that 20% levy at a ridiculously tiny $16/tonne (20% of $16/tonne=$3.20 actual costs to big oil) would spell disaster for oil economics in Canada.

“…if an average cost of carbon of $16/tonne on 20 per cent of your emissions raises competitive concerns, it seems that investors should worry a great deal about risks to future returns from oil sands assets. Such a policy boils down to 320 pennies [$3.20, the young don't know what pennies are] per tonne of life-cycle carbon emissions, hardly aggressive given the magnitude of global emissions reductions which will be required…” [brackets mine]

Translation, IF BIG OIL NEEDS TO PAY FOR ANY EMISSIONS YOUR STOCKS WILL TANK. At the most ineffectual carbon tax, the oil sands are bust, and some folks like the Pembina Institute say we need rates over $100/tonne. To make matters worse, even if there isn’t a levy imposed on the oil sands and it is passed on at the pump, big oil still suffers when soccer moms stop using their vans.

Even a $50/tonne carbon price presents a serious risk to the economic viability of this investment if, as will have to be the case if global emissions are to be reduced, these policies are applied to combustion emissions and consumers aren’t willing to simply pay the tax. The more consumers react to increased prices with reduced demand, the more detrimental carbon policies become for oil sands investments.

What do you think about this? Do you have oil sands investments that you are worried about? Alberta’s economy would take a big hit if a meaningful national carbon tax was implemented, should Canada bail them out if they become a have-not province after carbon tax renders them unviable. Is there any way you figure it could work? Do you think this argument for or against a carbon tax holds oil water? Say something below.