Thursday, June 27, 2013
Now, Alberta, About That Pesky Carbon Bubble
By some accounts, the Carbon Bubble dilemma worsened yesterday with president Obama's climate change speech. He said that approval of the Keystone XL pipeline would depend on ensuring it didn't "significantly increase" greenhouse gas emissions. Obama could have but didn't clarify what that meant.
He might have meant total, overall emissions associated with the extra production of Athabasca bitumen - everything from extraction to refining to end-use combustion of the synthetic petroleum and its coke by-product. In that case, barring the development of some wondrous (and yet very cheap) carbon sequestration technology that has seemingly eluded the Oil Patch for decades, Keystone is likely as dead a duck as those that land in Athabasca tailing ponds.
If he meant something far narrower in scope, something that excludes the processing and transportation emissions and the by-product emissions, Keystone might just have a chance.
What really matters, to the Bitumen Barons at least, is what a rejection of Keystone would say about their product, DilBit or diluted bitumen. It won't be the pipeline that bothers Obama but what it's carrying. Rejecting Keystone would be a body blow to bitumen, denouncing it as an unacceptable climate change hazard.
Think this doesn't worry Harper and Redford? Look at the lengths they went to in cajoling the Euros not to label Athabasca bitumen a "high carbon" fossil fuel. How much bitumen do the Euros buy? Next to nil. But, if the E.U.'s position on dilbit mattered so much to the Alberta and federal governments, what would it mean if bitumen's biggest customer, the United States, moved against it?
Athabasca bitumen is not merely high-carbon but also high-cost. Extraction, processing and transporation is not only very costly but carries really big environmental costs that, to date, have largely been ducked. Today bitumen is being squeezed, having to compete with lower cost natural gas and conventional oil energy produced through fracking. There's a reason Alberta's royalties are so pitifully low, several reasons in fact.
Slowly but finally we are waking up to the realities of climate change and its impacts. We've had several years in which to observe mega-floods, mega-droughts and severe storm events of increasing intensity and frequency. We have come to understand that there's an immediate, direct and massive cost associated with our new climate. In Canada alone it's estimated we will need to spend a trillion dollars to upgrade our essential infrastructure to withstand climate change impacts. That's a million million dollars, a thousand billion if you like, a pretty hefty bill for a country of 35-million people. It's also an amazing stimulus package even if we pare it down to just ten or twenty per cent. Unless we want to live in caves, we're just going to have to bite the bullet.
Canada, of course, is not alone. Just about every other country is facing its own infrastructure time bomb. Every other country is having to cope with our new and more severe climate. We're all getting a climate change smack upside the head and, being forced to confront it, we begin to ask questions.
Yes, the denialists are right, no matter what we do about our emissions we won't see any improvement in climate change impacts in our lifetimes. We can't really make things better for at least a century. What the denialists never want to talk about, however, is that we can certainly make conditions much worse, especially for our children and grandchildren, if we don't act - effectively and soon to decarbonize our societies and our economies.
So, as these realities spread and sink in, societies and nations are going to have to make choices. They'll have to decide how much more fossil fuels we'll consume and, of those fossil fuel reserves, which should still be used and which should be left in the ground.
It's pretty obvious that, once you accept that the carbon economy is making your future painful, you'll decide that your essential carbon energy needs should be met with the cleanest, lowest-carbon sources and that it's best to leave the high-carbon fuels in the ground. Which brings us to bitumen, the highest-carbon form of anything that could be considered petroleum. Burning that, including the really high-carbon, high-sulpher petcoke by-product that's quietly shopped around to unscrupulous foreign customers, just doesn't make any sense at a societal level.
It's a good bet, therefore, that bitumen's days are numbered. A recent report in Britain's prestigious Financial Times noted market analysts already beginning to steer major clients away from high-carbon fossil fuels.
"...high-carbon assets will face increasing regulatory constraints and a growing risk of becoming stranded assets.
“The only realistic method for asset owners to manage climate risk is to hedge their portfolios – to invest in low-carbon assets so that when carbon is re-priced, either directly or indirectly, the destruction of value in their high-carbon investments is offset by an increase in value in their low-carbon investments.”
The first step in this rebalancing of portfolios is for institutions to find out how exposed their current investments are, and then to tell people about it.
This is a significant leap for the sector, which has a tendency to be secretive. “There is a crisis of transparency in this industry,” Mr Poulter says.
“Asset owners have never been put on the spot before.”
Yes, it's right there, in print, "stranded assets." That is the likely fate of high-carbon fossil fuels. They face becoming stranded, unmarketable, essentially valueless and, when they do, all of the deferred royalties, subsidies and grants, and unfunded environmental costs will remain in the liabilities column.
And there is, indeed, "a crisis of transparency" in Canada's bitumen industry and its governmental minions, federal and provincial. They don't want to discuss the risks and viability of high-carbon fossil fuels like Athabasca bitumen. They don't want to acknowledge the danger of the Carbon Bubble or the risks of bitumen becoming a stranded asset.
When government works that hard not to discuss something obvious, you should ask why.