Energy Transition in Canada’s Oil Sands, with Andrew Leach

Notable Quotes

• Business as usual for the Canadian oil and gas industry in the near term: “[The oil and gas industry is] still a significant source of emissions and is not expected to drop, even under the stringent policies that we already have in place nationally, including carbon taxes, clean fuels, regulations, and more. The oil and gas sector is looking stable through 2035, unless other new measures are adopted on top of those already implemented. The oil and gas industry presents a challenge for the federal government and, by extension, the Alberta government.” (6:26)
• Tension between provinces and the federal government in Canada: “The provinces have exclusive legislative jurisdiction over resources in the narrow sense, but the federal government has jurisdiction to regulate or to legislate in relation to other things that affect resources, fisheries, navigable waters, migratory birds, and, in some cases, greenhouse gas emissions. There’s a fight when both jurisdictions have the ability to pass laws that affect the other’s jurisdiction, and that creates an antagonistic relationship.” (9:32)
• Role of First Nations in Canadian energy development: “The environment with respect to Indigenous communities is substantially different [than in the United States] because of our 1982 constitutional amendment, where we enshrined First Nations’ rights in our constitution … In Canada, it’s easy to say that the future of the resource industry relies on, if not permission, then meaningful engagement with First Nations communities.” (25:35)

Top of the Stack

• The Patch by Chris Turner
• How to Be a Climate Optimist by Chris Turner

The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future. I’m your host, Daniel Raimi.

Today, we talk with Andrew Leach, professor of law and economics at the University of Alberta. As Canada and the world look to reduce greenhouse gas emissions, how might an energy transition affect Alberta, where most of Canada’s oil and gas is produced? I’ll ask Andrew to help us understand how federal policies are creating tensions with provincial leaders in Alberta and how Indigenous communities are increasingly involved in shaping decisions on oil and gas development. We’ll also talk about the environmental liabilities associated with oil sands, along with the similarities and differences between Canada and the United States on energy transition issues.

Andrew Leach from the University of Alberta, welcome to Resources Radio.

Andrew Leach: Thanks for having me.

Daniel Raimi: Thank you for joining us. I’m looking forward to today’s conversation on Canadian oil and gas—particularly Albertan oil and gas. Before we get into our subject du jour, we always ask our guests how they got interested in energy or environmental issues, either at a young age or later in life. What inspired you to work on these topics?

Andrew Leach: For me, it goes back to my family’s home in Miramichi, New Brunswick, which is a lumber town on the east coast of Canada. All of my family worked in the lumber industry, and our family lived upriver from a pulp mill. I remember learning early on that you could swim in the river at my grandmother’s house, but you couldn’t swim if you were further downriver below the pulp mill. I found I was asking those questions and figuring out all of the give-and-take between environmental policy and economics without knowing what I was learning about at that point. That was a driver that pushed me to environmental science.

Then, I attended the University of Guelph for my undergrad degree. John Livernois, an economics professor at the University of Guelph, taught a class that brought that science aspect, economics policy, and the environment all together. Those are all the subjects I’ve been working on since his class.

Daniel Raimi: Andrew, thank you. For a research project, I’ve been learning a little recently myself about lumber mills and some of the pollution issues associated with them.

As I said a moment ago, we’re going to focus on the energy industry in Alberta today—particularly the oil and gas industry. Before we get into details around policy, economics, and trends in the sector, can you give us a bit of an overview about how the oil and gas industry in Alberta contributes to Canadian oil and gas production writ large and the entire Canadian economy?

Andrew Leach: Alberta is the center of the Canadian oil and gas economy. We produce the lion’s share of Canadian oil—about 3.75 million barrels per day out of Alberta. Additional oil comes from Saskatchewan to our east, as well as from offshore production sites in British Columbia to the west. Gas production is more important in British Columbia, but Alberta still produces about 11 billion cubic feet of gas per day. If you put that in US terms, the province of Alberta produces the equivalent of about 10 percent of US natural gas production and about 35 percent of US oil production. Alberta really is the lion’s share of Canada’s fossil fuel economy.

Employment is another significant facet of the oil and gas sector. Calgary, our province’s largest city and our financial hub, has an incredibly large financial sector devoted mostly to oil and gas and energy, as well as all of the engineering, construction, design, and banking jobs that go along with the energy sector.

Daniel Raimi: Right—the direct employment and then the indirect and induced employment.

Andrew Leach: I’ve got to avoid those terms that every economist hates.

Daniel Raimi: Yeah, fair enough.

Andrew Leach: There’s the fiscal side of it, too, which drives everything in the government sense. About 35 percent of our government’s revenue is direct-resource revenue. A large share of the income taxes and property taxes at the municipal level are driven by resource industries, too. Oil production has an outsized fiscal role in addition to its employment and energy roles.

Daniel Raimi: We see a similar dynamic in some US states.

The federal government in Canada has legislation that aims to reduce greenhouse gas emissions to net zero by 2050. With that in mind, can you give us a little background on how the energy industry in Alberta contributes to emissions at the national level and whether the trends are up or down over time?

Andrew Leach: Canada has a couple targets that they’re pushing towards. A Glasgow target of 40–45 percent emissions below our 2005 level is one target. There’s the net-zero target that you mentioned. Right now, we have legislation that doesn’t put us on the path to either of those. We are still looking for significant additional measures, and a lot of them are aimed at the oil and gas sector, because, right now, the oil and gas sector makes up about one-third of our national greenhouse gas emissions—179 megatons out of 650.

Other sectors, such as electricity, are on a path to rapid decline, whereas the oil and gas sector hasn’t been growing as fast in recent years as it had through 2015. It’s still a significant source of emissions and is not expected to drop, even under the stringent policies that we already have in place nationally, including carbon taxes, clean fuels, regulations, and more. The oil and gas sector is looking stable through 2035, unless other new measures are adopted on top of those already implemented. The oil and gas industry presents a challenge for the federal government and, by extension, the Alberta government.

Daniel Raimi: What are the technical processes that lead to high emissions from the oil and gas industry? I imagine this has to do with oil sands mining and upgrading the fuels, but can you give us a flavor of those processes and why they’re so emissions intensive?

Andrew Leach: First, the basic problem with the oil sands that makes the extraction process emissions intensive is that the oil is a heavy hydrocarbon. It’s analogous to what California’s heavy-oil industry would look like—you need some other injection of energy to extract the oil and to make it amenable to putting into a pipeline. Second, the mining industry uses a lot of diesel fuel; trucks and shovels run on a lot of diesel fuel. Next, there’s an emissions-intensive process to separate the oil from the sand. In some cases, there’s also an embedded, partial refining process to create a lighter crude oil from the oil sands product.

There’s another class of operations that extract oil (in a means similar to what California does) using steam injection to extract the oil with wells or the oil-sands product through drilling-based extraction. There, you’re talking about a large operation to create steam from water and a similar operation to treat the water and remove the impurities. All of these processes and operations are emissions intensive.

Daniel Raimi: I’ve heard of a contentious relationship between the elected leaders in Alberta and the elected leaders at the national level in Canada about some of these emissions-reduction goals. Can you talk a little about the political dynamics between the leadership in Alberta and the leadership at the federal level and how this dynamic has evolved over time?

Andrew Leach: One of the most important traditions in Alberta is for our premiers to fight with Ottawa over resources. We’ve probably been doing it since Alberta was created as a province, but we’ve been doing it aggressively since the 1970s and 1980s. The fundamental fight is (a) you have a valuable resource in one region of the country and the federal government acting to distribute those revenues or distribute the value of the resource, while (b) you have the question of who has legislative jurisdiction.

The provinces have exclusive legislative jurisdiction over resources in the narrow sense, but the federal government has jurisdiction to regulate or to legislate in relation to other things that affect resources, fisheries, navigable waters, migratory birds, and, in some cases, greenhouse gas emissions. There’s a fight when both jurisdictions have the ability to pass laws that affect the other’s jurisdiction, and that creates an antagonistic relationship. Put money and politics in the middle of it, and it’s always going to be antagonistic.

Daniel Raimi: Have the antagonistic dynamics ratcheted up with the increased climate ambition, or has it always been this way?

Andrew Leach: I think it’s ratcheted up—not as much with the increased climate ambition, but more so with the downturn that came about in 2015 and 2016, when oil prices dropped. That event coincided with the election of a left-of-center government in Alberta, the election of the Trudeau government in Ottawa, and more push for action on climate change. Globally, and particularly here in Alberta, there was a big drop in investment. People were no longer experiencing the Alberta that they were used to seeing. The obvious thing to blame was the change in government here and in Ottawa.

As you’ve had in the United States, the ability for rage farming on social media, to bring together people who are angry, has affected us, as well. I’ve seen that element take effect. Since 2016, it’s been at a high level, but now it’s back again with a new premier here in Alberta.

Daniel Raimi: “Rage farming” is a new term for me, but, of course, I knew exactly what it meant as soon as you spoke.

Another question on politics: I was reading about a bill that is expected to be introduced in Ottawa on a “just transition,” where the federal government would look to find new economic opportunities for many of today’s oil and gas workers and oil and gas communities. What do we know at this point about the potential content of that legislation, and what are people saying about it in Alberta? Do you know anything about how it’s likely to be received?

Andrew Leach: This term of a “just transition” has been around since the conception of the Superfund program for environmental cleanups in the United States, but in Canada it is not in common use. We’ve specified in our environmental policies that governments should take a role in making sure that those individuals who are displaced by environmental policy have alternative opportunities. The current federal government unsurprisingly is doing a lot of things to change our energy sector in a relatively short period of time. One of the pushes they were receiving from the labor sector was to integrate some kind of framework to shelter workers from these challenges.

The government here in Alberta has grabbed onto the term “just transition,” and they framed it as more of an active thing. The federal government is trying to transition workers out of the energy sector—picking them up and putting them somewhere else. The just transition has been framed as a clear and present threat to oil and gas workers in the province of Alberta, as opposed to how I would frame it, which is as an insurance policy—if the energy transition rolls out as we might expect or fear, then, depending on where you are in the industry, there are options. It has created an outsized fight for what the legislation was intended to be, which was training, education, and government support for workers.

Daniel Raimi: There’s a similar dynamic here in the United States where that term “just transition” has come to be reviled by everyone on both sides for all sorts of reasons—but certainly on the industry side. We see many of the same dynamics that you’re talking about.

Andrew Leach: I feel like it gives people permission to ignore the real economic effects of some of these initiatives, whether they are individual policies or the broader energy transition, and that the government is not going to be able to recreate the world that exists in Alberta. If the government could create an oil boom wherever it wanted to, there are lots of regions of the country that could use that kind of economic development right now. That’s beyond the reach of the government. There’s a little bit of an “Oh, don’t worry, it will be fine” aspect that goes with the term, which doesn’t play well here, and that I don’t think is realistic, either.

Daniel Raimi: We’ve been talking so far about the federal government and the provincial government, but there are dozens of First Nations in Alberta and other Indigenous communities across Alberta and other parts of Canada. Judging from what I know in the United States, I expect that there is a lot of variation across these communities about the way that people see the oil industry, the way that they perceive the energy transition, and the way that they view other associated issues. Can you talk a little about what you know about those Indigenous communities that are most directly affected by the oil industry, and what types of policies they might be advocating for, recognizing that it might be a mix and diverse set of perspectives across different communities?

Andrew Leach: I don’t want to speak for any of the communities, but diversity certainly exists across, between, and within communities about how the oil and gas industry writ large or a particular development should be seen. We have a few cases right now where Indigenous communities that have been engaged in the oil and gas industry at a business, development, or employment level, have now reached points where they say, “Nope, this is a bridge too far.” It’s been a rising boil in Canada, and we’ve seen increased acrimony over a gas pipeline recently that maybe echoes some of the fight that took place in the United States over the Dakota Access Pipeline. We’re seeing a lot of concern now.

I worked on some of the filings for concern about oil sands remediation from First Nations in the oil sands region. The most interesting piece right now is in British Columbia, not Alberta. There was a recent court decision in British Columbia that held that cumulative effects of development could infringe on First Nations’ treaty rights. This is a situation where the government has said, “We are going to now comanage the resource industry with the Treaty 8 First Nations,” and that’s the same treaty that encompasses the oil sands region. We’re going to see a big shift over the next 5 or 10 years in response to that particular decision in British Columbia. We’re going to see more litigation in Alberta, and we’re going to have to see changes in the way the Alberta government deals with not just individual projects and individual development, but the broader effects of that scale and timeline of development.

Daniel Raimi: I’m curious to hear how that would play out. Could you give us an example of a specific project or region and how interaction between the Indigenous communities might play out with either the provincial or the federal governments in comanaging resource development?

Andrew Leach: Our 1982 constitutional amendment enshrines the rights of Indigenous peoples in the constitution. Some of those rights include the traditional use of land, hunting, fishing, and more. I’m giving you a rough summary of a 2,000-paragraph court decision, but the interesting piece of this case in British Columbia is that it is almost a death-by-a-thousand-cuts story. While no individual project might have been sufficient to remove those rights or to take away the traditional-use right, the overall impact of development writ large has been to take away that right or to prevent those rights from being exercised. The government ended up putting a pause on a wide swath of both forestry and oil and gas development to say, “Okay, now we need to come up with an agreement with the multiple First Nations in that area who are all covered by the same treaty.”

The government put a moratorium on development and have now, in the last couple of weeks, come back with the first agreement with one of the First Nations in that area, the Blueberry River First Nation, to jointly manage development. There is now a co-governance model where development won’t take place without the approval of the First Nations, which is a big step forward from what we’ve had in Canada before, which was a project-by-project view.

The connection to the oil sands is in Western Canada; the treaties are all numbered, and Treaty 8 (the treaty in question in this British Columbia case) also covers the oil sands region. The Athabasca Chipewyan First Nation and the Fort McKay regions in and around Fort McMurray are all within that treaty region. These are First Nations that have been long concerned with cumulative effects of oil sands development. The question I think that everyone in Alberta is asking is, “What happens next in Alberta in terms of new projects, cleanup of existing projects, individual well-drilling sites, pipelines, and more? How does this decision mirror into Alberta?”

Daniel Raimi: You’ve mentioned remediation a couple of times, and I’d love to talk more about that. Here in the United States, this topic of orphaned oil and gas wells has gotten a lot of attention over the last couple years. I’ve worked on it a bit. The broader issue of environmental remediation of oil and gas facilities is a big issue, especially in Alberta, because of the way the oil sands are extracted. Can you talk a little about the environmental legacy of oil and gas development in Alberta? What are the risks, and what type of systems are or are not currently in place to ensure that they get remediated appropriately?

Andrew Leach: We have two different categories and two different regulatory regimes. One is the oil sands, particularly the oil sands mines where you have mine tailings and tailings ponds on the landscape. The reclamation challenge there looks a lot like the legacy coal plants, where you have legacy ponds that contain waste that we’ll need to deal with over decades or centuries.

Daniel Raimi: Can you briefly describe what mine tailings are?

Andrew Leach: When we extract the oil sands, there is a mixture of sand, oil, clay, heavy metals, and more that you’re extracting using water, chemicals, and solvents. The waste product that comes off of that in the near term is water, sand, clay, a little bit of oil, and some heavy metals that are stored in lake-sized ponds in and around the oil sands. Over time, that water is reused out of those ponds. What’s left behind is a tailing—they call it mature fine tailings in the oil sands, but it’s something that’s the consistency of yogurt. The water, clay, sand, oil products, and then those heavy metals that I mentioned are held behind multi-story dikes of sand and clay right on the edge of the Athabasca River.

You’ve got a huge environmental liability that probably costs into the hundreds of billions of dollars to clean up over time. The way that the government has managed this is to allow the companies to use their operating assets as collateral against a future liability. As long as the net-present value of the mine—the value that it will generate in the future—is larger than the environmental liabilities on the mine site, they haven’t been asking for security deposits.

We have millions of dollars of liability in security deposits against billions, or hundreds of billions, of actual liability. That creates a concern. I mentioned earlier that I’ve worked on analysis for some of the First Nations who are concerned that in an energy transition, if the long-term future of these oil sands mines is not there, all of a sudden you have a government that holds mines that are essentially worthless or worth a lot less as collateral against a massive environmental liability in a northern community where there aren’t a lot of other communities downstream from the oil sand. They’re concerned that the liabilities are going to be stranded on the landscape and that those First Nations are going to bear most of the cost of that stranded liability.

We have another parallel problem, which is conventional wells. These are more distributed throughout the province. We have the same storyline where the regulator has relied on the fact that companies are going to want to continue producing oil in the province to encourage these companies to undertake legal requirements to clean up their wells, but they haven’t done up-front bonding or security deposits. Not surprisingly, you have two types of companies—those who have actively tried to avoid their liabilities, and those who, through no explicit fault or intention, end up financially distressed and have no ability to reclaim or remediate those liabilities. Again, we have substantial liabilities on the landscape—billions of dollars worth of liabilities that are unfunded in the landscape from the conventional sector.

Daniel Raimi: As you’re describing this conversation, there are many analogies to the United States and all of these issues about Indigenous communities, the future of oil and gas development, remediation, and political dynamics. I can’t help but think about the relationship between the federal government here in the United States in states like Wyoming, North Dakota, Texas, or others who have a different political orientation towards these questions. What can we in the United States learn from the experience in Alberta, whether best practices, worst practices, or anything that we should be keeping in mind based on your experience so far?

Andrew Leach: There are definitely some things we are learning from US jurisdictions in terms of bonding and for oil and gas wells. The environment with respect to Indigenous communities is substantially different because of our 1982 constitutional amendment, where we enshrined First Nations’ rights in our constitution. There’s a bit of a different dynamic there. I don’t know the US landscape quite as well, but in Canada it’s easy to say that the future of the resource industry relies on, if not permission, then meaningful engagement with First Nations communities. I don’t know that that is as true in the long term in the United States.

The other thing that you’re seeing in the United States that we’re learning about in Canada right now is the challenge of conflicting promises. I see it when you consider President Biden and wonder what President Biden actually wants gas prices to be. I wonder if he could pick high gas prices or low gas prices, if he could pick high oil production or low oil production, or if he could pick substantial fossil fuel security. I don’t think anybody knows. That attempt to live on both sides of the fence is more visible in the United States than it is even in Canada.

As the climate crisis becomes more serious and action on climate change becomes more essential, those inconsistencies become more and more glaring over time. We’re seeing that in Canada right now. It’s challenging to have all of these things, and I think the United States is a little bit behind on that, because they’re not as dependent on the fossil fuel sector overall in their economy. You still see it come out as simply wondering that, if President Biden could choose the gas price, what would he choose?

Daniel Raimi: That’s a fascinating idea.

Andrew Leach, from the University of Alberta, this has been so fun. I’ve really enjoyed the conversation, and I’d love to talk more, but we’re just about out of time. I want to ask you the same question that we ask all of our guests, which is to recommend something that’s at the top of your literal or your metaphorical reading stack that you’ve read or watched or heard that you think is great and that our listeners might enjoy.

Andrew Leach: I am going to cheat a little bit on this one and pitch Calgary author Chris Turner’s books, and I’m going to pitch two of them. One—and I would say it’s been long in my stack—is his book The Patch, which is what he claims is the people, pipelines, and politics of the oil sands. It’s everything we’ve talked about today. It’s understanding Alberta—but understanding it at a more person-centric level.

At the top of the stack, Chris has a new book called How to Be a Climate Optimist, and I think this one is super interesting, because it combines this theme of how you avoid that doom and gloom of the world ending tomorrow while still carrying on a meaningful push toward solving the environmental crises, climate change among them, that we face. I’ll admit that I’m not all the way through it, so it’s a live stack item, but I definitely recommend those two books of Chris Turner’s to your listeners.

Daniel Raimi: Those books are great, and getting a dose of climate optimism while still recognizing the challenges is something that I think is so important, especially for young people. There’s so much angst and anxiety around that topic. A little bit of level-setting would be really important.

Andrew Leach: Chris has a great line in there about the seven reasons why the world’s going to end by next Thursday and how that’s the climate news that we’re bombarded with all the time. How do you cut through it? He has a really neat way of combining people and their individual personalities with the overall story—a little bit Michael Lewis-esque in that way.

Daniel Raimi: That sounds great. Well, one more time, Andrew Leach from the University of Alberta, thank you so much for coming on today and joining us on Resources Radio. We really appreciate it.

Andrew Leach: Thanks so much. That was great.

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