As highlighted by Reuters, Canada’s “dirty secret” is making a comeback, amidst predictions of rising oil prices, as the global recession appears to be bottoming out. This is a classic two sides of the coin issue for those in the environmental movement. The global downturn meant a contraction in emissions but also an excuse for political inaction, the upturn could finally see renewable investment get back on track but could also see the rise of oil sands.

The maths is quite simple: oil sands are not cheap or accessible sources of energy. Quite the opposite, defined as “extra-heavy” the oil is difficult to extract requiring large quantities of energy and a pre-processing stage, before the substance can be sent to a refinery to be converted into petrol. Unsurprising, this process makes oil sands very expensive to produce and they require a large amount of upfront investment before they can begin to yield the profits. The effects are slightly paradoxical; many environmentalists are hopeful of a return to rising oil prices in the hope that it will stimulate demand for fuel efficiency, cleaner vehicles and renewable energy as oil is increasingly seen as a volatile fuel that economies depend upon at their own risk. That scenario is still the most likely, as McKinsey’s report outlines, however it’s not simply that oil prices could dramatically begin to rise by the beginning or end of 2010 (depending on the pace of economic recovery) but that their prices will be volatile, an investors nightmare. This is all well and good for environmental causes, however in the interim, the market will be even keener for stable oil suppliers, making Canada’s oil sands an ever more viable solution.

Green Inc, New York Times blog on green business, recently commented that although the recession has set the oil sands industry back from the steep growth forecasts predicted in 2007, the industry instead consolidated into a steady “sustainable” growth pattern. Most worryingly, is the lack of any political pressure from the main parties to halt the oil sands or force it into a  much more environmentally friendly industry. Liberal Leader Michael Ignatieff, as keen a supporter as Conservative Prime Minister Stephen Harper, sees the oil sands as a tragain a more equal status with the US. Ignatieff has made remarks that the oil sands need to be cleaned up, but unless there is very serious movement with regards to public opinion on acceptable pollution levels, no Government is likely to consider forcing the oil sands industry into reducing their environmental impact.

As Green Inc notes however, there could be one flaw  to oil sands unstoppable growth, a regional Cap and Trade. As it stands, this appears unlikely. When Obama visited Canada earlier this year, Climatico analyst, Derek noted how one of the critical negotiating issues was ensuring the US market remained open to Canada’s oil sands, despite campaign rhetoric from the Obama camp on restricting “dirty oil imports”. Problematically, Obama described the dual problems, America’s coal industry and Canada’s oil sands. Given the US is now likely to pursue clean coal, this is probably assurance enough that the oil sands, possibly with some restrictions will be given the green light as well.

Is there a silver-lining? Actually there could be, as seems to be the case with North American politics, to solely follow federal decisions is misleading. In April, I covered, a move by California to regulate the type of fuels allowed to be used, that bill passed and in theory would prohibit the use of oil sand fuel in California. There are two problems, firstly California is the biggest automobile user in the US and secondly, it often causes a domino effect in other states.

How quickly Climate Change debate moves could be the key. At worst, the oil-sands will have to undergo cleaning adjustments to reduce their pollution use, a compromise for entry, at best California is a bell-weather for future policy and oil sands may never make the major leap and become only a moderately developed source of energy.

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