1. More Slides from Ed Dolan’s Econ Blog http://dolanecon.blogspot.com/ Hidden Pitfalls of Increasing U.S. Dependence on Canadian Oil Sands Posted January 9, 2011 http://dolanecon.blogspot.com/ Terms of Use: These slides are made available under Creative Commons License Attribution— Share Alike 3.0. You are free to use these slides as a resource for your economics classes together with whatever textbook you are using. If you like the slides, you may also want to take a look at my textbook, Introduction to Economics, from BVT Publishers.Attribution— Share Alike 3.0 Introduction to Economics

2. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com U.S. Imports of Canadian Oil  Canada is now the leading source of U.S. oil imports  About half of all Canadian oil output, and an increasing share of U.S. imports, comes from oil sands  What are the economic, environmental, and security implications of increasing U.S. dependence on Canadian oil sands?

3. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com The Production Process Tailings pond Surface mine Sulfur stockpiles Processing plant Most “oil” from Canadian sands (more accurately, a heavy hydrocarbon called bitumen ) is produced by surface mining. This photo shows Syncrude’s base mine in Alberta. Some bitumen is also produced by subsurface operations. Photo source: http://commons.wikimedia.org/wiki/File:Syncrude_mildred_lake_plant.jpg

4. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com Oil Sands Have a Big Carbon Footprint Data from the U.S. Department of Energy National Energy Technology Lab shows that oil from Canadian sands has a bigger carbon footprint than U.S. domestic crude or other sources of imported oil Download the full report from http://www.netl.doe.gov/energy- analyses/refshelf/detail.asp?pubID=227 http://www.netl.doe.gov/energy- analyses/refshelf/detail.asp?pubID=227

5. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com Oil Sands Have a Big Carbon Footprint (details)  These data measure “carbon footprint” in terms of emissions of greenhouse gasses (GHG) per unit of diesel fuel produced from various sources  The chart shows a “well-to-tank” measure that covers only the production and refining phases of the energy cycle  US domestic crude is “light” and “sweet,” and produces relatively little GHG  Most imported oil is “heavy” and “sour”. Transportation adds more GHG. Some imported crude (e.g. Nigeria) is nearly as dirty as oil from Canadian sands

6. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com The Well-to-Wheels Approach This chart shows GHG emissions from the complete well-to-wheel fuel cycle, including vehicle operation, the source of the bulk of GHG emissions in all cases

7. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com Picking the Number that Looks Best  Supporters and opponents of oil sands both “mine” the scientific data for numbers that best support their case  A well-to-tank comparison with US domestic crude suggests that Canadian oil sands are 2.5 times dirtier  A well-to-wheels comparison with imported Nigerian crude suggests that Canadian oil sands are just 4% dirtier  Both numbers are based on the same underlying data, but taken out of context, they leave the reader with very different impressions

8. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com Not Just Greenhouse Gasses  Greenhouse gasses are not the only environmental damage from oil sands  Toxic tailings ponds and land disturbed by mining must also be reclaimed  Canadian authorities require escrow deposits to ensure that restoration pledges will be met, but some Canadian environmentalists claim the regulations are inadequatesome Canadian environmentalists “If a bird flies over a river near the oil sands, the bird dies just from flying over the river. It's that toxic. They are just dumping all the waste into the waterways. If you did that in the U.S. you would be in jail.” —Candice Beaumont Oil industry consultant http://seekingalpha.com/article/236566-oil-sands-could-delay-peak-oil- candice-beaumont

9. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com National Security Concerns  Supporters cite national security concerns as a benefit of importing energy from Canadian oil sands  They point out that oil price spikes caused by crises in unstable oil producing countries can damage the US economy  Also, in some cases oil revenues may go to authoritarian governments, arms programs of hostile nations, or even terrorism directed at U.S. interests Photo source: http://upload.wikimedia.org/wikipedia/commons/5/5e/Flickr_- _The_U.S._Army_-_Security_in_Iraq.jpg

10. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com But Canadian Oil Provides only Limited Security Benefit  However, importing oil from Canada instead of more volatile countries provides only limited security benefits  Even if the US gets its oil from Canada, a crisis anywhere in the world would cause oil prices to spike globally, since the world oil market is a single pool  Prices would rise in the US, unless kindly Canadians agreed to sell their oil at cheap, pre-crisis prices  Rising world oil prices would still enrich dictators and terrorists, even if other customers were the ones buying their oil World Oil Prices are Highly Volatile Source: http://www.eia.doe.gov/emeu/cabs/AOMC/Overview.html

11. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com So, What are the Hidden Pitfalls? The hidden pitfalls of increasing U.S. dependence on Canadian oil sands  For policy makers: The comfort of convenient and secure Canadian oil supplies could make it easier to put off the hard work of developing an optimal energy policy  For investors: Investing in oil sands means making a bet that both Canada and the United States will continue to pursue present suboptimal energy policies A Pitfall Trap Photo source: http://upload.wikimedia.org/wikipedia/commons/b/b2/Barber_pit fall_trap.jpg

12. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com The Pitfall for Policymakers  An optimal energy policy would account for the full cost of every unit of energy from every source, including environmental and national security costs, and impose those costs on the end user through higher prices.  Retail prices would increase for many types of energy, but oil from Canadian sands would take one of the biggest hits Photo source: Ivo Shandor, http://commons.wikimedia.org/wiki/File:Standard_Oil_Gasoline _Station2.JPG

13. Posted Jan. 9, 2011 on Ed Dolan’s Econ Blog http://dolanecon.blogspot.com http://dolanecon.blogspot.com The Pitfall for Investors  Oil from Canadian sands has high capital costs and high production costs  If either Canadian or U.S. policy were to impose the full environmental costs on oil sand producers, investments could quickly become unprofitable  Just as BP’s gulf oil spill set public opinion against offshore drilling, a dramatic climate event or a major toxic waste spill could turn opinion against oil sands  At such time, politicians run for cover and policy can quickly turn from overly permissive to overly restrictive Photo source: Norman Einstein, http://commons.wikimedia.org/wiki/File:Athabasca_Oil_Sands_ map.png