Ethical Funds Company calls for pause in tar sands development

by Travis Lupick on October 29th, 2008 at 2:13 PM

A “heady mix of litigious, liability, regulatory, and reputational risks” are in store for any company involved in Alberta oil sands development, a new report warns.

On October 28, the Vancouver-based Ethical Funds Company called for the suspension of new oil sands development pending the completion of conservation and land use planning. The group’s report, Unconventional Risks: An Investor Response to Canada’s Oil Sands, argues that a recession in the U.S. presents an “opportunity to put things right”.

The report spends considerable time describing the “heavy impact” that development of the oil sands is having on the environment and human health. It states, “Too much development too fast has created a complex set of significantly adverse environmental and social impacts....These risks have the potential to impact company valuations and thus the performance of investment portfolios.”

A section of the report analyzing the oil sands development’s impact on air quality begins, “Alberta is becoming the industrial air pollution hotspot within Canada.”

The report describes the oil sands as the fastest-growing source of greenhouse gas emissions in the country and estimates that production-phase GHG emissions for the oil sands could be as much as three-to-five times higher than for conventional crude oil production.

On water, the report states that oil sands mining is a resource-intensive process where 2 to 4.5 barrels of water is required to extract and upgrade one barrel of synthetic crude oil.

In the report, Ethical Funds expresses particular concern for the Athabasca River. It claims that with the addition of projects presently planned for the area, oil sands mining operations will soon be licensed to divert more than 500 million cubic metres of water annually. During times of low water flows (such as the winter), withdrawals threaten the Athabasca River’s ecosystem.

“Tailings” too toxic to be released back into river systems are another concern. The report states that tailings toxic to aquatic life are dumped into large ponds to settle. But that process can take decades and, in the meantime, surrounding groundwater systems can be contaminated.

Oil sands development is also a threat to land environments. The report states that oil sands mining requires the “complete removal of surface vegetation and soil” and claims that while companies are obligated to return land to a “vague standard of equivalent land capability”, only 0.2 percent of disturbed land has so far been certified as reclaimed.

“Alberta sets no limits on the scale and cumulative impact of oil sands development, and there is no completed strategic land use plan”, the report states.

It argues that as public opinion moves Canada in the direction of tougher regulatory regimes, “companies should be taking into account scenarios of environmental regulation that may impact directly on operations, increase development costs or reduce return on investment.”

The report also emphasizes litigation risk related to potential conflicts with Native groups, mentions asset retirement obligations as a concern, and argues that increasingly negative public sentiment poses a risk to oil sands companies’ “social license to operate”.