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Canadian Fund Warns of Sticky Risks in Tar Sands Investment

By Matthew Berger

Dec 1, 2009

Alberta’s sprawling tar sands region holds the second largest oil reserve in the world after Saudi Arabia, but investors lured by the promise of black gold should think twice about the environmental risks, a Canadian investment fund warns.

In a new report, describes how companies operating in the tar sands — including global giants BP, Shell and Total — are exposed to “litigious, regulatory, policy and social license risks,” and its says some of those companies are doing a poor job of disclosing that risk exposure to shareholders.

“As more companies enter the oil sands, and the contribution of oil sands to company reserves increases, more investors are becoming exposed to these risks, and the level of their exposure is increasing,” the report says.

Shareholders are uniquely positioned to influence the decision these corporations make, and it would be a smart business decision to do so, Northwest & Ethical Investments writes.

The report, , is part of dialogue that institutional investors are having with about a dozen companies involved in the tar sands, report author Michelle de Cordova told SolveClimate on Tuesday.

“You’re not invested in the oil sands as a specific project; you’re invested in the companies,” she explained, emphasizing the need for investors to communicate their concerns to the companies they own. “We have had quite an intensive dialogue with the companies over the last year or so."

The value in the tar sands is bitumen, a thick, heavy form of petroleum with a tar-like consistency that requires energy-intensive processing to separate from the clay and sand. It underlies about of Alberta, where producers raze boreal forest and foul water supplies as they work to extract it.

A large amount of the risk to shareholders comes from the huge capital commitments that developing this type of oil source requires, according to de Cordova. Producing bitumen from oil sands deposits results in “mega-projects” with long investment horizons, so uncertainty over the cost of carbon emissions 40 years from now and the possibility of lawsuits are serious risks to the future financial success of such projects, she says.

“Tar sands are not a good place to put your money,” concurs Greenpeace Canada climate campaigner Mike Hudema. “When it comes to investment in tar sands, the companies are greatly underestimating the liabilities.”

The authors of the report sent questionnaires to 13 companies with oil sands interests.

Not all of the information that they requested — information considered necessary for informed investment decision-making — was made as available, the report says. But based on the information that was obtained, the authors were able to outline key liabilities for investors.

Lawsuit Risks

One risk is aboriginal rights litigation since oils sands producers operate in areas overlapping Aboriginal traditional territories.

The Beaver Lake Cree Nation has already filed a , citing a treaty written into the Constitution that ensured they would be able to continue hunting, trapping and fishing on their ancestral lands. The Cree are seeking an injunction to end the tar sands operations' destruction of those lands, damage to the wildlife, and fouling of the rivers.

Policy Risks

There is also uncertainty regarding the future of carbon emissions regulations.

Don't forget the banks.

Good to see commentary on the role of investors in reigning in financial and ecological risks associated with the tar sands. But don't forget the role of lenders. Banks like RBC are pouring billions in credit into companies operating in the tar sands with little to no regard for the long-term risks associated with these projects. These short-sighted gambles introduce economy-wide risks akin to what happened with bets on the US real estate market.

See and

In agreement

On the same day this was published, a University of Alberta institution known as the Alberta Biodiversity Monitoring Institute released a study of the region surrounding oil sands development.

It found the habitat biodiversity 97% intact. Links here:

For the writer's reference, 149,000 square kilometres is the land area underlain by oil sands deposit. The area being mined is around 500 square kilometres.

We agree with Greenpeace's Mike Hudema that people need a better picture of the environmental impact of oil sands development. But with respect, we don't think they will get it from Greenpeace.

- David Sands, for the Government of Alberta

corrected

David;
Thank you for the additional information and the link to the study. The square kilometers was an editing error and has been fixed.
- the managing editor

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