Global resources tax might force investment in alternatives to oil

There have been protests recently about projects to extract oil from Canada’s tar sands. These tar sands cover over 140,000 square kilometres of Alberta and contain nearly 173 billion barrels of oil in the form of bitumen. This is transformed into crude oil through highly energy, carbon and water-intensive extraction and treatment procedures. A 2008 report from Co-Operative Investment and the NGO WWF, “Unconventional Oil: Scraping the Bottom of the Barrel”, suggested that the production of oil from tar sands can create up to eight times as many emissions as producing conventional oil, as well as consuming vast amounts of water.

Many oil companies are focusing on oil recovery, tar sands and other potential oil sources to supplement global energy supplies – it’s an obvious thing for them to do when the oil price has been volatile and they are, after all, in the oil business. Shell is also working on the Canadian tar sands. Recently a Shell scientist said that technological advances meant that the tar sands projects would be no less polluting than conventional wells.

There are other pressures to be managed however. Not only are tar sands projects environmentally unfriendly but much of the tar sands derived oil is sold to the US and, if a carbon trading regime is introduced in the US, its carbon profile could price it out of the market. At the same time, oil demand may well be falling. A July 2009 report co-authored by PLATFORM, Greenpeace and Oil Change International, Shifting Sands, warns that the oil market could be going through a permanent structural shift – making the long term profitability of unconventional oil open to question. Even investment groups are questioning the focus on tar sands, given the climate risks associated with their exploitation.

The only way to change corporate behaviour is to change the economic framework in which they operate. If the oil price remains low but the oil giants are charged for their emissions and their water consumption, perhaps that will make the tar sands too ‘risky’ for investment.

The only way to change behaviour in the global economy, from oil giants to agriculture, is to put a price on resources and demand that they be given economic value. One approach to this has been suggested by the World Resources Forum (WRF), which has suggested a direct tax on raw materials, rather than on products and labour. It notes in its draft declaration that there are no incentives or policies in place to create a "sufficiently resource-efficient economy." Current markets are "blind to the environmental costs of growth", largely because market prices do not include environmental externalities and information is not made available to the relevant stakeholders.

Whether an outright global tax on resources is the solution, or an emissions or water rights trading scheme is resolved, it’s becoming increasingly clear that current negotiations on managing growth in CO2 emissions is behind the curve. We need to think about emissions yes, but right now we need to start looking at the limitations on our global resources, and find ways to change behaviour before a growing global population and the increasing impact of climate change on clean air, water and food supplies means that we’ve run out of time.