What Are Possible Replacements for Oil Sands in Canada?

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In May 2021, environmentalists scored a stunning victory against big oil companies with potentially big implications for climate change, fossil fuel companies and the Canadian oil sands industry. A tiny American hedge fund, Engine No. 1, convinced shareholders of ExxonMobil that it was losing value due to its inability to transition to clean energy fast enough.

ExxonMobil is one of the world’s largest fossil fuel companies, with revenues of USD $265 billion in 2019. Shareholders agreed to elect three of Engine No. 1’s nominated directors to the ExxonMobil board. Company executives had bitterly opposed the move, but their pleas were ignored. Among ExxonMobil’s assets is a controlling stake in Imperial Oil, which has three oil sands operations in Canada.¹

Canada’s crude oil and its effects

National Geographic refers to Canada’s oil sands industry as “the world’s most destructive oil operation” given its environmental impact. Oil sands, or tar sands as it is sometimes known, is the name given to a particular type of oil that occurs as a form of bitumen. It requires a tremendous amount of energy and freshwater to drill it out of the ground. Furthermore, it produces a waste byproduct that also has an adverse environmental impact.² 

If ExxonMobil wants to transition away from oil towards clean energy, closing down its oil sands operations would be a good start. It is likely to face immense internal pressure to do so.

Canada remains committed to its oil sands industry because it is lucrative. Oil and gas are Canada’s top earners.³ Environmentalists say that Canada can wean itself off its lucrative but climate-destroying addiction to oil. But what could the country do instead? 

Can companies move away from oil sands?

Around the world, an increasing number of companies have already divested from or pledged to stop associating themselves with oil sands production. Since late 2020, Sweden’s central bank, the Riksbank, said it would stop investing in oil sands in order to limit its impact on the climate. Insurance giant The Hartford planned to stop insuring or investing in oil sands production.⁴  Furthermore, Deutsche Bank said that it would no longer finance oil sands production.⁵ 

Canada’s commitment to the oil sands industry

However, the Canadian government is still committed to the oil sands industry. In 2020, its natural resources minister told the Financial Times, “There is no way we are reaching net-zero without Alberta”. Alberta is where oil sands production is primarily located.⁶ 

Alberta oil sands and clean energy

Critics say that Canada’s fossil fuel industry is one of the largest markets for clean technology in Canada and with the most potential investors. They say that Alberta’s energy companies could invest in clean energy while using bitumen to make carbon fibre instead of oil.⁷ Another analysis found that if Canada had spent $200 billion on wind energy instead of oil, it would have provided fuel for nearly twice as many electric vehicles as oil. Also, it would have created more clean energy capacity for powering homes.⁸

Reducing oil sands production to make way for clean energy

There is no doubt that companies around the world are already moving away from oil sands development. Canada and other producers of this “destructive oil operation” also need to move with the times and switch to clean energy.

Is corn ethanol a viable replacement for oil sands?

Corn ethanol is increasingly mixed with gasoline to reduce its climate impact. Greenhouse gas emissions from corn ethanol are about 39 per cent lower than gasoline on an energy equivalent basis.⁹ Ethanol is made from plant materials collectively known as biomass. Most US gasoline contains at least 10 per cent ethanol to oxygenate the fuel, which reduces air pollution.¹⁰ On that basis, it is a better alternative to oil sands, which is among the most carbon-intensive fuels on the planet.

However, using corn ethanol still perpetuates gasoline use and still emits carbon dioxide into the air. Moreover, producing ethanol requires a large amount of land to grow corn. Scaling up its use around the world would require cutting down even more forests to grow corn.¹¹ While ethanol may be a useful way to cut carbon emissions in the short term, it cannot be a long-term replacement.

Is solar power the cleanest substitute for oil sands?

Canada has a lot of land and a diverse geography. This is ideal for producing renewable energy. In fact, clean, renewable energy already provides 18.9 per cent of the country’s total primary energy. Of this, 60 per cent comes from hydroelectricity, i.e. moving water. In fact, Canada is the second-largest producer of hydroelectricity in the world.¹² This means that there is a lot of potential for solar and wind energy to grow in Canada. Canada could more than provide for its energy needs using renewables, two-thirds of which would come from onshore and offshore wind, with much of the remainder coming from hydro, a recent analysis found.¹³ 

Companies replacing conventional crude oil in Alberta for clean energy

There is one problem, however. Energy generation in Canada is mostly devolved to the provinces. This means that a province like Alberta, which generates significant income from oil sands development, cannot be forced to move towards renewable energy by the federal government. But, there are many trying to chart a new way forward.

Solar company Kuby Energy was formed by two friends who left the oil sands industry to transition Canada towards a clean energy-based society. They dismiss claims that Canada is too cold for solar power. Even in cities with moderate sunlight and high snowfall, the average home will only lose approximately 5 to 10 per cent of their annual energy due to snow coverage, they say.¹⁴

Renewable energy potential in Canada

Given its large landmass and diverse geography, Canada has enormous potential to become a clean energy powerhouse. Wind and solar energy are already the fastest-growing sources of electricity in Canada.¹⁵

In fact, the clean energy industry in Canada is growing faster than the rest of the economy, a recent report found. Indeed, there are already 50 per cent more jobs in clean energy – production, distribution, energy efficiency and sustainable transportation – than in oil, gas and mining combined. Investment in clean energy is also growing rapidly.¹⁶

Most importantly, clean energy generation is already cheaper than oil. Most wind and solar projects in Canada will produce electricity at lower prices than the cheapest new coal, oil or natural gas options, found another report in 2018.¹⁷ Since then, solar and wind energy prices have dropped even further.¹⁸ Even in Alberta, renewable energy companies provide clean power to the grid at cheaper rates than natural gas plants.¹⁹

Solar and wind power generation in Canada

From 2010 to 2016, Canada increased its solar power generation by 30 times. The country’s energy regulator now expects solar power to almost triple its capacity from 3.6 TW.h in 2016 to nearly 13.0 TW.h by 2040. But, most of that capacity is in provinces like Ontario, leaving other regions where solar power has plenty of potential to grow.

In fact, cities in Alberta, where the oil sands industry is located, have among the highest potential for solar power generation in Canada.²⁰ The Canadian government also plans to increase wind power capacity to 55 GW by 2025 to meet 20 per cent of its energy needs.²¹

With renewable energy getting cheaper every year, Canada has vast potential to be a global leader in the field. The only thing it needs now is the political will to make it happen.

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