In this blog, Hereward Longley explains how the current environmental costs of the Alberta Oil Sands industry may be traced back to a fundamental environmental governance problem that holds true across eras and areas: conflicts of interest between government regulation and resource development in the 1960s and 1970s, as explored in his forthcoming article in Environment and History (due on Fast Track, Spring 2019), ‘Conflicting Interests: Development Politics and the Environmental Regulation of the Alberta Oil Sands Industry, 1970–1980’.
Documents leaked from the Alberta Energy Regulator in November 2018 stated that cleaning up the Alberta oil patch could cost $260 billion. About half of that amount, $130 billion, is related to the oil sands industry – mostly tailings ponds. For context, the combined market capitalisation of the five biggest oil sands companies: Suncor, CNRL, Imperial, Husky and Cenovus, was about $165 billion in February 2019. How did Alberta get to a point where the cost of rectifying the environmental impacts of the oil sands industry rivals the market value of its main producers? Looking for answers to this question took me back to the first commercial development phase of the Alberta oil sands industry – the mid-1960s to the early 1980s.
The boom in conventional oil production in Alberta started in 1947 when Imperial Oil struck oil south of Edmonton near Leduc Alberta. Previously one of the poorest provinces in Confederation, oil transformed Alberta. The scale of the Athabasca bitumen deposits was long known by government, industry and Indigenous peoples, but the difficulty and cost of mining and upgrading bitumen into marketable hydrocarbons prevented the commercial extraction of bitumen before the 1960s. The first large-scale oil sands operation Great Canadian Oil Sands, funded by Sun Oil, started production in 1967. A second, larger operation, Syncrude, funded by a consortium of US oil companies, planned a second plant.
The commercialisation of the oil sands industry coincided with the formalisation of environmental policy at both the provincial and federal levels. In Alberta, the Social Credit Government, which held power until 1971, created the Department of the Environment and a range of environmental laws and policies. The oil sands industry became one of the big environmental policy questions in Alberta. When the Progressive Conservative Party, led by Premier Peter Lougheed, formed a government after winning the 1971 election, it strengthened and expanded the scope of environmental regulation into the mid-1970s. Lougheed’s PC government initially pursued the development of the oil sands industry with caution, to maximise the domestic economic benefits and minimise the environmental impacts.
The rising energy prices and stagflation of the 1970s, marked by the OAPEC embargo in 1973 and the decoupling of the US dollar from the gold standard in 1971, changed the economic viability and importance of the oil sands industry. For Lougheed, the oil sands industry became a cornerstone of the PC government’s goals to diversify the Alberta economy. To save the Syncrude project after Atlantic Richfield withdrew its thirty per cent stake in the consortium in December 1974, the Alberta government bought a ten per cent position along with the federal government and Ontario.
My forthcoming article, ‘Conflicting Interests: Development Politics and the Environmental Regulation of the Alberta Oil Sands Industry, 1970–1980’ argues that investing in the oil sands industry created a conflict of interest for the Alberta government, as it became both the regulator and the developer of the resource. Using a range of archival sources and oral history, my article examines the history of the first bitumen boom through the lens of environmental governance. It shows how Alberta’s environmental policies and research programmes were sidelined by the Lougheed government in the latter half of the 1970s, culminating in the cancellation of the Alberta Oil Sands Environmental Research Program in 1980.
Earlier scholars laid the shortcomings of Alberta’s environmental governance of the oil sands industry at the feet of the Lougheed government but did not acknowledge that in its first years, the PCs were meaningfully committed to environmental policy. Although this might seem like a subtle distinction, it has significant implications for resource governance and environmental policy.
As demand for oil has grown, producers have shifted to more difficult deposits with higher financial and environmental costs. When governments invest in high stakes energy projects, they blur the lines between government and industry, creating a conflict of interest that can marginalise environmental regulation. In 2018 the federal Liberal government purchased the Trans Mountain pipeline from Kinder Morgan for $4.5 billion, and the Alberta NDP government earmarked $1 billion for bitumen upgrading. With the Trans Mountain expansion project stuck in regulatory limbo and bleeding cash, the federal government will be increasingly pressured to act to make the project succeed.
Better managing the impacts of extractive industry means recognising that conflicts of interests between development politics and environmental policy transcend time and political party lines and are a fundamental problem in the governance of countries and provinces that depend on primary resources.