Sustainable Oil Sands?

I’ve just spent a couple of hours examining an impressive document, perhaps the most remarkable of its kind produced by any corporation in the world. The publication is entitled, “A closer look at our journey towards sustainable development”, and is compiled using Global Reporting Initiative (GRI) guidelines. The GRI is a large multi-stakeholder network of thousands of experts in dozens of countries worldwide, who are participating in efforts to establish a sustainability reporting framework that is standardized and transparent, and which allows organizations to account for their economic, environmental and social performance.

When this company says they are going to take a closer look, they do mean it. The report details their progress across hundreds of categories related to the social and environmental impact of their operations. For instance, there are independently verified measures of their emissions of greenhouse gases (GHGs) and other particulates, measures of how much water is withdrawn and subsequently returned (clean) to local aquifers, measures of how their waste is managed and disturbed land restored to nature, measures of the participation of women and minorities in their workforce, and so on. The detail and candour in this report is universally acknowledged as a model for corporations everywhere.

So who is this corporation that is perched on the cutting edge of sustainability reporting? It’s Suncor Energy (Ticker SU on the TSX), a Canadian company that is focused on developing one of the world’s largest petroleum basins – the Athabascan oil sands of Northern Alberta. This activity is widely acknowledged to be one of the most expensive and environmentally costly methods of feeding our oil habit.

Of course in an ideal world we wouldn’t have to confiscate this gooey mess from nature, but while that may be the world we aspire to, it is not the one we currently live in. With the cost of extracting a barrel of oil from the tar sands estimated at just under $30, and oil currently trading in the $100 per barrel range, business interests around the world are clamouring to get a slice of the pie.

The mining of tar sands results in massive GHG emissions, but while Al Gore may decry their exploitation as “truly nuts”, he will know the inconvenient truth is that the profits will attract every oil company on the planet to Northern Alberta. However, the economic noose is gradually tightening on companies that emit GHGs into the environment. There is a framework being built that imposes financial costs on these emissions, one that will impact the bottom line of every company involved. This makes it prudent for investors to question a company’s commitment and results in achieving GHG reductions.

According to Environment Canada data, the 10 largest GHG-emitting companies in Canada (2005) were as follows:

Company         GHG Emissions                   % Change

(CO2 Equiv)               (from previous year)

Ontario Power Generation Inc      30,629,379          +12.2%

Transalta Corp                                     26,357,769            – 4.6%

Canadian Utilities Ltd.                     14,116,483             + 1.2%

Saskatchewan Power Corp             13,155,502              – 3.8%

Imperial Oil Ltd                                  12,760,161              – 1.4%

Emera Inc                                             10,648,422             + 0.7%

Transcanada Corp                              9,832,260             +21.8%

Epcor Power LP                                   8,985,848             +30.3%

Suncor Energy                                     8,524,582               – 9.4%

New Brunswick Power Corp          7,974,064              – 0.9%

Now statistics in general can be sliced and interpreted in any number of ways, both to reveal and to conceal. Raw emissions data indicates who is spewing the most GHGs and perhaps indicates the scale of the future economic liability these companies face in a carbon-constrained society. Also interesting to note is that the top five companies on this list account for more GHGs than all of the vehicles on the road in Canada.

More valuable from an investor’s perspective would be the year-over-year trend of the intensity of GHG emissions, and on this count Suncor is moving in the right direction.

The economic reality faced by Suncor and others is that some companies will win from carbon constraints and some companies will lose.

The issue of GHG reduction is one related to a corporation’s overall commitment towards sustainable development. One gauge of a company’s verity is its willingness to engage the opposition. Development organizations such as the Pembina Institute hold companies like Suncor accountable even as it collaborates with them to lobby for incentives for green energy production and consumption. And on this count, Pembina says of Suncor, “Their willingness to listen, and genuinely consider different options, is where they are really different from other industry players.”

Which begs the question, would you rather have Exxon (majority owner of Imperial Oil) and the Chinese National Oil Company doing the digging, or a company like Suncor that is attempting to remedy the broad-ranging impact of their activities? It could be worse. T he White House’s 2001 report on US national energy policy, spearheaded by Dick Cheney, called Canada’s oil sands “a pillar of sustained North American energy and economic security.” Which makes me wonder why Cheney&Co. haven’t come after us yet. We’d be much easier to take down than the Iraqis, Iranians or Saudis. I suppose for now they’ll be content to just buy their way in.