Addressing climate change

Extracting oil from the Alberta oil sands is a modern technological marvel.

Bitumen from the oil sand is extracted in two ways. For deposits deep underground, steam is generated and pumped beneath the earth. It melts the bitumen so it will flow into a production well.

For deposits close to the surface, the bitumen is extracted using pit mining. In pit mining, the oil sands are crushed and mixed with hot water. The resulting slurry is run through extraction and treatments to extract the bitumen. While some bitumen can be directly diluted and piped to a refinery, other kinds require further processing at an upgrade plant to produce synthetic crude.

This complex process for mining, upgrading and refining has two unfortunate consequences. First, it is more expensive to produce a barrel of oil from oil sands than it is in a conventional well. That means when the price of oil drops, extracting oil from the oil sands becomes uneconomic. It also means a barrel of oil from the oil sands is responsible for more greenhouse gases than other extraction methods—more than twice as much. Those extra emissions come from natural gas burned to produce steam or hot water, diesel for haul trucks at open pit mines, and fuel burned to operate upgrade plants.

In 2021 Canada emitted 653 megatonnes of carbon and 29%—189 megatones—were from the oil and gas industry. Alberta accounts for 84% of Canadian oil production, three-quarters of which comes from the oil sands. There is no way for Canada to meet its climate goals without decreasing oil production in Alberta, in particular from the oil sands.

It’s no surprise that most Albertans oppose reducing oil production. Twenty-two per cent of Alberta’s gross domestic product is from mining, oil and gas. Many of the other categories, like real estate, benefit from knock-on effects from the oil and gas sector. The government of Alberta receives annual royalties from the oil sector that vary from $2 billion to $28 billion. Eighty thousand people work in oil and gas in Alberta with 50,500 people work in oil and gas support activities.

What is going to become of those workers? What is the best way to support oil and gas workers during the transition? We don’t have to speculate. Europe has been closing coal-fired power plants, which in turn has shut down coal mining. Many different programs were tried to support coal workers, some more successful than others.

One of the least successful was providing early retirement to coal workers. Poland, Germany and the Netherlands all provided early retirement to miners. That was expensive and didn’t work out very well. The good thing about oil and gas workers is they are highly skilled.

Removing highly skilled workers from high-wage employment is bad for the workers and bad for the economy. Another Polish program provided a one-time lump-sum payment equal to 24 months of the average salary in the mining sector. That also had poor outcomes for workers and the economy.

So what kind of programs work?

The most basic policy is that oil and gas workers need more time on unemployment insurance. Short periods of EI can force previously high-paid workers into low-wage jobs. Research in Finland by Kyyra and Pesola showed that a longer benefit period increased both wages and the duration of the next job.

Work by Caliendo, Tatsiramos and Uhlendorff on German unemployment benefits also showed workers with 12 months unemployment assistance obtained lower paying jobs and held them for shorter periods than workers with 18 months unemployment assistance.

In the US, research by Farooq, Muratori and Kugler demonstrated that longer unemployment benefits meant workers found jobs that better matched their educational achievements and improved the functioning of the labour market.

Another policy to help oil and gas workers is retraining. This includes covering tuition costs and extending EI for the duration of the training.

Some retraining programs are very short. Iron and Earth is a non-profit in Alberta, founded by oil and gas workers in 2016. It operates a 10-day retraining program that prepares oil and gas workers for jobs in the solar or wind energy sector.

Some transitions may require more training, such as a two-year college program. Landon Wilcock, an associate at the Tony Blair Institute for Global Change, calculated that rapid retraining would cost $1.07 billion over the first five years and benefit the economy to the tune of $21.72 billion. A college-length diploma program would cost the federal government $1.71 billion over the first five years and have a positive impact on productivity of $2.02 billion.

The positive impact comes from workers moving to clean energy sector jobs with a greater value per worker. If that sounds expensive, compare it to what Canada spends subsidizing oil and gas. Special tax deductions and direct cash transfers to fossil fuel companies amount to $4.8 billion dollars a year. Compare that to what climate change is costing us. The Canadian Climate Institute estimates that by 2025, 10 years of climate change will have reduced the Canadian GDP by $25 billion dollars.

We can support a just transition for oil workers. We can’t afford the alternatives.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.