Photo: Oil prices and low-carbon futures: the horns of a dilemma

Credit: Victor Habbick via

By Ralph Torrie, Managing Director-Trottier Energy Futures Project

Canada epitomizes the dilemma of the petroleum addiction that has the world in its grasp.

Like the other industrial economies of the OECD, Canada has had constant access to cheap and abundant oil over the past century, which has played no small role in shaping the type of society we have become. Everything from our industrial structure to our settlement patterns, from our food production to our supply chains, is predicated on cheap, abundant petroleum, and we feel threatened by the prospect of higher oil prices.

But Canada is also a producer and net exporter of petroleum and, like the OPEC economies, relies on petrodollars for our balance of trade. Canadian oil is not the cheapest to produce, nor the cleanest, and it is situated inland, with limited access to global markets. Canada's history of exporting natural resources with limited added value extends to petroleum, making the industry particularly sensitive to the going rate for crude oil. (Indeed, the proposed Keystone pipeline to American refineries and export terminals would transport bitumen, a raw product so thick it must be diluted with up to 40 per cent lighter hydrocarbons just so it will flow through the pipeline.) So Canadian producers and the governments that collect royalties from them welcome higher oil prices.

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Hence the dilemma. The transition to a low-carbon future is global, it's being driven only partly by fossil fuel prices, and it has the effect of moderating those prices. Ongoing declines in energy and carbon intensity are being driven more by changes outside the energy commodity markets than by the prices or market dynamics of fuel and electricity. The trend toward greater energy productivity is driven by everything from the redensification of urban cores to the revolution in materials engineering, from the role of the Internet in shifting personal travel and supply chains to the pervasive impact of information processing technologies on just about everything we do and make. Higher fossil fuel prices might accelerate some of these trends, but they are driven less by the cost of energy, much more by the ongoing urge to find new, better ways of meeting human needs. And they are not trends that are likely to reverse should energy prices fall.

Where does this leave the petroleum producer? In a low-carbon future, a large share of today's market for oil and gas will be offset by a steady increase in energy productivity that has already begun reshaping our energy economy over the last 40 years. Much of the remaining demand will be met by distributed, renewable sources that cost less to produce and are either low-carbon or carbon-free.

If fossil fuel resources were physically scarce, one could imagine a low-carbon future that combined low absolute rates of fossil fuel production with high prices, not unlike today's gold industry. But fossil fuels are not scarce, not for the foreseeable future. So we must imagine a petroleum industry in a world in which oil and gas supplies are abundant, prices are moderate, and demand is low.

The fossil fuel industry will endure in such a future, but it will need to rethink its value proposition and its business model, and this will take time. Meanwhile, with a global energy transition proceeding at full throttle, large, lumpy investments in relatively high-cost fossil fuel resources seem an especially risky course.

February 25, 2013

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Aug 02, 2013
3:54 PM

I totally agree that oil has been a large part in everything we do and make but with oil prices increasing we should take it as a sign to finally realize the effects on the environment. Hundreds of years ago, it wasn’t apparent that oil was going to cause a problem for the future. As the quantity of oil is depleted in places such as US due to reaching peak oil, we can see that the prices of oil are increasing. Canada won’t reach peak oil till around 2020s but that is just around the corner if we don’t start using alternative energy sources for electricity. Fossil fuels have been used to produce electricity for many years due to its cheap extraction and production. The main problem with that is the GHG’s that are released from the production of electricity. One of the main problems about the world is that people have only started to factor in the future’s demands now. Although there are many forms of low carbon energy such as nuclear energy, wind energy, solar,etc, Producing oil using fossil fuels has been a source of energy due to the amount of jobs it creates. Also, in Canada , oil is mostly exported which shows that the economy heavily depends on this energy source. If we just suddenly stop producing oil from burning fossil fuels, we will put a substantial amount of people jobless and the society in danger. Nuclear energy has been a source of energy that is being used as a primary energy source in many places such as Ontario. Although nuclear energy helps reduce the GHG’s substantially, it creates other issues such as when you have to dispose the nuclear waste, the waste stays in the ground for 200-500 thousand years. Although it looks good for the present by reducing GHG’s, we are also put the future in danger. This is called a wicked problem, where when you fix one problem, other problems occur which you don’t see initially. More low-carbon energy sources such as hydro, wind energy and solar energy should be considered. I believe the issue holding back these energy sources from being implemented is the initial infrastructure costs. Although these start-up costs are high, it helps reduce the GHG’s emission from power generation and since it is a renewable energy source , we aren’t putting the future in danger. The economy has prospered for many years with oil, and now it is time that the environment is taken into consideration.

Mar 26, 2013
1:18 AM

Perhaps we a floor price for oil could be set that would be high enough to encourage conservation. If this were done everyone would get what they are after. Problem solved.

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