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Leave it in the ground? Oil sands development under carbon pricing

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  • Branko Bošković
  • Andrew Leach

Abstract

We evaluate the impact of internalizing the carbon emissions externality on new oil sands projects. Using data from recent oil sands projects and estimates of both the social costs of carbon and carbon prices consistent with meeting global climate change targets, we estimate the potential impact of action on climate change on the economic viability of oil sands investments. Our results indicate that oil sands are a marginal resource before they incur any carbon costs. Incorporating carbon costs, we find that the viability of oil sands depends on the coverage of carbon pricing across the life cycle emissions from oil sands and on the equilibrium incidence of carbon prices on producers. We show an important interaction between resource royalties and carbon charges that implies that the impact carbon pricing depends on not only the stringency and coverage of the carbon price but also its point of application of a carbon price. Finally, we explore the potential for technological change to mitigate the impacts of carbon pricing on oil sands investment viability. Cesser l’exploitation ? Le développement des sables bitumineux avec la tarification du carbone. Dans cet article, nous évaluons l’effet de l’internalisation des coûts externes des émissions de carbone pour les nouveaux projets de sables bitumineux. Grâce aux données provenant de projets industriels récents, ainsi que diverses estimations relatives aux coût sociaux du carbone et sa tarification à l’une des objectifs en matiére de changement climatique mondiaux, nous évaluons les conséquences potentielles des mesures en faveur du climat sur la viabilité économique de nouveaux investissements dans les sables bitumineux. Nos résultats indiquent que ces derniers représentent une ressource marginale avant même d’engager les coûts liés au carbone. En ajoutant ces coûts, nous constatons que la viabilité des sables bitumineux dépend de la couverture des prix du carbone pour les émissions générées par les sites d’exploitation sur l’ensemble de leur cycle de vie, ainsi que de l’incidence d’équilibre des tarifs du carbone sur les producteurs. Nous montrons une interaction importante entre redevances pétroliéres et taxes sur le carbone : les conséquences liées à la tarification du carbone ne dépendent donc pas seulement de la couverture des prix du carbone et des exigences y afférant, mais également du point d’application d’un tarif du carbone. Enfin, nous explorons la possibilité d’une évolution technologique permettant d’atténuer les conséquences des taxes carbone sur la viabilité des investissements dans les sables bitumineux.

Suggested Citation

  • Branko Bošković & Andrew Leach, 2020. "Leave it in the ground? Oil sands development under carbon pricing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(2), pages 526-562, May.
  • Handle: RePEc:wly:canjec:v:53:y:2020:i:2:p:526-562
    DOI: 10.1111/caje.12436
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    References listed on IDEAS

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