The Oil Sands, and the Battle of the Boycotts

Alberta's Oil Sands (map)The Athabasca oil sands (in Alberta, Canada) are not pretty. But they are vast, constituting one of the largest deposits of oil in the world — something in the range of 150 billion barrels, enough to help make Canada a net exporter of oil.

The oil sands (also known, colloquially and sometimes pejoratively, as the “tar sands”) are also environmentally controversial. The process of extracting oil from oil sands is not a clean one; it has a significant impact on land, air, and water. In fact, the process is so messy that it is only worth doing when the price of oil is relatively high, as it is right now. For environmental groups and other critics, the oil sands are just not worth it.

It’s worth noting that the oil sands do have their defenders. Matt Ridley, for example, in his recent book, The Rational Optimist, argues that the oil sands are a much more sane solution to current energy needs than things like wind (too unreliable and too little output) and biofuels (wasteful use of land).

Back in July, two US-based groups (Forest Ethics and Corporate Ethics International) called for a boycott of Alberta as a tourism destination. (See the Financial Post story, here.) More recently, though, the boycott has expanded to include a number of American retailers who have promised to refuse to use any petroleum products from the oil sands. See the Scientific American story, by Tina Casey, Boycott of Petroleum Products from Alberta Tar Sands Gathers Steam:

In a sign of things to come for corporate activism, The Gap, Timberland, Levi Strauss and Walgreens have just joined Whole Foods and Bed, Bath and Beyond in a boycott of petroleum products sourced from the notorious Alberta Tar Sands. As reported by Bob Weber of The Canadian Press, Federal Express has also adopted a policy that appears to lead toward joining the boycott….

(A more recent story suggests that Levi Strauss is not, in fact, participating in the boycott.)

A few points:

First, I’m generally skeptical about boycotting an entire jurisdiction (as the original boycott of Alberta tourism seemed to intend) on the grounds that you don’t like one particular business there. It’s entirely unclear how boycotting Alberta tourism was supposed to convince the government of the province to shut down the oil sands. (Note that while tourism is not exactly trivial in the Albertan economy, neither is it crucial. And besides, international visitors to Alberta account for just 7% of the province’s tourism.) Note also that the principle supposedly at play here doesn’t generalize very well. If you don’t like Walmart, do you boycott Arkansas, where Walmart is headquartered? Is anyone calling for a boycott of the U.K.? After all that’s where BP is based.

But I’m even more interested in the corporate boycott by Whole Foods etc.

As this opinion piece points out, anyone thinking of boycotting oil from the oil sands needs to think about what they’re choosing instead:

Where are they going to buy their gas from, if not Canada?

Saudi Arabia? Could there be a more unethical barrel of oil than one from that racist, misogynistic, terror-sponsoring dictatorship? Venezuela, to enrich strongman Hugo Chavez? Iran, with its nuclear plans?

In other words, if you’re really going to get picky about where your oil comes from, you’d better just stop using it at all.

The same opinion piece (by Ezra Levant) pointed out that many of the companies participating in the boycott are not exactly angels themselves. Walgreens (a pharmacy chain) was fined $35 million for defrauding Medicaid. And pretty much everyone knows that The Gap has been the target of its fair share of criticism over the labour practices at the third-world factories that produce the clothes it sells. Now, being hypocritical doesn’t mean being wrong, but it might well lessen these companies’ moral authority somewhat. (And notice that Levant suggests a tit-for-tat boycott of The Gap, etc., by Albertans.)

Next, an economic point. I’m no economist, but my guess is that if the corporate boycott has any impact at all, it will be roughly as follows. The reduction in demand for oil-sands oil will reduce the price it can command. And when you lower the price of something? Yup, you make it easier for other people to buy it. So, more — not less — will end up being used.

Finally, the points above leave us with the conclusion that the corporate boycott of oil from the oil sands is largely symbolic. Well, that’s not necessarily a bad thing, is it? I guess that depends on who is sending, and who is receiving, that symbolic message. And in this case, the message certainly isn’t going to have — indeed, can’t possibly be intended to have — any effect on decision-makers in Alberta. So the only real possibility is that Whole Foods, The Gap, etc., are sending a message to consumers. What message? “We’re green,” I guess, or “We care.” But the message being heard by anyone looking at this carefully is, “We haven’t thought this through.”

[Thanks to MW for suggesting I blog on this.]

10 comments so far

  1. Mike on

    We may also consider the fungibility of oil. Unlike many goods, oil itself doesn’t come in qualities or varieties. We might expect chocolates from Belgium to attract a higher price than chocolates from Taiwan; we might expect Angus or Kobe beef to cost more than Wyoming chuck meat; Granny Smith apples have a different price than Macintoshes; and so on.

    Oil works differently. Any given barrel of oil is of more or less equal quality and desirability as any other barrel of oil, the supply is (barring disaster) predictable and constant, and since oil is nonperishable, it doesn’t matter if it comes from Alberta or Chile or a geyser on the moon: it still attracts the same price.

    With this in mind, even if it were possible to isolate all Alberta oil and avoid it–which would itself be an expensive and tricky proposition compared to the cost of just buying your oil freely–the net effect of transferring your purchase from Albertan suppliers to Saudi or Chilean or Russian suppliers would be negligible. The supply itself remaining constant, the Albertans would just sell their oil to consumers who were displaced by your moving your purchases to other areas, and they’ll get the same price for it.

    Now, an OUTRIGHT, industry-wide, global boycott of Alberta is another kettle of fish. But even if every American retailer and manufacturer were to stop buying Albertan oil, China and India (and Cuba, and Myanmar, among other places) are unlikely to pick such fights, so even then the price probably wouldn’t even take a dent.

  2. Chris on

    I have recently changed industries and a few months ago took a job with an oil company. It has given me a great understanding of how complex the oil market is in North America.

    First and foremost, North America has an incredibly integrated and non-redundant pipeline system (http://www.theodora.com/pipelines/north_america_oil_gas_and_products_pipelines.html). It doesn’t hit the market and then get put into a large blender. Your local supply is 100% determined by the geography of where you live, there is no choice.

    Pipelines are the primary way oil is moved around because they are designed for one way trips – rail cars are used as a last resort because the return trip is always empty so therefore inefficient. Pipelines can be reversed, but it costs billions to reverse one line. There is one basic path currently out of Alberta to the US, and that is through Enbridge’s and TransCanada’s lines that go to Midwest places Illinois and Oklahoma. As a result, all supplies are very localized. There is essentially no Alberta oil in California or Florida, so citizens there can boycott until their heart’s content – they can’t buy it anyway as all their oil is supplied by tankers from the Middle East, Venezuela, etc. However, cities like Chicago, Minneapolis, and St. Louis run on Canadian fuel.

    In the end, a national chain like Whole Foods or The Gap boycotting any particular fuel source is 100% posturing.

  3. Lorraine Whellams on

    I think the message “we haven’t thought this through” was heard by the Gap since I read recently that they also retracted the statement put out by Forest Ethics…it appears they are not boycotting Alberta oil so much as trying to source greener energy. Whew! So glad I now do not have to forgo shopping at “Baby Gap” 🙂

    • Jay Palter on

      This notion that corporate consumers are just looking for “greener” options is what’s behind Dr. Peter Silverstone’s proposals for changing the royalty rates so that Alberta’s oil sands producers have real incentive to make the world’s greenest oil (http://greenestoil.ca/blog/).

  4. Celesa Horvath on

    Thanks, Chris, for another thought-provoking post.

    I have a number of comments to make.

    First, I don’t think the boycott of Alberta as a jurisdiction can be compared to a boycott of Arkansas, in protest of Walmart, or of the UK, in protest of BP. Those two examples involve the strategies, principles, and values of a single company, which are largely beyond the direct policy and regulatory control or influence of the host jurisdictions. In contrast, the Alberta government has a much more significant vested interest in oil sands development, and greater policy and regulatory influence. Oil sands development is a matter of provincial government policy: in a government policy paper (the Mineable Oil Sands Strategy) issued a few years ago (and since recalled), the core area of the oil sands resources in Alberta was designated a “sacrifice zone”, within which it was acknowledged that significant and irreversible environmental impact would be permitted to occur, to enable the realization of the significant economic benefits such development promised. Unlike Arkansas (re Walmart), the Alberta government DOES have the ability to directly influence the future direction of oil sands development; that’s why a boycott aimed at sending a message to the Alberta government makes more sense. (This is not to say I agree with it, mind you.) A boycott of Alberta as a tourism destination does pose a real economic threat to Alberta, which is likely to be noticed by the Alberta government (both directly through tax revenues and indirectly through constituent complaints), and offers an avenue of protest for those who cannot exercise influence as shareholders and investors. While the tourism boycott is not, as you note, likely to have a direct or significant impact on Alberta’s economy, it should not be looked at in isolation from the broader campaign against the oil sands.

    The campaign against the oil sands has had the effect of raising awareness of environmental issues, in particular, among the public and, perhaps more importantly, among shareholders, investors, insurers, and regulators. This has increased pressure on companies with oil sands assets to improve (i.e., reduce) their environmental footprint, and in some cases, to divest such assets. An example of the latter situation would be the shareholder resolutions faced by Statoil earlier this year (http://www.bloomberg.com/news/2010-05-19/statoil-shareholders-face-off-a-second-year-over-canada-oil-sands-project.html). This suggests that access to capital and the cost of borrowing may become increasingly challenging for oil sands companies. To be certain, the opposition to projects like the Keystone XL pipeline, which would carry Alberta oil sands products to US markets, and the Northern Gateway pipeline, which would carry oil sands products to a new west coast terminal for export to Pacific markets, has caused delays and increased costs to proponents. This is a concern to industry and, consequently, to a government with close ties to industry.

    So, while a boycott – whether of tourism or of oil sands products – might be, in and of itself, ineffectual in halting oil sands development, it may still contribute to a more challenging business case for future oil sands projects. Indeed, as a reflection of consumer sentiment in the US, the message of the boycott (together with other aspects of the anti-oil sands campaign) IS being heard by decision-makers in Alberta for what it is – a threat to the Alberta economy, which remains heavily dependent on the oil and gas industry. If that weren’t the case, I doubt we would see Premier Stelmach meeting with US House Speaker Nancy Pelosi, among other lobbying and marketing activity that has taken place.

    Notwithstanding, I agree that, by and large, the corporate boycott of the oil sands is evidence of muddled thinking. The most sensible course for these US companies to take would be to express concern about the environmental footprint and social impacts of oil sands development, encourage improvements in those areas, take steps to reduce oil consumption, and seek better alternatives.

    Finally, I want to comment on your point about hypocrisy. This applies to any critic of the oil sands, whether corporate, NGO, or individual. The oil sands, like any oil or gas resource, are being developed in response to continued and growing demand for oil and related products. As long as there is sustained demand for oil and related products in North America, exploration and production will continue. If there were no demand for such products, it is a sure thing they would not be developed. So to avoid hypocrisy, any critic of wholesale oil sands development (i.e., those who think the oil sands should not be developed at all) should be able to demonstrate that they themselves have taken steps to reduce their own oil consumption.

    This is a circumstance that often frustrates me: there are those who point the finger at industry, criticizing their environmental and/or social footprint, while failing to make the connection between their own consumption and purchasing decisions and the response of the market to meet those demands. In effect, this is an abdication of personal responsibility. While this is not to say that many corporations don’t have their own responsibility challenges, the conversation about corporate responsibility cannot reasonably take place without due regard for personal accountability.

    Best regards,
    Celesa

  5. Chris MacDonald on

    Celesa:

    Thanks for your comment. In large part, I agree…especially with your point about the thinness of my analogy between Alberta (as home of the oil sands) and Arkansas (as home of Walmart).

    I’m less sure about the awareness-raising aspect. I suspect that the people with power to make relevant decisions are already fully aware, and those that don’t know about the environmental impact of the oil sands can’t do much (anything) about it.

    I suppose it IS good, though, that people understand that demand for oil is so high that we’re now squeezing oil out of dirt — something that it wouldn’t be economically viable to do if the demand (and hence price) for oil weren’t so high. Maybe that knowledge helps drive home the dangers of current levels of petroleum consumption.

    Chris.

  6. Celesa Horvath on

    Good morning, Chris.
    You’re right, of course, that the decision-makers already know about the environmental cost of the oil sands (hence, the “sacrifice zoning” of past strategies). However, I think the awareness-raising effort is primarily directed at the public, and in particular those who can, by way of investment choices (whether as a shareholder or a tourist), put economic pressure on those decision-makers. Such pressure may seem ineffectual, but it sure has pushed the industry and government to engage in a public relations campaign of their own, driven, I believe, out of concern for maintaining access to markets and to capital.
    And I’m just not convinced yet that Joe Q Public actually understands the connection between his SUV and oil sands development. That demand-supply equation just doesn’t seem to be part of the campaign dialogue, on either side, it seems.
    Have a great day!
    c

  7. greenestoil on

    This was a great blog, which becomes even more relevant with time. The additional boycott from Avon and others announced in early December just goes to show that the risks that the oil sands will lose its social licence increase. This will only get worse if Albertans do not make any changes, as the move to increased underground extraction of oil will only increase the problem with greenhouse gas emissions. Of interest, I have recently launched a petition to address this issue. I am asking for people to support the idea that companies that have higher greenhouse gases pay higher royalties (taxes), while those that have lower greenhouse gas emissions pay lower royalties. This will give a strong economic incentive to companies to do the right thing. More info at greenestoil.ca

  8. […] – Additional boycotts by US retailers, including Walgreens. As pointed out in a great article by Chris MacDonald, this action was symbolic only. In August, there was also the Schindler study suggesting that oil […]

  9. […] This story of boycott and counter-boycott actually started last year when a group led by Forest Ethics and Corporate Ethics International called for a boycott of Alberta tourism. […]


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