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Energy and Resources Investor report says Canada’s oil sands among most CO2-heavy

The Suncor tar sands processing plant near the Athabasca River at their mining operations near Fort McMurray, Alta.

Todd Korol/Reuters

Canada's oil sands sector fares poorly in a new global comparison that provides investors with a means of assessing climate risk for various sources of crude production, Calgary-based ARC Energy Research Institute said in a report on Wednesday.

The ARC report gives investors the ability to determine which oil producers face the biggest financial risk as governments around the world impose carbon prices and other regulations to spur a reduction in greenhouse gas emissions.

The information provided in the report "can allow investors to rationally assess the viability of their crude oil investments in a world with more stringent climate-change regulations," it said.

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The institute is part of ARC Financial Corp., a major Calgary-based investment bank. Its report comes amid a significant retrenchment in the oil sands industry, driven by low prices but also by decisions by some international oil companies to focus on lower-carbon production.

Two of Alberta's most prominent executives, Suncor Energy Inc. chief executive officer Steve Williams and Canadian Natural Resources Ltd. chairman Murray Edwards, will address institutional investors at a one-day forum in London hosted by Toronto-Dominion Bank later this month. The session is billed as an effort to educate environmentally conscious European investors about the companies.

Some institutional investors are looking at divesting fossil fuels from their portfolios in response to climate risk and the desire to drive investment in renewable energy sources.

However, there will still be a need for investment in crude production for the foreseeable future, even if the world succeeds in meeting its climate objectives, ARC economist Jackie Forrest said in an interview.

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But many mainstream institutional investors are reassessing their portfolios to take into account the carbon risk, rather than in an effort to drive environmental change. And oil companies are facing demands from shareholders to provide better information, noted Ms. Forrest, who authored the report.

"Not all oils are equal in terms of their carbon footprint and there are going to be investments today that make a lot of sense in that lower-carbon world," she said. "So divestment isn't the only option. You need tools like the ones we released to differentiate between those assets that might be more challenged and those that have a long future."

However, Alberta's oil sands industry does not stack up well on that scorecard. Using publicly available information, Ms. Forrest ranked 75 different sources of crude for their GHG emissions. Crude from oil sands ranks among the most carbon-intensive, along with heavy oil from California and Nigerian production in which natural gas is flared.

Ms. Forrest said a $50 (U.S.) carbon price would amount to a $1.50 levy a barrel for the lighter crudes, but $6 a barrel on the more carbon-intensive production. (Alberta has adopted a carbon tax that will increase to $50 [Canadian] a tonne by 2022, but oil sands producers will be allowed to emit a certain amount of GHGs free of charge.)

Robert Mark, a portfolio manager with Raymond James Financial, said he does not avoid carbon-intensive, heavy-oil companies as investment targets, but does look for a discount compared with companies that produce lighter crude.

But he has avoided coal companies owing to their carbon exposure. "Coal investments have elevated risk due to the their CO2 intensity, but more importantly due to the potential for substitution" by other fuels for electricity generation, Mr. Mark said. "This framework served me well in recent years and avoided a lot of land mines. If/when there are viable low-carbon substitutes for oil, I would use the same broader framework."

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