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Alberta law requires that companies return all mine sites, including the 81-square- kilometre Millennium mine to their natural states.Ian Willms

Canada has staked its future on the oil sands. In November, Report on Business magazine together with Thomson Reuters examine what that means both at home and abroad. Read more from the issue at

Ed Stelmach sat, at ease, under the wide prairie sky. His five years as Alberta's premier – and de facto regulator-in-chief of the booming oil sands – were wrapping up to little acclaim. He'd tried and failed to hike oil and gas royalties, threw money at ill-fated carbon capture ventures and introduced a carbon tax, one with an extremely limited scope but nonetheless a Canadian first.

Now he was bowing out. We spoke one afternoon in August, 2011, on his family farm. One question sticks out from that day: Do you believe in climate change? "It doesn't matter," he replied, avoiding the question. "That's not the issue here." Trade was the issue, whether you believed in climate change or not, he said. That's why he needed carbon capture and a tax. He added that there were "scientists on both sides." A doubter, if not a denier.

Oil sands production has surged–from 1.3 million barrels per day in 2006, to 1.9 million by 2012, a figure projected to double by 2022–but the resource's environmental regulation has remained dubious. Provincial and federal governments have reaped the windfalls of the boom with only sporadic, often ambivalent attention to its impact, squabbling along the way over jurisdiction. Federal environment ministers have been saying emissions regulations are imminent since 2006. Companies have often been left to monitor themselves.

But projects kept being approved, and unfettered growth led to a bottleneck. The oil sands have outgrown most everything, from the labour pool to pipeline capacity to the deadly, wagon-trail Highway 63 that connects them to the world. When Alberta looked outside its borders to push for projects like the Keystone XL and Northern Gateway pipelines, it lacked environmental credibility.

Alberta has little robust data. Emissions are surging. No one knows what pollutants are making their way into the air, onto the snow, into wildlife and the Athabasca River. But Stelmach was correct in one sense: Trade is the issue. Alberta needs to reach new markets, which will require new pipelines, which in turn require a so-called social licence underpinned by environmental credibility. One long-time Albertan put it this way: "If you are in the energy business today, then you are in the environment business." That would be Jim Prentice, who became premier this fall. He didn't always think that way.

Greenhouse gas emissions are the foremost measurement tool for environmental performance. That's bad news for Canada, whose emissions are forecasted to increase, leaving the country scant hope of meeting the 2020 deadline for Copenhagen emissions-reduction targets.

The oil sands are driving emissions growth. Alberta produces 35 per cent of Canada's GHG emissions with 11 per cent of the population. But while nearly all growth in Canada's carbon-equivalent GHGs are due to the oil sands, less than half of Alberta's current emissions come from them. Alberta's top five carbon-emitting facilities include three coal power plants, two of which each produce more GHGs than the entire province of Newfoundland and Labrador.

In 2011, 39.8 per cent of Alberta's industry-reported emissions from major facilities were due to the oil sands–23.4 per cent to open-pit mines, and 16.4 per cent for in situ, which, while less ugly than open-pit mines, are typically more carbon-intensive and require networks of roads and pipelines that affect caribou habitat. Many Alberta herds are now threatened.

The industry consistently cites two figures to put things in context. The first is that per-barrel emissions have dropped, they say, by 28 per cent over the past two decades, though the number of barrels has shot upward and so too have total emissions. The second is that various studies have shown oil from the oil sands typically produces only about 15 per cent more GHGs than the average of other sources, on a "well-to-wheels" basis. (Other research, however, puts the difference as high as 40 per cent, while the industry says it's only 9 per cent compared to other heavy oils.)

Companies have found innovations to pull down that figure. Some have abandoned traditional upgrading – processing sandy bitumen into refinery-usable crude – by using other technologies with a smaller GHG footprint. Some have cut their power use. In-situ companies have focused on reducing the amount of water and natural gas they use to steam up bitumen. However, such mines have faced other problems–particularly Canadian Natural Resources Ltd.'s Primrose facility, which last year had four separate underground oil leaks.

Open-pit mining has focused on land reclamation. Syncrude has a bison herd on one such reclaimed patch, though the company has had wildlife problems. It was found guilty of two environmental charges in 2010 after 1,606 ducks died in its tailings pond.

Pollution and wastewater are key concerns in open-pit mining. In 2011, Suncor found that "industrial wastewater" flowing into the Athabasca was more toxic than allowed. The federal government chose not to issue any penalty, but Alberta pursued it, leading to another 39 failed tests. Greenhouse gases aren't the only challenge.

Along the banks of the Athabasca, bitumen has long seeped into the river through erosion. Until as recently as five years ago, the province suggested that any tainting of the river was natural.

Alberta and Ottawa founded the Alberta Oil Sands Environmental Research Program in 1975, but it was scrapped in 1985. Studies from other corners offered only snapshots. Governments undertook a Northern River Basins Study from 1991 to 1996. Monitoring was then left up to the Regional Aquatics Monitoring Program, or RAMP, an industry-led agency founded in 1997 that has been widely criticized as ineffective and opaque.

Thanks in part to these frequent handoffs of responsibility, the sector still has little in the way of a baseline study, making it impossible to know what level of mercury, for instance, is natural in the Athabasca River.

While Alberta has taken initiatives on its own, they have been limited. Stelmach introduced his carbon tax in 2007, though it applied only to a fraction of emissions. It has diverted 51 megatonnes in emissions in seven years. Alberta's total emissions are now roughly 250 megatonnes a year. Under Stelmach, Alberta also pledged $2-billion in funding for four carbon-capture facilities. Two of these have since collapsed due to cost pressures and the other two haven't begun operation.

As governments fumbled, it fell to external researchers to dig into the oil sands. In 2010 a team including University of Alberta biologist David Schindler produced a study that found elevated levels of mercury and lead, among other pollutants, in the Athabasca. That study, and a second that soon followed, "led to a climax of public concerns," University of Toronto geologist and oil sands researcher Andrew Miall later wrote. Prentice, then the federal environment minister, referred to the peer-reviewed study as "allegations" and claimed the results were not incontrovertible. Still, he struck up an independent panel to look at oil sands monitoring.

Other studies have followed, some of them involving Environment Canada scientists who face strict restrictions on discussing their work publicly. One found that levels of polycyclic aromatic hydrocarbons – pollutants linked to fish deformities – were 23 times pre-development levels in lakes near the oil sands. Another study this year showed that in summer, many emissions come not from mines or upgraders but from tailings ponds.

A 2010 comprehensive review by the Royal Society of Canada said that the province's regulation had not "kept pace with rapid growth" and was prone to political interference. The same year, the federal Commissioner of the Environment and Sustainable Development found that Environment Canada, after four decades of oil sands mining, had "insufficient data to monitor oil sands development." The feds had been flying blind. The Oil Sands Advisory Panel convened by Prentice concluded in late 2010 that the regime for oversight was weak and piecemeal. "There is no holistic and comprehensive system," panel chair Elizabeth Dowdeswell said. The panel said the establishment of a robust monitoring system was "fundamental to the long-term environmental sustainability and economic viability of a rapidly growing oil sands industry." Another panel, struck up by the provincial government, saw an American academic quit, complaining that the provincial government was unduly involved in vetting the panel's work.

Ottawa and Alberta announced a Joint Oil Sands Monitoring (JOSM) program in early 2012, but have argued over jurisdiction. It is scheduled to be fully up and running next year, but watchdogs are already raising flags. Canada's Commissioner of the Environment and Sustainable Development reported in October that the program's public reports have been excessively delayed, that aboriginal traditional knowledge isn't being adequately included, that some projects have faced delays, that industry is not paying the full cost–as had been one former minister's expectation–and that there's no clear role for Ottawa beyond 2015. Alberta's auditor general, meanwhile, raised concerns about the program's transparency, saying many of the monitoring projects had incomplete plans or no plan at all, and that both governments were failing to adequately monitor the programs.

In the absence of sufficient government action, industry has elected to work together. In 2012, 13 major companies founded the Canadian Oil Sands Innovation Alliance, essentially an agreement to share once-proprietary technologies. The group has shared 560 technologies that cost $900-million to develop, it says.

The innovations are varied. Canadian Natural Resources Ltd. is adding carbon dioxide to tailings ponds to accelerate their consolidation, and shrink their size. Shell is building a carbon-capture facility and in-situ producers have cut per-barrel emissions. Companies have called for government to put a firm price on carbon, saying doing so would make carbon capture a viable venture.

Alberta, however, dragged its feet on renewing Stelmach's carbon levy, while the federal government dismisses carbon taxes as costly. Regulation has instead brought a proliferation of acronyms. The province, which already has the Alberta Energy Regulator, this year added the Alberta Environmental Monitoring, Evaluation and Reporting Agency (AEMERA), which represents the province in the JOSM program. (RAMP has been rolled into JOSM.) Despite widespread calls for any new agency to be fully independent, AEMERA is not – its board is appointed by Alberta's government and its public reporting is only done "in consultation with the [provincial environment] minister." It nonetheless is the tip of the spear in the effort to boost oversight, and credibility, in the booming region.

"AEMERA's task is a huge one, to get the herd all headed in the same direction instead of squabbling, and to distinguish the racehorses from the Shetland ponies in the lineup," Schindler, the biologist, wrote in an e-mail recently. "I hope they can be successful, but I am not holding my breath."