The Default Option

Life is full of assumptions, both explicit and implicit. In my experience as a scenario practitioner, we don't question them nearly often enough, and when we ignore them, we often end up with results we didn't expect and may not like very much. An article from the Washington Post via MSNBC about the environmental consequences of oil sands mining in Canada provides a good example of this. I've discussed this aspect of oil sands production before, when the NY Times printed a similar article last year. Whether you look at it in terms of tradeoffs, as I did then, or implicit assumptions that don't even recognize we're making tradeoffs, I believe it explains how we create a world in which we wish for hydrogen, but get oil sands instead.

Consider some of the assumptions implicit in US energy and environmental policies and consumer behavior of the last couple of decades. Few of these were ever articulated this way, but I think they're all defensible as being logically consistent with our actions. If some of them seem mutually contradictory, that's because they are. In general, we have behaved as if:

• Oil and gas, and their resulting products, would be as plentiful as we might wish, regardless of the restrictions we place on the industry that finds and produces them.
• If sufficient oil can't be produced in this country, someone else would sell it to us at a price we would be happy to pay.
• If sufficient natural gas can't be produced in this country, someone somewhere else (not here) would import it for us.
• If oil prices got high enough, environmentally beneficial substitutes would flourish and displace petroleum.
• If energy prices got high enough, consumers would conserve by changing their behavior and investing in more efficient devices.

Oil sands production is one of the most important "alternative energy" technologies on the planet today, in terms of its economic and net energy contribution over the next decade. In it we see the simultaneous breakdown of several of the above assumptions:

• The production of conventional oil has failed to keep up with demand, in part because we've fenced off places like the Arctic National Wildlife Refuge (ANWR,) and because the foreign owners of most of the world's remaining oil reserves have chosen to restrict access for developing more production capacity, and thus limited supply and driven up prices.
• High energy prices have not throttled back demand very much, because of the time lags inherent in turning over fleets and capital stock--including homes far from jobs--and because oil at $75 still generates significant economic value when it is consumed.
• High energy prices have helped advance some clean alternatives, such as wind power, but they have lit a rocket under oil sands production.

As regular readers of this blog have probably discerned, I regard oil sands as a vital component of the supply buildup necessary for avoiding an imminent peak in oil production. But I also find it ironic that the technology that could have the biggest impact on reducing the price Americans pay at the pump combines the worst elements of oil drilling and strip mining. We've effectively traded off the petroleum development of selected parts of the US--ANWR and the outer continental shelf outside the western Gulf of Mexico--in favor of the much larger environmental footprint of developing the unconventional oil reserves in our northern neighbor. Canadians and Canadian companies will make a mint off our choice.

I'm still optimistic about the pace of development of alternatives to oil and other fossil fuels, but I'm also realistic about the quantity of oil we're going to burn before things like biofuels, hydrogen from wind and solar power, and other clean technologies can grow large enough to capture even the annual growth in transportation fuel demand, let alone eat into oil's current 97% market share. In that light it ought to matter to us where and how that oil is produced, and that means realizing that our past assumptions about the likely alternatives to ANWR and offshore drilling have been naive, at best.