Investors urged to kick the tar sands habit

Investors are to be urged to shun controversial projects to extract oil from North American tar fields following the publication of a major new report that claims the carbon intensive processes involved represent an unacceptable environmental and business risk.

The joint report from WWF and Co-operative Investments claims that projects to extract oil from tar-soaked sands or shale in Canada and the US not only result in up to eight times more carbon emissions than conventional oil production, but also use three barrels more water, destroy large tracts of virgin forest and are dogged by numerous business risks.

"The aim of the report was to look at the issue of unconventional fossil fuels from an investment risk perspective," said Colin Baines, ethics advisor at the Co-operative Group. "There are numerous risks such as the legislative risks posed by the requirement to reclaim the land after it has been used, which will prove extremely expensive if not impossible; the reputational risks associated with the toxic tailings the projects create and the damage to local rivers and wildlife; and the economic risk associated with the likelihood of regulations on carbon emissions."

With both US presidential candidates vowing to introduce and carbon cap-and-trade scheme, Baines said that the already marginal business case for tar projects could soon become unsustainable. "The business model for these projects is reliant on high oil prices, a continuing lack of carbon regulations and the assumption among the companies involved that governments will ultimately bail them out over the clean up costs," he said. "It adds up to a very high risk approach."

Most of the oil majors remain committed to unconventional oil projects with Shell having announced its plans to produce 670,000 barrels of oil daily from Canadian oil sand by 2020, and ExxonMobil and BP committed to similar projects. They maintain that while unconventional oils remain more expensive and carbon intensive than conventional oil, rising energy demand means that a significant source of energy situated in a politically stable region cannot be ignored.

However, the Co-operative group is now hoping to secure support from other institutional investors as it seeks to increase pressure on the energy giants to halt plans to expand tar extraction projects.

Baines said the company was working with the UK Social Investment Forum (UKSIF) to organise "collective shareholder action" against the projects and would be hosting a meeting in September to discuss the issue. "We're calling on the oil companies to halt expansion of oil sand operations and instead invest the billions they have ploughed into these projects into renewables," he said. " We're also lobbying governments to introduce legislation that will prohibit all fuels that are more carbon intensive than oil."