Five days ago, Leonardo DiCaprio’s film Before the Flood premiered on the National Geographic Channel . As DiCaprio flew over Alberta Canada’s oil sands with Suncor Energy’s Mark Megaeu, DiCaprio remarked that the scene “reminds him of Mordor from Lord of the Rings” . Although most oil companies are disliked by the environmental movement, oil sands companies are particularly disliked because producing oil from the oil sands releases more greenhouse gasses and effects the Earth’s surface more than traditional oil wells. How does a company like Suncor Energy navigate the political landscape while seeking to have a strong bottom line and improve its environmental performance? I worked at Suncor Energy for multiple years and got to witness first-hand how Suncor’s CEO, Steve Williams, managed political concerns to seek to set up the corporation up for long-term success.
Suncor Energy and the Oil Sands
Suncor Energy is Canada’s largest oil company with a market valuation of $45.2 Billion . Suncor was the first company to utilize the oil sands to produce crude oil and still holds one of the largest positions in the oil sands. To extract crude oil from oil sands, surface mining is traditionally used to collect the tar-like substance. Later, it is upgraded using a chemical process that requires energy into a form of crude oil . Crude oil is then separated into gasoline, diesel, chemical feedstocks, and many other products at refineries located around the world.
Economic Effects of Politics
In recent years there have been multiple political actions to help the environment that had the potential to hurt Suncor’s performance. President Obama used the “dirty” label of oil sands crude oil as part of the justification for not allowing the Keystone XL pipeline to be built . There is insufficient pipeline capacity for Oil Sands Crude because of the political rejections of Keystone and other proposed pipelines. Transporting oil by rail is more expensive than transporting oil by pipeline . Because the price of crude oil is set by supply and demand at the location where it is sold, Suncor has to absorb the extra cost of shipping oil which can significantly decrease their profit margin.
Additionally, in recent years the European Union considered putting an official dirty label on oil from the oil sands. If they had put that label oil sands crude, it had the potential to lower demand for the crude and reduce the value of Suncor’s oil .
The Suncor Response
Steve Williams, Suncor’s CEO, took multiple public actions to try and sway politics in Suncor’s favor. Steve Williams made public statements that global warming was real and that something needed to be done about it . Additionally, Suncor opened a biofuels plant and six windfarms . Although these assets are of small value compared to Suncor’s oil sands operations, they changed the company from an oil company to an energy company with environmentally friendly assets.
Steve Williams also was part of a council for Alberta’s government that created a new carbon tax for the province. Alberta’s carbon tax structure was relatively innovative and seen as a step forward for climate change . The tax structure opposed a tax on carbon polluters anywhere hydrocarbons were consumed (ex. The gas pump) instead of only taxing oil companies. This structure better aligns incentives for all consumers and puts less of the tax burden on oil companies. Being part of the solution gave Suncor excellent press and helped to frame the company as an innovative, sustainable company. All of these actions put Suncor in a better position to have good public opinion, maximize the value of its assets, and improve its sustainability .
Suncor’s Path Forward
As Suncor moves forward I would recommend taking the following steps:
- The new tax structure rewards all reductions in carbon emissions. There are likely many quick wins for carbon reductions that will have a good ROI. Implement them and publicize all actions taken.
- Utilize Suncor’s environmental employees and network to seek innovative means to improve the environment. Spread any discoveries freely and make it clear that Suncor funded them.
- As a supporter of the environment, I considered multiple times if working for an oil company was consistent with my values. I concluded that it was better to be “in the arena” instead of being a critic from the sideline . Improving the reliability of my refinery’s equipment improved Suncor’s bottom line and reduced SO2 emissions on a scale that was significantly larger than any sustainability action I could take at home. Consistent with this reasoning, Suncor should work to change their public image so they are seen as a company who is solving the climate change problem and not creating it.
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Cover Image from https://www.studentenergy.org/topics/oil-sands-mining