Santa Monica, California – Alternative sources of fossil fuels such as Canadian oil sands and coal-to-liquids have significant economic promise, but must be weighed against environmental consequences, according to a study released by the non-profit research organization RAND. The study reviewed the effects on fuel costs from future limitations on carbon dioxide emissions and compares costs of these fuels to conventional petroleum fuels in 2025. The study was funded by the U.S. National Commission on Energy Policy.

“With concerns about high and unstable world oil prices, there is strong interest in developing alternative fuel sources,” said Mike Toman, lead author of the report. “Oil sands and coal-to-liquids represent economically important options for expanding global fuel supplies that can ease upward pressures on oil prices.”

However, Toman noted that current methods for oil sands production require large quantities of water and can harm local water quality, although technical advances are lessening these pressures. Development of oil sands can also cause large-scale disturbances of land and habitat.

Total carbon dioxide emissions from production and use of oil sands are about 20 per cent higher than conventional petroleum, while total emissions from production and use of liquid fuels from coal are about twice the emissions of conventional fuels. These emissions can be reduced to levels comparable to conventional petroleum by investing in equipment to capture and pump the carbon dioxide into long-term underground storage, but the technical and economic feasibility of large-scale carbon capture and storage is still under study and has not yet been demonstrated.

Production of Canadian oil sands is commercially established and is greater than one million barrels per day. Substantial Canadian reserves exist and are second only to Saudi Arabia in volume. The study concludes that oil sands will likely remain very competitive with conventional petroleum, even after accounting for the costs of emitting or capturing and storing carbon dioxide emissions.

Modern coal-to-liquids technology is currently being developed, and while it would require large quantities of coal, the U.S. and global coal resources are adequate for meeting potential demand. The future cost of liquid fuels from coal appears to be reasonably competitive with conventional petroleum, provided that oil prices do not fall back to pre-2006 levels for extended periods, there are further improvements in the technology as production volumes grow, and that carbon dioxide limitations do not impose too large a cost burden on liquid fuels from coal relative to conventional fuels.

“The most important constraints for oil sands are the local environmental impacts and demand for water,” Toman said. “Since major investments in coal-to-liquids become more likely if environmentally sound carbon capture and storage can be commercialized at relatively low cost, the future expansion of this fuel source will be strongly influenced by future private sector and government initiatives to support such commercialization. However, even with carbon capture and storage deployed, neither alternative fuel offers a path toward large long-term reductions in total carbon dioxide emissions to limit climate change. There will still be a need to develop lower-carbon fuel options, such as fuel synthesized from a mixture of coal and sustainably-grown biomass.”

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