Leave It in the Ground? Incorporating the Social Cost of Carbon into Oil Sands Development

Abstract

We evaluate the impact of imposing the social cost of carbon on new oil sands projects. Using data from recent oil sands projects and estimates of the social cost of carbon, we estimate the minimum prices required to make these projects economically viable. Our results indicate oil sands are a marginal resource before they incur any carbon costs. The viability of oil sands then depends on the incidence of the social cost of carbon, but projects are not likely viable, even under optimistic future price forecasts, if producers bear most of the costs from life-cycle emissions. We also find an important interaction between resource royalties and carbon charges: the impact of the cost of carbon varies with where it is imposed across life-cycle emissions.