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The Potential Impact of ESG Spending on Public Perception of the Canadian Oil Sands

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Managing Complex Tasks with Systems Thinking

Abstract

The “Oil Sands in Alberta”, Canada, are facing transformational change due to national and global pressure for greenhouse gas abatement. For Oil Sands (“the industry”) to survive, it must achieve a ‘new normal’, where the business of supplying energy is conducted within a framework of increased regulation of its environmental, social, and regulatory governance (ESG) framework. For the ‘new normal’, post-transition state to become a stable basis for business operations, the perception of the industry must be neutral at a minimum and ideally positive. The quantitative metrics of perception reflect the many complex dimensions of ESG: the current levels of CO2 emissions, performance toward Net Zero, and regulatory compliance. Since the approach that a single perception metric is not possible, we propose four metrics that collectively have the greatest influence on Oil Sand’s industry decisions regarding ESG investments and spending—First Nations, the Environmental Lobby, Investors, and the General Public. The factors driving each perception metric are both exogenous and endogenous and linked, creating behaviours amenable for study using system dynamics. This study comprehends the potential of reinvesting profits from Oils Sands into Environmental, Social, and Governance (ESG) to improve its public perception with the effort to lead to net-zero emissions and the industry’s survival. First, a System Dynamics (SD) model to portray oil production using mining and in-situ drilling features is built. Next, the calibrated model analyzes the emissions produced in the process, the use of land and water, and the impact on wildlife and fish in the surrounding area. Finally, these effects are simulated for the well-being of First Nations people in Northern Alberta by showcasing the potential of investment in emissions abatement technology and through social services and infrastructure to determine if this investment might influence environmentalists’ and First Nations’ perceptions. As a result, for economic aspects, the model reveals past/future prices and profits of the Oil Sands. In addition, the model examines collected royalties and taxes that can support government programs by the province or the country and the jobs created and the workers’ productivity. The major findings evaluate perception as a complex and synergistic combination of values we describe as well-being: “economic well-being, social well-being, and environmental well-being”, as well as specific sub-values related to emissions, wildlife, fish, land, and water. Of particular importance is the impact of public perception on investor perceptions. Investors are central to the well-being of the industry. To our understanding, this is the first validated SD model of the Oil Sand industry visualizing perceptions. The current model excludes the influence of “supply and demand” relationships on the future potential of the Oil Sands industry. Determining other controllable influencers, such as Albertan and Canadian government policies, must also be considered in future work. The SD model could inform the practical ESG policy approaches for adoption by the policymakers, practitioners, and researchers on the achievement of Oil Sands in Canada, thereby convincing First Nation people and the country at large. It can also be adapted for countries where Oil Sands are investigated. The study recommends that the industry make a concerted effort to reach “net-zero emissions by 2050” to reverse declining perception of the industry by many of its stakeholders. Thus, this quantitative model of stakeholder perceptions fills a crucial methodological gap in studying Oil Sands.

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Correspondence to Saroj Koul .

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Appendix

Appendix

Terminology (initial values and units)

Name

Value

Units

Abatement cost drilling

0.0333

kg/(barrels * million dollars)

Abatement cost mining

0.0333

kg/barrels/million dollars

Accumulation period

1

Year

Aggregate oilsands water use

10.5

dmnl

Aggregate recycling fraction

0.75

Fraction

Average infrastructure life span

50

Years

Average wage

120,000

Dollars/person/year

Average wage inflation

1.025

dmnl

Birth rate

0.02

People/(year*person)

Breakeven price

50

Dollars/barrels

Carbon tax rate

0.3

Dollars/kg

Compliance multiplier

1,000,000

dmnl

Corporate tax rate

0.08

Fraction

Cost of in-situ expansion

10

Dollars/barrels

Cost of mining expansion

20

Dollars/barrels

Diluent average cost fraction for gross projects

0.315

dmnl

Diluent average cost fraction for net projects

0.268

dmnl

Fish birth rate

0.39

Fish/fish/year

Fishing rate

0.2

Fish/fish/year

Fraction gross royalty initial

0.73

dmnl

Fraction net royalty initial

0.27

dmnl

Fraction of remaining to social infrastructure

44,929

dmnl

Gross royalty rate

0.0378

Fraction

Gross to net in-situ payback

44,936

1/year

Gross to net mining transition fraction

44,951

1/year

Hunting rate

0.2

Wildlife/wildlife/year

In-situ reserves initial

245,562

Million barrels

Initial land used

901

km2

Initial drilling workforce

9000

People

Initial emissions intensity drilling

75.5202

kg/barrels

Initial emissions intensity mining

91.0125

kg/barrels

Initial emissions reduction fraction drilling

0.8

dmnl

Initial emissions reduction fraction mining

0.12

dmnl

Initial environmental lobby perception

− 0.5

dmnl

Initial first nations people

10,000

People

Initial first nations perception

− 0.1

dmnl

Initial fish

100

Fish

Initial infrastructure

100

Buildings

Initial investor perception

0.1

dmnl

Initial land available

4800

km2

Initial mining workforce

8500

People

Initial miner productivity

36,798

Barrels/(year * person)

Initial public perception

0.3

dmnl

Initial services

1000

Service units

Initial Wildlife

100

Wildlife

Inventory market value

120

Dollars/barrel

Investment period

1

1/year

Land use rate drilling

4.93E−05

km2/million barrels

Land use rate mining

0.00381558

km2/million barrels

Net earnings ratio target

0.18

dmnl

Net revenue average deductions

329

Million dollars/year

Net royalty rate

0.297

dmnl

Net water used conversion

0.000197

dmnl

Normal build rate

0.1

Buildings/buildings/year

Normal departure time

72

Years

Normal fish life expectancy

5

Years

Normal investment fraction

0.15

dmnl [0,1,0.01]

Normal profit

30,000

Million dollars/year

Normal wildlife life expectancy

10

Years

Mining reserves initial

68,928

Million barrels

Price sensitivity analysis

0.2

dmnl

Price shock

0.5

dmnl

Production fraction gross in-situ

0.51

dmnl 1/42.7

Production fraction gross mining

0.51

dmnl

Production period

1

1/year

Reclamation rate

0.11

1/year

Standard use of general services

100

People/service units

Time to change environmental lobby perception

10

Year

Time to change first nation perception

5

Year

Time to change investor perception

1

Year

Time to change public perception

3

Year

Time to change services

10

Years

Upgrade period

1

1/year

Upgrader investment fraction

0.6

dmnl

wb econ weight

0.5

dmnl [0,1,0.1]

Wildlife birth rate

0.295

Wildlife/wildlife/year

Year of price shock

2022

Year

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Thibeault, A., Taylor, I.W., Koul, S., Falebita, O.A., Coppus, G. (2023). The Potential Impact of ESG Spending on Public Perception of the Canadian Oil Sands. In: Qudrat-Ullah, H. (eds) Managing Complex Tasks with Systems Thinking. Understanding Complex Systems. Springer, Cham. https://doi.org/10.1007/978-3-031-40635-5_15

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