Vast amounts of oil lie in the bitumen-rich sands of Northern Canada, but whether oil companies choose to spend billions extracting them will hinge on decisions made 6,000 miles away in Denmark next month.

Even at the best of times, squeezing crude from Alberta’s tar sands is an environmentally fraught process that is economic only with very high oil prices. The cost of oil production can be $70 (£43) per barrel compared with only $5 for the onshore oilfields of Saudi Arabia or Kuwait.

The prospect of a successful climate deal in Copenhagen threatens to hit the industry with a cost that could drive it out of business: international carbon regulation. Like all big economies, Canada will be expected to agree to make cuts in its CO2 emissions of at least 20 per cent by 2020 and up to 80 per cent by 2050.

A key goal of the UN meeting is to create an effective global trading scheme for carbon emissions — a tool that would place a firm price on greenhouse gases produced by industry. A weak trading system of this kind already exists in Europe but governments want to create a bigger and bolder scheme that would penalise the use of high carbon fuels and drive global investment into cleaner energy.

As one of the most carbon intensive fuels around, the Canadian oil sands industry would be one of the biggest losers. So much energy is needed to heat raw bitumen into a usable crude that an oil sand operator typically uses up the equivalent of one barrel of oil for every three barrels it extracts. For the same energy expenditure you would expect 100 barrels from a conventional Middle East oil well.

There is a lot at stake. The Canadian Government collected more than C$30 billion from oil sands–related activities from 2000 to 2008 and about 240,000 jobs rely on the industry. Powerful interests inside and outside Canada are determined to find a sustainable method of producing oil from the tar sands.

Buying carbon credits to offset the industry’s emissions is one option, and oil companies have also suggested carbon capture and storage technology. Some have proposed using nuclear power to process bitumen — which would dramatically cut emissions but also create environmental complications.

Companies such as Shell argue that while synthetic crude from oil sands might not be a green fuel, coal is dirtier and produces even more greenhouse gases when burnt to generate electricity. They claim that giving up the oil sands would accelerate coal consumption.

World energy demand is expected to double by 2035 but supplies of conventional fuels are getting tougher to find and more expensive to produce, while cleaner forms of renewable energy will take time to plug the gap. Scepticism is growing over whether there is the political will to reach a deal that would destroy the industry any time soon.

Whatever the outcome of the meeting, the battle for the future of the tar sands will be raging in Copenhagen.

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