Record profits at Royal Dutch Shell have been greeted with the usual chorus of disapproval. One trade union claims that the £13.9 billion profits are “obscene”. But any well-run oil major is bound to make money when the oil price is high. The bulk of profits are not made at the expense of drivers at the petrol pump: they are mostly reinvested in the company.

Shell, therefore, should not be judged by the size of its profits, but by the nature of its investments. For all big oil companies, the question today is how they use their newfound fortunes to meet rising demand for energy, while responding to global warming. Unfortunately, one of Shell's answers is tar sands. For many years the firm has been repositioning itself as a sensitive energy company, talking up its green credentials. But the environmental consequences of developing oil sands - bituminous lakes that contain sand, water and heavy crude oil - are breathtaking.

In Canada and Venezuela, these deposits are believed to contain almost as much as the world's conventional crude oil reserves. Tar sands also make a far greater contribution to climate change than conventional oil refining, because the extraction process itself is so energy- intensive. Getting oil out of these black lakes of bitumen generates about three times as much greenhouse gases as conventional oil production. Staggering quantities of fresh water and natural gas, a relatively clean-burning fuel, are needed to produce dirty oil. The rebranding of tar sands as “oil sands”, which sound cleaner, cannot mask the environmental devastation that will be wreaked if drilling continues.

These wilderness areas have remained relatively untouched until now, because of the enormous cost involved in extracting oil from them. But a combination of higher oil prices, new technology and American demand has made them profitable.

The oil sands are already the largest single contributor to Canada's greenhouse gas emissions. If they were all to be mined, the climactic consequences are unthinkable. Arnold Schwarzenegger has already declared that California will not import fuel whose production generates too many greenhouse gases over its life cycle, thus ruling out the use of tar sands oil. But the Bush Administration has actively encouraged their exploitation. The Canadian Goverment has refused to cap production. It will not clamp down on this lucrative trade unless the US, its main trading partner, changes its tune. The next president must make this a priority.

It would be preferable if companies themselves could resolve to end this new filthy habit. Sadly, they show no signs of doing so. Shell's rival BP sold its Canadian tar sands interests under the leadership of Lord Browne of Madingley. But his successor has re-established the company's involvement in the area. The oil companies argue that tar sands will help to bridge the coming energy gap. They are right. But investing in high-cost production drains investment away from alternative energy sources that help the world to curb climate change, rather than accelerate it.

The high price of crude makes investment in tar sands economically viable. This does not make them environmentally sensible. Shell risks being perceived, once again, not just as Big Oil, but as Bad Oil.