As oil prices continue to reach record highs, the search for new sources of energy has led the world to Alberta, Canada, and its vast oil sands. Now, John Vidal finds, the country famed for its wilderness and clean living finds itself caught between fuelling the world's oil-hungry economy and the ecological devastation and soaring greenhouse gas emissions that exploiting the tar sands produces

Truck number 108 is driven by Norman Johnson, 63, a long-time Shell man who is planning to spend his retirement fishing, camping and "hunting the critters" in the vast boreal forests and bogs that stretch across the region. "It's just like driving your car. Couldn't be easier - once you get used to its size," he says from his cab, 40ft off the ground. He won't let the Guardian start up either of its two great engines.

But the future of northern Alberta's aspen and pine woods, its rivers and animals are in doubt as the world's greatest modern oil rush accelerates. Shell, Chevron, Exxon, Total, Occidental, Imperial and most other oil majors have so far invested nearly $100bn Canadian dollars (£50bn) in the 1,160 square mile (3,000 square kilometre) "bitumen belt", which is being called the "new Kuwait".

A decade ago, the vast landscape of forests and lakes around Fort McMurray and the Athabasca river provided a fairly minor and barely profitable sand oil industry. But it is now pitted with hundreds of square kilometres of toxic waste ponds, mines that are 300ft deep, hundreds of miles of pipes and burgeoning petrochemical works. Every day brings a bumper to bumper stream of lorries carrying the world's largest plant, pipes and machinery to the area, as well as young men seeking fortunes, and, say critics, the devastation of a pristine land.

The companies are now mining 1.3m barrels a day of heavy crude oil from the sands, which are saturated with bitumen. But they expect to spend another £50bn to more than double production to 3.5m barrels by 2011. The surge is expected to attract 100,000 more workers to the northern wilderness where the wolf and bear are still common.

And that would just be the start. By 2030 they plan to produce at least 5m barrels a day, and export more than Nigeria, Venezuela or Norway, which would make Canada one of the world's largest oil producers.

If the oil price stays high and new technology permits, oil companies will move, with the Canadian government's blessing, to extract the estimated 180bn barrels of crude to be found far deeper under 140,000 sq km of Alberta in what are the world's largest proven oil deposits after Saudi Arabia.

By 2050 Canada could be the second largest oil producer in the world, shifting the global energy security equation but exacerbating global climate change in a way that has scarcely been considered.

The tar sands industry could pump vast amounts of money into the local and national economies. Alberta is the fastest growing Canadian province, and more than 40,000 people have moved to the oilfields in the last five years.

Only 20 years ago Fort McMurray was a homely, tumbleweed-blown place with a population of 25,000 people. It is now at the epicentre of the rush and its newfound wealth is visible everywhere with its casino, upmarket bars and new hotels. It is expected to grow to a city of 250,000 people within 20 years.

"There are four-hour traffic jams and companies can't give away jobs. Kids out of school can earn $100,000 a year; people pay $400 a week to share a room; companies pay people $4,000 a month to lodge and $80,000 to just come here," said one estate agent in Fort McMurray. "There's money galore but the town can't cope."

The average price of a three-bedroom house, she says, is nearly $650,000 [£320,000] and rising.

The downside is ecological devastation and soaring greenhouse gas emissions on a scale that is beginning to alarm Canadians and other western countries trying to reduce the intensity of their carbon economies to counter climate change. Canada, alone, of developed countries, is expecting to increase emissions for 30 years and ignore its commitments to Kyoto.

So far, nearly 180 sq miles (470 sq km) of forest have been felled by tar sands miners and giant lakes of toxic waste water cover a further 130 sq km. Environmental campaigners, first nation groups, and doctors accuse the companies of creating massive air pollution, threatening river ecologies and killing fish, and even causing human cancers.

"This is the dirtiest source of oil anywhere in the world and there are barely any regulations," says Simon Dyer, a researcher for the Pembina Institute.

He says the greater energy needed to produce a barrel of oil from the sands means three times more greenhouse gas emissions than producing a barrel of conventional oil. The greater energy is needed because the oil has to be dug out and then separated from the sand, and because it is low grade it has to be heavily refined. Tars sands mining "is the fastest growing source of greenhouse emissions in Canada", Dyer adds.

Environmentalists from round the world last month called for a moratorium on all new oil sand mines to impose higher standards. In the next 30 years, says Dyer, the oil works in Alberta could extend to an area as large as England. He says "hundreds of millions of extra tonnes of greenhouse gases will be emitted" just from the extraction process.

This month the province of Alberta and the federal Canadian government came under pressure to clean up the environmental mess already made and to urgently lower the carbon intensity of exploiting the oil sands. US presidential contender Barack Obama and, separately, hundreds of US mayors, have questioned the wisdom of making oil from bitumen.

Jason Grumet, Senator Obama's senior energy adviser, said the presidential candidate, if elected, intended to break America's addiction to "dirty, dwindling, and dangerously expensive" oil.

"If it turns out that the only way to produce [resources] would be at a significant penalty to climate change, then we don't believe that those resources are going to be part of the long term, are going to play a growing role in the long-term future," he said.

His statement followed a direct attack on the oil sands by more than 1,000 mayors of large US cities who voted last month to boycott energy with a large carbon footprint.

In addition, California's governor, Arnold Schwarzenegger, last month signed agreements which will cut the use of high carbon petroleum sources from Alberta and elsewhere. Ontario and British Columbia must now meet California's low-carbon fuel standard and other provinces and US states are expected to join the standard, shrinking the market for oil sands.

In late June, the Canadian federal and Alberta provincial governments joined the Canadian oil industry to play down the impact of the sands on the environment. "Canada only produces 2% of the world's greenhouse gas emissions, and the oil sands are only 8% of these [2%]," says a spokesman for the Canadian association of petroleum producers.

"We are only 15% more intensive with greenhouse gas on a lifecycle basis than conventional oil. We have to reduce emissions by 15% to get to parity. We are doing this by tree planting, installing carbon capture programmes and through hydrogen [mixed into bitumen in processing]," said a spokeswoman for Albian Sands, a consortium of Shell, Chevron and Marathon, which is working the 8 sq mile (20 sq km) Muskeg river mine 50 miles north of Fort McMurray.

The company produces 155,000 barrels of crude a day from the estimated 5bn barrels of oil under the land the company has leased. In 2007 they extracted 250m barrels of oil.

A Shell Canada spokesman in Calgary said that the company was planning to reduce its emissions by 50% and was seeking to develop carbon capture technology. But he admitted this was at least five years away and possibly much longer.

"We recognise that mining, extracting and upgrading bitumen has a significant footprint. Large areas must be cleared and excavated, while large volumes of water and natural gas are used to mine, process and upgrade it," said a spokesman. "Each project undergoes stringent environmental assessments," he said.

But green groups responded that although the companies were voluntarily reducing the carbon emissions associated with their operations, all the improvements were being undermined by the daily increase in the scale of their operations. "Every environmental parameter is worsening," said Dyer.

"The companies are seeking to blame drivers for the oil they burn. The reality is that producing each barrel of oil from oil sands emits between three and five times as much carbon dioxide as a conventional barrel of oil. [Producing] a conventional barrel emits about 30kg of CO2, but the two biggest companies in the oil sands, Syncrude and Suncor, have said they emit 120kg a barrel," he said.

The companies last week also sought to minimise their impact on water. Oil sands need to be washed and more than 12,713m cubic feet (360 million cubic metres) are used a year - the equivalent used in a city of 2 million people.

"Our impact is near negligible," says an Albian spokesperson. "Yes, we use a lot of water but Canada has decided that 2.5% of the river is acceptable. We release no processed water into the environment." The water is held in settling pits for 20 years before being released.

But the companies' record on water is disputed strongly by environment organisations. "They may be taking only 2.5% of the water from the Athabasca river, but that's over the year. In late winter when the flows are the lowest, that can be 16% of the river. The river is already being affected, and this will be cumulative," says Dyer.

The speed and scale of the growth of oil sands mining have shocked Canadians who regard themselves as living in one of the most environmentally responsible countries in the world. But record oil prices are posing a serious dilemma between supporting today's oil dependent economy and moving to cleaner energy sources to avoid a future climate catastrophe.

"Sure, I am worried about the Alberta environment. We all are. Canada's image is all tied up with wilderness and clean living. Now we have to accept we depend on dirty industry. The oil sands are making us rethink who we are. But it's like no one can say no to oil," says John Davidson, a graduate mechanical engineer who moved to Fort McMurray to help build a new plant.

"But if you can pay your mortgage off in five years, then I have to say I can't resist either," he says.

· This article was amended on Wednesday July 16 2008. The environmental thinktank the Pembina Institute is an independent organisation and not associated with the University of Alberta. This has been corrected.

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