Your argument proves too much.
.
Exactly the same argument can be made about asbestos.
.
Yet we now know that the negative externalities of the asbestos industry are so great that the resource is not worth mining, even if it could be mined for free.
.
Would any of that asbestos have been mined if the mining companies had been required to bear the full life-cycle costs of the product?
.
Of course not.  It would have been left in the ground.
.
I do not know if the same is necessarily true of tar sands oil.  But what is certain is that at present the life cycle costs of that production are not even remotely captured in the price of the product.
.
The price signal is the key to the proper functioning of markets. The market cannot correctly choose between alternatives where negative externalities are not internalised.
.
Let's internalise the negative externalities, and then see which alternatives prevail in the market.