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Canada threatens trade war over EU oil-sands ban

Symbolic attempt to ban oil-sands crude from Europe sparks trans-Atlantic war of words

The Canadian government has threatened to retaliate over plans by the EU to ban imports of oil-sands crude into Europe. A bill containing a controversial fuel-quality directive (FQD) aimed at curbing oil sands imports will be presented to the European parliament for a vote later this year.

Canada lobbied hard to have the provisions removed, but reports suggest the EU will move ahead with the measures even as Canadian government officials threatened a World Trade Organization (WTO) challenge. Energy minister Joe Oliver – in Washington this week, ostensibly to talk about the proposed Keystone XL pipeline – told reporters Canada “won’t hesitate” to defend its economic interests against such a ban.

What exports to Europe?

The move is largely symbolic, because no oil-sands crude is exported from Canada to the EU (98.5% of Candian first-quarter oil exports went to the US, according to the National Energy Board). But it comes at a particularly sensitive time for Canadian industry and government officials, who are eagerly awaiting the outcome of the US government’s Keystone XL hearings.

Keystone XL, which would ship almost 1 million barrels a day from Canada’s oil sands to US Gulf coast refineries, is also being blamed for increasing US reliance on higher-carbon fuels.

It’s also unclear what effect the directive will have on trade talks. Canada and the EU are negotiating a comprehensive economic and trade agreement, with the next round scheduled for this month. The EU imported about €20 billion ($19 billion) worth of Canadian goods in 2010, while its exports to Canada were worth about €26.6 billion.

Under the EU proposal, Canadian oil-sands crude would be assigned almost 30% higher carbon values than conventional crude, although some studies suggest full-cycle greenhouse-gas (GHG) emissions are only 7% higher. In addition, the punitive measures fail to account for emissions-intensity reductions of almost 40% per barrel of oil sands produced between 1990 and 2006, according to Alberta government statistics.

Alberta is the only jurisdiction in North America that taxes carbon emissions and redistributes the funds into research and development projects. Despite successive budget deficits, Alberta’s taxpayers have committed more than C$2 billion ($1.9 billion) in public funds for carbon capture and storage projects aimed at reducing GHG emissions – the largest single outlay by any government in North America and possibly the world.

Negative international attention

But still the oil sands continue to receive enormous amounts of negative international attention, a source of exasperation for many public and government officials in Canada. Despite a barrage of attack from US activist groups, such as Corporate Ethics, the overwhelming majority of Canadians support responsible oil-sands development, according to polls commissioned by the Canadian Association of Petroleum Producers (Capp).

"The concern for us is one of principle and precedent,” said Capp oil sands vice-president Greg Stringham, who insists his group isn’t against carbon standards. “But they should not be based on the principle of discrimination. It's important because it could set a precedent on which other countries may build their policies."

Speaking to reporters in Edmonton following her selection as premier of Alberta, Alison Redford said she disagreed with the EU decision and that Alberta will continue to lobby against it. "What we're seeing right now is an international climate that feels it must deal with public pressure around those issues. It is not the right decision. It is not the right way to deal with the issues.”

Fracking fears

It’s not even clear if the FQD will come to pass. It still has several hurdles to overcome, the least of which is objection from EU member states over provisions for hydraulic fracturing, which would receive even harsher treatment than oil sands. Several EU states, including Poland and the UK, are uncovering large shale-gas resources and it will be difficult for the EU to find unanimity on the issue.

There’s also a new-found love affair in Canada with all things British. Since the royal visit by Prince William and the Duchess of Cambridge earlier this year, Canada has been almost inexplicably keen to reinvigorate its colonial ties. The federal government restored the Royal title to the Canadian Air Force, which will be known as the RCAF for the first time since the post-war era – and prime minister Stephen Harper is gaining a reputation as an avid monarchist.

Harper has been cosying up with his UK counterpart, David Cameron, who was warmly welcomed in a recent state visit to Ottawa. Oil sands were reportedly on the agenda and specifically the EU bill. Cameron has previously expressed opposition to including oil sands in the FQD and is considered an ally in Europe.

That’s probably why the normally mild-mannered Canucks are growing testy over constant criticism of their environmental record. Even the tar-sand description has become a pejorative term used by activists to irritate the industry, especially in Alberta, and it’s had the desired effect. The EU claims it has sent a message. The message has been received; now it’s become a war of words.

Why the fuss, in the absence of any real economic impact? A WTO challenge solves little, precisely because so little is at stake. Even with a favourable ruling, the nominal value of Canadian oil-sands exports to the EU remains zero and is likely to stay that way for decades to come.

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