Oil sands seen as 'threat No. 1,' as U.S. may target dirtier fuels

SHAWN MCCARTHY
Globe and Mail
October 30, 2007

Canadian oil sands producers should brace for further bad news - this time from south of the border, as the U.S. government moves toward a national climate change policy that could target dirtier fossil fuels such as the oil sands bitumen, a former U.S. energy official said yesterday.

His warning was issued yesterday at a conference on Canada as an energy superpower, and came as a new poll suggests Canadians want to protect the country's natural resources from voracious U.S. demand for energy.

David Pumphrey, a former official in the Department of Energy and now a senior fellow at the Centre for Strategic and International Studies, said that prominent U.S. environmental groups have identified the oil sands as "threat No. 1" in North America's growing battle against greenhouse gas emissions.

There are more than a half-dozen bills before Congress that would introduce a national system to cap greenhouse gas emissions and establish a market for emissions credits.

Mr. Pumphrey said he does not expect President George W. Bush to sign such legislation, but added the next administration mostly likely will.

Several of those bills would "penalize" energy sources like Alberta's oil sands, which produce far more carbon dioxide emissions than conventional, lighter crude, he said. (California has already announced a "low-carbon fuel standard" that would penalize refiners for using tar sands and other heavy oil.) Mr. Pumphrey said the Canada and U.S. governments should ensure that their climate-change strategies are complementary and that emissions trading can be carried on across borders in order to reflect the continental nature of energy markets.

Oil sands producers have recently faced new federal and provincial regulations that require them to manage their greenhouse gas emissions, but new projects face no set limit and existing ones only have to reduce their emissions per barrel of oil produced.

The climate change challenge is only one of several "above ground risks" facing the oil sands projects, which nonetheless represent a promising source of additional crude oil for North American markets, the conference heard.

Panelists pointed to Alberta Premier Ed Stelmach's decision last week to raise the royalty rates on oil sands and on conventional oil and gas production, and to federal and provincial tax changes that eliminated the lucrative tax incentive, the accelerated capital cost allowance.

Matthew McManus, an energy official in the State Department, said the U.S. perceives the Canadian oil and gas sector as one of "near zero political risk" and enormous investment opportunity.

He said the two governments are working to remove barriers that impede the efficient operation of the marketplace.

But 20 years after the Canada-U.S. free-trade agreement enshrined that market approach, Canadians remain leery of the growing U.S. dependence on natural resources from its northern neighbour, pollster Greg Lyle said.

In a poll released yesterday, Mr. Lyle found that two-thirds of respondents agreed that Canada should use its vast oil and natural gas resources to protect consumers from world markets and keep domestic prices as low as possible.

More than three-quarters agreed with the statement that Canada must "protect its natural resources from the insatiable energy appetite of American consumers."