Exclusive: Alberta: EU oil sands ranking threatens ties

BRUSSELS Fri Oct 21, 2011 3:49pm EDT

Heavy equipment mines the oil tar sands at Syncrude's Aurora mine near Fort McMurray, Alberta in this May 23, 2006 file photo.  REUTERS/Todd Korol/Files

Heavy equipment mines the oil tar sands at Syncrude's Aurora mine near Fort McMurray, Alberta in this May 23, 2006 file photo.

Credit: Reuters/Todd Korol/Files

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BRUSSELS (Reuters) - The government of Alberta, home to the bulk of Canada's oil sands, has written to EU experts voicing "grave concerns" that the bloc's plans to rank unconventional oil as a highly polluting fuel are unfair and a potential threat to trade ties.

With the letter, the provincial government joins Ottawa and the oil industry in a Canadian full-court press to sway the European Union away from labeling one of the country's most lucrative exports as inherently dirty.

"The proposed measure has been deliberately crafted in such a way as to discriminate specifically and uniquely against oil sands derived fuels," said a copy of the letter seen by Reuters.

"Alberta believes that the fuel quality directive implementing measure as it currently stands would be incompatible with the EU's international trade obligations."

Canada exports no oil sands-derived crude to Europe, but government and industry officials worry that tagging the supply as much more carbon-intensive than other crudes could set a costly precedent for current or potential markets.

Canadian Natural Resources Minister Joe Oliver has suggested Ottawa could take the EU to the World Trade Organization if the Europeans adopt the fuel directive.

Oliver has traveled to Europe to press Canada's case and in an interview with Reuters on Friday in London said the EU's plans were discriminatory.

"What they are doing is illogical. In fact it is perverse because they are penalizing oil that they are not importing and they are giving a free pass to oil that they are importing," he said.

Environmental groups say developing the oil sands, the world's third largest crude deposit, emits unacceptably high volumes of greenhouse gases because the extraction methods and processing needed to allow refineries to use the heavy oil require far more energy than conventional oil production.

Oil companies, several of which are based in Europe, say their oil sands operations are comparable in terms of carbon gas emissions with many other oil operations around the world, when judged from production to end use.

The European Commission's Legal Service has said the EU proposals could probably be defended if Canada were to take its case to the World Trade Organization, in another letter seen by Reuters on Friday.

Both letters were sent to EU government experts ahead of a meeting next Tuesday where they will debate a proposed green ranking of fuels, which is designed to enable fuel suppliers to identify the most carbon-intensive options.

The proposed ranking assigns oil sands crude a default greenhouse gas value of 107 grams of carbon per megajoule, making it clear to buyers it has a greater climate impact than conventional oil, whose value is 87.5 grams, an EU source said.

'DEFEND THE RESOURCE'

The letter on behalf of the Alberta government - signed by its UK office and sent to all 27 members of the expert committee - argues there is no scientific reason to differentiate between oil sands and other crude sources.

Alberta conceded it could not act alone in retaliating against any anti-oil sands measures in Europe, and would have to defer to Ottawa.

"The federal government is an important partner because we are working at the international level. But, that said, the oil sands are an Alberta resource and we are going to work diligently to defend that resource and be sure it's not singled out in a punitive way through the fuel quality directive," Alberta government spokesman Mike Deising said.

EU Commission sources have said the measures do not label only Canadian oil sands as carbon intensive, but also those from Venezuela. They have said the measures take account of carbon emitted across the entire life-cycle of a fuel.

If any oil sands crude can demonstrate that over its life-cycle its emissions are less than 107 grams per megajoule, only its actual emissions will be taken into account. Two of the other unconventional fuel sources have higher values than oil sands. They are oil shale at 131.3 and coal-to-liquid at 172.

Green groups have strongly backed the Commission's position, saying it is supported by extensive research.

"It's not true that oil sands are unfairly singled out," said Nusa Urbancic, fuels campaigner at green transport lobby group T&E. "The Commission has spent a year reviewing all the available science, including that provided by the oil sands industry, and the conclusion is unequivocal that oil sands are more carbon-intensive."

European Green Party politicians said the ranking plan should help to ensure dirty fuel does not enter European petrol pumps.

"It is now up to EU member states to approve the proposals and we call on the Council not to succumb to pressure from the tar sands lobby," Green member of the European Parliament Satu Hassi said in a statement.

The EU green fuel ranking completes legislation introduced in 2008, when the EU agreed to reduce the carbon intensity of its transport fuels by 6 percent by 2020.

That is part of a wider target to reduce EU carbon emissions by 20 percent by 2020.

Once the expert committee approves the measures, the European Parliament has three months to pass or reject them. If rejected, the Commission can submit a revised proposal.

European oil companies active in Canada include BP, Total and Royal Dutch Shell. Sources said the British and Dutch governments could be sympathetic to Alberta's position.

The oil sands debate coincides with difficult talks between Canada and the European Union on a proposed free trade deal. The two sides have yet to agree on a range of issues, including intellectual property and market access for agricultural products.

(Additional reporting by Jeffrey Jones in Calgary, David Ljunggren in Ottawa; editing by Rex Merrifield, Sebastian Moffett Rob Wilson)

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