UPDATE 1-EU divided over oil sands, no vote until December

Tue Oct 25, 2011 6:30pm EDT

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* Britain seeks support for compromise-email

* Scientific research backs Commission stance

By Barbara Lewis and Jeffrey Jones

BRUSSELS/CALGARY, Oct 25 (Reuters) - Britain and Eastern European countries joined Canada in its determined fight against a European Union proposal to label tar sands-derived crude as more highly polluting than other forms of oil, EU sources said on Tuesday.

The moves show Canada, which is trying to protect markets for its most lucrative export, is slowly gaining traction among members of the bloc with its message that such a move would be discriminatory, the country's energy minister said.

Disagreement on the matter has pushed back a vote on whether to tag crude derived from Alberta's oil sands as inherently dirty.

"There is some divergence within the EU," one source said. "But the Commission position is there is strong backing for this proposal."

A meeting of European environment experts on Tuesday was initially expected to vote on a proposed ranking of fuels designed to flag to suppliers the most carbon-intensive options.

Instead, there was only debate. A vote was now expected to take place in early December, an EU source said.

Several states requested a postponement on the grounds a draft document had only been circulated recently, another source said.

The delay comes after Canadian Natural Resources Minister Joe Oliver spent several days in Europe, and wrote to the EU's energy commissioner to warn that labeling oil sands crude under the commissions Fuel Quality Directive could violate the bloc's international trade obligations.

He has said any moves to list oil sands crude among the highest for emissions would be based on politics, not science.

"I think those points may be better understood now and we hope that will be helpful," Oliver said in an interview. "We're going to continue to raise this issue until we have the result we hope we're going to get."

Canada has yet to export tar sands crude to Europe, but government and industry officials worry that branding it as much more carbon-intensive than other fuels could set a costly precedent for current or future markets.

Oliver acknowledged that EU members whose oil companies are active in the oil sands, including France, Britain, the Netherlands and Norway, are most supportive of his position.

Estonia, which has carbon-intensive oil shale, together with other Eastern Europe states, took an industry perspective that the new ranking would just be an administrative burden, another EU source said.

In an email seen by Reuters, a British representative said Britain was seeking a compromise that would not "single out oil sand or oil shale."

It said oil sands made "an important contribution to global energy security" and were "a priority for Canada's EU diplomacy."

The email also suggested a methodology that would require "a mechanism to track crude from source to supplier." Some analysts said that was a delaying tactic.

FRANTIC LOBBYING

The European Commission approved a proposal to include tar sands in the ranking, designed to enable fuel suppliers to identify the most carbon-intensive options, on Oct. 4.

That was only one step in the lengthy EU process and it unleashed frantic lobbying.

Oliver suggested Ottawa could take the EU to the World Trade Organization if the Europeans adopt the fuel directive.

If agreed, the ranking would complete legislation introduced in 2008, when the EU agreed to reduce the carbon intensity of its transport fuels by 6 percent by 2020 as part of wider goals to cut carbon emissions by 20 percent by 2020.

The 2008 fuel quality directive assigns greenhouse gas emissions values for a range of transport fuels, most of which were dealt with by the end of last year.

Environment groups and some scientists have backed the EU stance.

A study by Adam Brandt at Stanford University, California, found there was some uncertainty, but greenhouse gas emissions from oil sands production were "significantly different enough from conventional oil emissions that regulatory frameworks should address this discrepancy."

"The science shows clearly that tar sands is more carbon intensive than other crudes, and that means that any talk of trade discrimination is simply scaremongering," said Nusa Urbancic, fuels campaigner at green transport lobby group T&E.

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

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