Canada says it may take EU to WTO over oil sands dispute
* Canada sits on world's third largest oil reserves
* Canada says dispute won't hold up EU trade talks
By Robin Emmott
BRUSSELS, May 8 (Reuters) - Canada threatened on Wednesday to take the European Union to the World Trade Organisation over its plans to label Canadian oil sands as dirty, but promised not to delay a bilateral trade pact.
The issue has overshadowed relations as Canada and the EU try to deepen economic ties through a trade deal that could generate $28 billion a year in new business and commerce.
Canadian Natural Resources Minister Joe Oliver, on a week-long lobbying trip to Europe, accused the EU of breaking international trade rules and discriminating against Canadian exports.
"We are going to take whatever action we need to, and we may well go to the WTO," Oliver told a news conference. "We will defend our interests vigorously."
The WTO has the power to order the EU to change its rules if they are found to be unfair, but the process is lengthy.
Canada's oil sands are the world's third largest crude reserves, but most are in the form of tar sands. Extraction from the clay-like deposits takes more energy than pumping conventional oil and results in higher carbon emissions.
The European Commission has proposed labelling oil from tar sands as "highly polluting" to help implement an EU goal to cut the carbon intensity of its transport fuels by 6 percent by 2020.
The Commission denies that it is singling out Canadian oil as its proposal also defines other unconventional sources of oil as carbon-intensive.
Asked whether the trade deal could be signed even if the EU goes ahead with its fuel labelling, Oliver said: "Yes ... These issues are entirely separate."
He said Canada did not intend to use the issue as a bargaining chip.
Talks on a free trade deal began in 2009 and are in the last stage, diplomats say, but have stumbled over a series of issues.
Canada, which is anxious to find new markets for its oil and gas outside the United States, argues that Europe should embrace it as a stable, reliable energy producer.
Yet many in the environment lobby say long-term investment in new heavy crude infrastructure and development would badly undermine attempts to limit climate change.
Twelve climate scientists and energy experts said in a letter to Oliver this week that Canadian policy was delaying the transition to an economy that was less reliant on carbon.
"We are at a critical moment," the group, among them academics from Harvard in the United States, and from British Columbia and Queen's universities in Canada, wrote in the letter, seen by Reuters. "The responsibility for preventing dangerous climate change rests with today's policymakers."
A report on Wednesday indicated the European Commission's tar sands proposal would shift investment towards lower-carbon oil sources and could save up to 19 million tonnes of carbon dioxide per year - equivalent to removing 7 million cars from Europe's roads. (Additional reporting by Barbara Lewis; Editing by Kevin Liffey)
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