* Canada to monitor air and water quality, biodiversity
* Canada hopes plan will speed approval of key pipeline
* Oil sands output set to double by 2020; greens worried (Adds reaction from green groups, funding for agency cut)
OTTAWA, July 21 Canada will boost monitoring of pollution from its oil sands projects, hoping to speed up U.S. approval of a pipeline to transport crude to the Gulf Coast, Environment Minister Peter Kent said on Thursday.
Green groups have long campaigned against developing the oil sands of northern Alberta -- the world's third largest petroleum reserve -- on the grounds that development produces unacceptable amounts of greenhouse gases and other toxins.
Kent unveiled a C$50 million ($53 million) a year plan to start monitoring air and water quality in northern Alberta as well as the effects of oil sands development on biodiversity.
"It will provide the facts and the science to defend the product, which some abroad are threatening to boycott. There is already a great deal of disinformation and misinformation," Kent told a news conference.
Output from the oil sands is set to double to 3 million barrels per day by 2020.
Opposition in the United States is mounting to TransCanada Corp's (TRP.TO) planned $7 billion Keystone XL pipeline, which would carry 700,000 barrels of crude a day. Greens say moving so much oil could put a major aquifer in the central U.S. states at risk of contamination in the event of spills.
The U.S. State Department has said it expects to make a decision on whether to approve the pipeline by the end of the year.
Kent said the extra monitoring data would "prove to the world that this great resource is being developed in a responsible and a sustainable and constantly improving way".
Asked whether he thought the plan might therefore go some way to speeding up the U.S. approval process, Kent replied: "The short answer is yes."
Critics say Canada's Conservative government -- a vocal backer of the oil sands -- is far too beholden to the energy industry and puts too little emphasis on protecting the environment.
The Montreal Gazette said on Thursday that Ottawa would slash funding for the Canadian Environmental Assessment Agency, which assesses the potential impact of proposed mines and other industrial developments.
Kent said the drop-off in funding for the agency reflected the end of government cash for particular projects, saying Ottawa would "provide adequate funding so that none of its core work is compromised".
Ottawa says oil from the oil sands will help the United States cut supplies from less democratic nations.
Kent said the intention of the monitoring plan was "not to prosecute the industry. It's to identify problems and to fix them."
He said Ottawa would work with the government of Alberta, which says it is serious about monitoring the operations of the industry, its biggest revenue generator. Alberta has formed its own panel to study the issue of water pollution.
"The federal government clearly isn't interested protecting the environment in Alberta, or seriously addressing climate change. Their primary concern is protecting profits of big oil and stemming bad PR," said John Bennett of Sierra Club Canada.
($1=$0.95 Canadian) (With additional reporting by Jeffrey Jones in Calgary)