Market News

 July 01, 2009
Canada to match U.S. climate change rules

 Shawn McCarthy, Globe and Mail - Canada will adopt climate-change regulations comparable to those of the United States - including new rules for oil sands producers and refiners - to avoid punitive "green" tariffs, Environment Minister Jim Prentice says.

In an interview Tuesday, Mr. Prentice said it is too early to predict whether the bill that narrowly passed the U.S. House of Representatives last Friday will be adopted in its current form by the Senate, where it faces a rougher ride.

But he said Canada will bring in regulations to match new U.S. laws governing greenhouse-gas emissions - and vowed to be as tough on Canadian industry as the U.S. government is on its big emitters.

Under the American Clean Energy and Security Act, all U.S. industrial emitters will need permits for every tonne of greenhouse gases they send into the atmosphere. The U.S. oil industry argues that the bill will hammer the refining sector by forcing companies to pay huge fees for the permits, while other industries - notably the power sector - would receive free permits to cover a portion of their current emissions.

The Waxman-Markey bill (named for its co-sponsors, Democrats Henry Waxman of California and Edwin Markey of Massachusetts) also contains measures that would penalize Canadian exporters if Washington determines that Ottawa’s regulations are less vigorous than those adopted by the United States.

Mr. Prentice played down that possible threat. "The trade implications only apply if Canada does not have a commensurate system and, in fact, everything we are doing is to ensure we do have a commensurate system," he said in an interview from Washington. "It will not be identical to the United States ... but it will be comparable."

But critics worry that Washington might invoke a narrow interpretation of "comparable" in order to provide an advantage to U.S. industries such as oil refining, cement, fertilizer and steel.

"The U.S. consistently defines ’comparable’ as meaning just like U.S. law," said Aldyen Donnelly, a Vancouver-based industry consultant.

Oil sands producers - and their U.S. refiners - face a particularly onerous burden under the bill because the upgrading and refining of oil sands bitumen involves energy-intensive processing and hence more emissions.

Both Canada and the U.S. have raised concerns about so-called carbon leakage - the idea that tough climate-change laws might drive energy-intense industries out of their home countries to jurisdictions that are more lax environmentally. Such moves would mean the loss of jobs, while doing nothing to reduce global greenhouse gas emissions.

During his visit to Washington, Mr. Prentice discussed cross-border environmental issues with U.S. Energy Secretary Stephen Chu and Lisa Jackson, administrator of the Environmental Protection Agency.

Mr. Prentice acknowledged that the U.S. bill targets refiners with tough emission-reduction measures that will be costly to implement. The regulatory push comes as conventional supplies of lighter crudes diminish, and major consumers such as the United States are being forced to turn to heavier crudes, including oil sands bitumen. He suggested that Canada would have little choice but to match the U.S. measures, despite resistance from Alberta, which worries that costly new regulations would impede development.

Canadian governments hope the oil industry will be able to meet new emissions standards for upgraders and refiners through the adoption of costly, unproven technology known as carbon capture and storage (CCS). The plan is to divert carbon dioxide from smoke stacks and inject it underground for permanent storage.

Tuesday, the Alberta government announced $2-billion in funding for three projects to build CCS demonstration plants. Two of them - one led by North West Upgrading Inc., the other by Royal Dutch Shell PLC - plan to capture CO{-2} from oil sands upgraders northeast of Edmonton. The third, led by Enbridge Inc. and Epcor Utilities Inc., involves a clean-coal power plant.

See also: Canada And The U.S. Work Together On Clean Energy Dialogue

See related article: "Oil sands to take hit from U.S. bill"

For more information on the importance of Canada’s oil sands to the U.S. economy, watch this video "Canadian Oil Sands: Viable Alternative?"

Publication Date: 7/01/2009

For More Information: Globe and Mail