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Canada’s attempt to block U.S. carbon regulations

Part 1 — Canada’s Fight to Stop States From Lowering Fuel Carbon Levels

Part 2 — Make Americans Love Alberta’s Oil Sands

The Tyee, an “independent daily online magazine” based in British Columbia, Canada has a two-part series on how Canada is trying to push their dirty tar sands oil and block US regulations to clean up our fuels. It is reprinted below with their permission. See also “Tar sands: Still dirty after all these years.”

Geoff Dembicki’s first story reveals how Alberta, Ottawa and oil sands corporations are teaming to oppose climate change laws across America.

In late September, California’s outgoing Republican governor declared all-out war on a fossil fuel cabal opposed to his state’s landmark climate change laws. “They are creating a shell argument that they are doing this to protect jobs,” declared Arnold Schwarzenegger to a crowd of several hundred at the Commonwealth Club in Santa Clara. “Does anybody really believe they are doing this out of the goodness of their black oil hearts — spending millions and millions of dollars to save jobs?”

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That proved to be the dominant narrative in the struggle over Proposition 23, an oil refiner-funded ballot initiative asking Californians to suspend some of the planet’s most stringent global warming legislation. Hollywood itself couldn’t have dreamed up a better story: a former action movie hero-turned-environmentalist doing battle with Texas-based oil magnates during the hottest year in recorded history. Green observers heralded the electoral defeat of Prop 23 this November as a clean energy triumph.

Yet one crucial plot point ignored by most onlookers may carry implications far beyond state lines. A key climate change policy now being implemented in California could someday wipe out huge profit margins for Alberta’s greenhouse gas-intensive oil sands industry and the American refineries that depend on it.

A sophisticated lobbying effort led by Canadian officials, fossil fuel lobby groups and several of the world’s largest oil companies is targeting policymakers and consumers across the United States.

On several fronts, it appears to be succeeding.

At stake: green regs in 24 states

The goal of this lobbying push is to defang a climate change policy being considered or adopted in 24 U.S. states. That policy, known as a low carbon fuel standard (LCFS), aims to clean up the fuel being pumped into cars, trucks and motorcycles. American drivers fill their tanks with energy from all over the globe. Though vehicle engines generally release the same amount of greenhouse gases no matter what they’re combusting, some fuels have much higher carbon footprints than others.

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In Alberta’s oil sands, a thick substance called bitumen is clawed or steamed from the frigid northern muskeg, then cooked at high temperatures and diluted with chemicals. By the time the fuel is dripping from a gas station nozzle, it’s already been responsible for 82 per cent more greenhouse gas emissions than, for instance, smooth-flowing light crude from Texas, according to U.S. Environmental Protection Agency estimates.

The intent of a low carbon fuel standard is to set clear limits on these types of emissions, and then let the free market figure out the rest.

“What makes me excited about an LCFS is that it lets all fuels compete,” said Peter Taglia, a scientist helping to develop a regional standard for 10 Midwestern states. “You’re not picking a technology winner”

Schwarzenegger’s gambit

But as The Tyee first reported this summer, a dense network of Alberta oil sands producers connected to U.S. refineries by pipeline sees a blatant attack on its bottom line. With active support from the Canadian government, it’s been targeting American climate policies from coast to coast.

In early 2007, the world’s first low carbon fuel standard was signed into existence by Arnold Schwarzenegger. “Greenhouse gas (GHG) emissions pose a serious threat to the health of California’s citizens and the quality of the environment,” read the executive order’s opening words. Legislation proposed a 10 per cent carbon emissions cut by 2020 across the entire road fuel sector. Regulators would track all the different fuels entering the state and assign a carbon footprint to each one. It was expected that suppliers, in order to meet emissions targets, would avoid fuels from Alberta’s oil sands and other high-carbon sources. Market pressures, meanwhile, could induce major investments in clean energy.

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The Canadian government intervened formally at least five times in the policy’s development, citing a wide range of oil sands-related concerns, according to a recent Climate Action Network Canada report. And oil industry resistance was fierce, even after California officially approved its low-carbon fuel standard last January.

Two fossil fuel lobby groups and a national trucking association are currently suing to repeal it, arguing the policy would “harm our nation’s energy security by discouraging the use of Canadian crude oil.”

If the oil-refiner funded Prop 23 had passed in early November, it would have suspended low carbon fuel standard legislation along with other state climate policies, earlier Tyee reporting explained. “Because that proposition failed by about a 6 to 4 ratio, we assume that those climate change provisions are in effect,” Iris Evans, Alberta’s minister of international and intergovernmental relations, told the provincial legislature the day after its defeat. “We’ll still have a lot of work to do on low carbon fuel standards.”

Domino effect?

Given that fuel from the Alberta oil sands powers only a tiny percentage of California’s vehicles, why so much opposition?

In Nov. 2007, about 11 months after California first proposed its low carbon fuel standard, 10 Midwestern states began considering a regional policy. The next year, looking explicitly at California’s model, 11 northeastern and mid-Atlantic states did the same.

Low carbon fuel standard frameworks being developed right now could soon regulate 50 per cent of America’s transportation fuel market, a recent Ceres-RiskMetrics Group report concluded.

But the real nightmare scenario for Canada’s oil sands industry is the pressure that would put on the U.S. Congress to enact national laws.

Though Alberta has the second largest known oil reserves on Earth, it sells exclusively to American markets. A federal low carbon fuel standard, as the Ceres-RiskMetrics report argues, could potentially reduce U.S. oil sands demand a full one-third by 2030.

And that’s assuming industry players invest billions of dollars to reduce their carbon output, purchase carbon offsets and blend their products with renewable fuels.

“In the unlikely event that no options were available for Canadian oil sands producers to comply with the LCFS,” the report reads, “the U.S. transportation market could conceivably disappear.”

“There’s a lot of ‘ifs’ in there,” co-author Doug Cogan told The Tyee, insisting that a global decline in oil supplies combined with escalating demand still plays very much in Canada’s favour. “But the fact that these scenarios exist is what drives [the Canadians] to go to California and to say ‘this could have real implications for the growth of our industry.’”

Part 2 — Make Americans Love Alberta’s Oil Sands

Billions ride on a well-fueled campaign to win US citizen support for bitumen pipelines and processing in their country. Read the original story.

This summer, a series of slick radio and TV ads aired across the Midwestern U.S., warning regular Americans that their elected Washington officials, in the name of climate change, were set to screw them out of job and paycheque. “Congress is at it again,” a booming voice intoned over images of fists raised before Capitol Hill. “Their latest bright idea: low carbon fuel standards.”

Not only would such policies “kill millions of American jobs” and “raise gas prices up to 170 percent,” the ads warned, but they’d “actually restrict the use of U.S. and Canadian energy supplies, making us more dependent on unfriendly sources of foreign energy.”

Consumers were urged to raise these concerns with their state senators, whose contact information was provided. This campaign, and one the summer before, was paid for by the Consumer Energy Alliance. The self-described non-partisan organization is funded by some of the continent’s largest oil companies, many with direct financial ties to Alberta’s oil sands.

“We believe that if we can generate enough public awareness and a public debate on the issue, that the public will let the policymakers know that [low carbon fuel standards] are a very bad idea,” Consumer Energy Alliance executive director Michael Whatley told the Tyee. The group’s fossil fuel membership has already taken the lead, helping scuttle every low carbon fuel standard proposal introduced in Congress since Barack Obama became president.

Alberta’s oil sands poised to escalate

Many Americans are unaware that Canada is the top foreign supplier of crude oil to the United States. Much of those fossil fuel imports come from northern Alberta, home to the second largest known oil reserves on the planet. With American energy demand growing steadily, the province’s oil sands industry is poised to nearly triple production by 2025, according to industry estimates.

But as the Tyee reported in part one of this series, low carbon fuel standard legislation being debated across the U.S. threatens to stymie those prospects. Such policies, by discouraging the use of fuels with high carbon footprints, are potential kryptonite for Alberta oil sands producers.

Each barrel clawed or steamed from the northern muskeg generates 82 per cent more production emissions than conventional operations, according to U.S. Environmental Protection Agency estimates.

The Consumer Energy Alliance, whose website has a section labelled “Oil Sands 101”, sees pending low carbon fuel standard laws as a direct attack on Canadian crude. “LCFS bans secure, affordable North American energy from entering U.S. markets,” reads a colourful interactive map, where black pipelines from Northern Alberta cause padlocks to pop up when they hit the American border.

“Obviously, we’re concerned about it,” Oil Sands Developers Group president Don Thompson told the Globe and Mail this summer, in reference to U.S. low carbon fuel standards.

Yet it’s not just the producers who are worried. The American refining industry has gone on an oil sands spending spree in recent years, staking literally billions of dollars on high-carbon fossil fuels.

Pipelines to potentially immense profits

Earlier this year, and with scant media attention, two sparkling new pipelines — TransCanada’s Keystone and Enbridge’s Alberta Clipper — began pumping their first shipments of Albertan crude into the U.S. Midwest. That region is already the destination point for almost all oil sands exports. The recently completed pipelines could someday deliver a further 1.34 million barrels each day.

Anticipating that bonanza, refinery owners from Michigan to Illinois are spending huge to retrofit and upgrade their facilities. Leading the investment frenzy are Marathon Oil, BP and ConocoPhillips, each a major Midwest refiner with large stakes in Fort McMurray-area oil sands operations.

“These three companies and their joint venture partners plan to invest about [US] $13 billion by 2015,” a Wood Mackenzie report this summer noted.

A similar spending spree is occurring among Texas refiners, many of which stand to gain big from TransCanada’s hotly debated Keystone XL, a proposed oil sands pipeline from northern Alberta to the Gulf Coast.

All these investments are based on the expectation that American consumers will continue to devour high-carbon Canadian crude for decades to come. Such a trend could help “double or triple refinery emissions,” according to one recent scientific study.

It’s also made large swathes of the U.S. refining industry extremely vulnerable to low carbon fuel standard laws. Charles Drevna, president of the National Petrochemical and Refiners Association (NPRA), referred to such policies as “even worse” than the cap-and-trade laws recently abandoned by the American Senate. His industry lobby group and big Midwest refiners Marathon, BP and ConocoPhillips are all due-paying members of the Consumer Energy Alliance. They also spend millions to make their concerns heard in Washington.

Millions spent to shoot down lower carbon standards

In 2009, three attempts to adopt a national low carbon fuel standard in Congress ultimately failed. One of the loudest industry opponents was Koch Industries, owner of Flint Hills Resources, a major Midwestern refiner of oil sands crude. Koch Industries spent more than US $12 million in 2009 lobbying against all three fuel standards, among other policies.

Two of those standards were stand alone bills in the House and Senate.

Koch directly targeted one or the other at least 19 times, records show. “[Low carbon fuel standards] would cripple refiners that rely on heavy crude feedstocks,” reads the company’s website. “It would be particularly devastating for refiners that use heavy Canadian crude oil.”

Oil sands producer and fellow Midwest refiner Exxon Mobil — a Consumer Energy Alliance member that burned through more than US $27 million of lobbying cash in 2009 — targeted the same standalone House proposal Koch did.

Neither that House bill nor its Senate cousin budged past the committee stage.

Yet fossil fuel advocates achieved their biggest victory with the high-profile Markey-Waxman climate change package approved by the House last year. The Tyee reported this summer how the Centre for North American Energy Security — a well-connected lobby group which also belongs to the Consumer Energy Alliance — helped get fuel standard provisions “deleted” from the bill.

Recent midterm elections have dashed any chance of Congress passing federal climate change action in the near future. The Consumer Energy Alliance, with the active support of Canadian officials, is now targeting state and regional fuel standards across the U.S.

“We want to educate policymakers and stakeholders and the public at large so that these decisions are not being reached in a vacuum,” the CEA’s Whatley told the Tyee.

– Geoff Dembicki

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