Alberta's export-oriented oil industry is urging Ottawa to provide the same kind of relief from tough climate-change regulations that the politically powerful U.S. coal industry is expected to receive from Washington, a move that would put greater onus for emissions cuts on Canadian consumers and other industries.
And while Ottawa insists no decision has been made, Environment Minister Jim Prentice suggested this week that energy-intensive export-oriented industries may need protection under a federal climate-change plan and refused to rule out extending such benefits to the oil-sands producers.
Such treatment for the oil industry represents a sharp departure from regulatory plans being debated in the U.S. Congress, under which coal-based utilities would receive permits to pollute. While trade-exposed industries in the United States would be buttressed by border measures, the oil and gas sector would face the full brunt of regulation.
Both Mr. Prentice and Prime Minister Stephen Harper have long argued Canada needs to align its climate regulations with those of the United States to protect the Canadian economy. But industry officials said yesterday the government is considering applying the U.S. treatment of its coal industry to the oil sands, which would result in substantially more emissions from the growing sector than are envisaged under a regulatory plan proposed in 2007, "Turning the Corner."
Such musings have prompted Quebec Premier Jean Charest and Ontario's Dalton McGuinty to warn against adopting any plan that would ease the compliance burden on the oil sands and shift it to industries and consumers in their provinces. They have also led to warnings from lawyers and environmentalists that a lighter treatment for Canada's oil industry could prompt trade action in Congress.
Mr. Prentice and Alberta Environment Minister Rob Renner insist the province is not looking for special treatment for the oil sands, but that does not prevent the government from declaring it an "energy-intensive trade-exposed" industry.
In the United States, the Waxman-Markey bill that passed the House of Representatives last summer initially set a national cap for emissions and required industries to purchase all the emissions allocations they would require. But to win the support of members from the vote-rich, coal-dependent Midwest, the bill was amended to provide free allocation to coal-based industries for several years.
The legislation also offers some free allocation and border-protection measures to energy-intensive trade-exposed industries - including makers of steel, cement, glass, paper and chemicals - so that they will not be undermined by foreign competitors who face less stringent climate regulations.
The U.S. oil industry received little allocation, and was excluded from the list of energy-intensive trade-exposed industries - a move that has prompted refiners to warn that their industry will be hammered by competitors from developing countries that don't face the same emissions regulations.
The U.S. Senate is now debating similar legislation.
This week, the CBC reported on a briefing document that outlines the impact on the Canadian regulatory regime if Ottawa adopts the U.S. approach and provides the oil sands with the same kind of benefits the coal industry expects in the United States. Oil-sands producers, the CBC reported, would face emissions reductions of 15 megatonnes, compared with 45 megatonnes expected under the Conservative government's 2007 regulatory plan, which has since been abandoned.
Mr. Prentice insisted the document does not represent government policy. But Ottawa clearly is determined to ensure emissions regulations don't prevent expansion of the oil sands, and is being pressed by the industry to provide plenty of free allocations under a national cap.
David Collyer, president of the Canadian Association of Petroleum Producers, says the industry qualifies as "trade-exposed," as it faces competition in the U.S. market from Saudi Arabia, Venezuela, Mexico and other major oil producers.
"We need to make sure that climate policy doesn't disadvantage the oil industry in terms of competitiveness," Mr. Collyer said.
Oil-sands production is expected to triple between 2006 and 2020. And while the industry is reducing its per-barrel emissions, that effort is being overwhelmed by the sheer volume of the expansion.
"Oil-sands projects will remain a very profitable investment even if there is a substantial price on greenhouse-gas emissions," said Matthew Bramley, climate analyst with the Calgary-based Pembina Institute, an environmental advocacy group.
"It is therefore very difficult to see any case for any kind of special treatment for the oil-sands sector under a Canadian cap-and-trade system"