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U.S. Ambassador David Jacobson's hardball diplomatic challenge tying approval of the Keystone XL pipeline to Canadian action on climate change is serious, but not surprising. Linking environmental impacts to energy and economic-policy decisions is a growing phenomenon, and not just in the United States. Market access has 'gone green,' and Canada needs to come to grips with this emerging reality.

Three years ago, in a study on Canada-U.S. climate policy options, my old organization, the National Round Table on the Environment and the Economy, said this: "Trade measures in U.S. legislative proposals and low-carbon fuel standards do pose an economic risk for key Canadian sectors, but these risks can likely be managed if Canada adopts equally stringent climate policy as the United States. Acting remains the best preventative measure."

Renewable-fuel standards in California which measure the 'well-to-wheels' carbon content in Canadian crude oil – that is, the total carbon output from drilling, extracting, shipping, refining and consuming – have concerned Canada's oil patch for some time now. So has the very public lobbying Canada undertook in order to secure a delay in a similar European Union low-carbon fuel standard. Their objectives are the same: reducing greenhouse gas emissions associated with burning more carbon. Even without a world climate deal or a successor to the Kyoto Protocol, countries are tightening the screws and favoring higher environmental standards.

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But fossil fuels and energy are not the only focus. Two months after our organization was axed in last year's federal budget, we released a report detailing trends in global environmental life cycle approaches to goods and services – in which the full ecological cost of a product from manufacture through usage to disposal is taken into account -- and calling on Canada to introduce a similar approach.

The U.S Environmental Protection Agency has an Environmentally Preferable Purchasing Program to promote the use of life cycle information in selecting products for government purchase. France is pioneering more stringent labelling standards that would require more detailed and public life-cycle information, including carbon emissions associated with individual products. The list goes on. And it will only grow larger in the years ahead as consumers demand more transparency and companies compete for advantage.

Does all this have trade implications? You bet it does. Good old-fashioned trade protectionism never really goes out of style in the United States. A climate linkage to a pipeline shipping unconventional crude oil is actually no stretch. When the world takes notice of what you are selling, you have to hope it's for a good reason. But in this case, America needs Canada's energy. So what gives now?

Classically, politics is driving policy. A newly re-elected president emboldened with both opportunity and a final mandate is calling more of the shots. That is entirely to be expected. A longer view of developing our energy resources should have taken this into account. That meant leading with effective climate policy and positioning ourselves for this emerging reality in the world economy.

Like it or not – and many do – the environment is occupying a larger seat at the trade table. Harmonizing environmental standards with the U.S. was an old bugbear of the left when free trade and NAFTA were being negotiated because it was assumed that "their" standards would be lower. Now harmonizing with the U.S. is problematic because those standards might just be higher.

Exporting Canadian oil sands must be a continued national priority and vigorously asserted. Keeping with the protectionist theme, a 'prophylactic strategy' if you will, that puts a visible climate policy in place encompassing the oil sands and our oil and gas sectors would better arm our diplomats and advance our cause. Think where we would be today if we had only acted yesterday.

We have to realize that effective climate policy is not just good for the environment, but increasingly smart for our economic future also. After all, the best way to win an argument is to prevent it from occurring in the first place.

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David McLaughlin was President and CEO of the National Round Table on the Environment and the Economy from 2007-12.

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