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ANTHONY JENKINS / THE GLOBE AND MAIL

The Globe and Mail

The Enbridge oil spill into Michigan's Kalamazoo River is just one small feature of a broader controversy over the shipping of Canadian crude to the U.S. market. One ripple effect of those three million litres could spread to the planned Keystone XL pipeline running from Alberta's oil sands to the U.S. Gulf Coast. Only a day before the Calgary-based company's pipeline sprang a leak last week, the U.S. State Department had said it would delay approval of the Keystone project by 90 days because of environmental concerns.

As most Canadians know - and most Americans don't - Canada is America's leading foreign supplier of oil. Over time, Canadian oil sands products will become an even greater energy source for the United States.

This oil will arrive with environmental costs. Oil sands production generates as much as 20 per cent more greenhouse-gas emissions than conventional oil, according to the RAND Corp. The older open-pit mining process creates toxic tailings ponds that kill wildlife and endanger the health of Canadians living downstream. The newer mining techniques eliminate the tailings pond problem but further increase greenhouse emissions. Carbon capture and storage could reduce the emissions of the oil sands to the level of conventional oil, but this technology has yet to be commercialized.

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Oil sands proponents argue that, as conventional oil resources become more difficult to extract, greenhouse emissions associated with conventional drilling will increase to the level of oil sands. Moreover, as the BP disaster demonstrates, conventional oil extraction can devastate ecosystems when a bad spill occurs.

So how do we resolve the conflict between energy needs and environmental hazards? Oil spills are probably best addressed by combining strict regulatory oversight with stiff compensatory penalties. That combination would appear to be the right answer for BP, Enbridge and Keystone XL.

That leaves the far more serious greenhouse-gas problem. Based on current technology, Canadian oil sands are somewhat worse than conventional oil. But curtailing the oil sands simply to increase imports from the Middle East or West Africa would deliver relatively small environmental gains at a high cost in terms of energy security.

The best way to advance both environmental and energy security objectives is to use energy more efficiently and to produce more energy from sources other than fossil fuels. To these ends, Canada and the U.S. should create incentives for energy conservation and penalties for greenhouse emissions.

Unfortunately, both countries have failed to enact meaningful policies. In the U.S., legislation to curb greenhouse emissions has died, and measures to promote renewable electricity, energy-efficient buildings and better auto mileage are in doubt. Canada's policy of waiting for the U.S. to act ensures that extravagant use of fossil fuels will dominate the energy space in North America as far as the eye can see.

While there's no substitute for comprehensive legislation, Canada and the U.S. can immediately take small steps. States and provinces now have the lead, and they should be encouraged by their national governments. Several states and provinces are either trading carbon emission allowances or will start soon. Most have set renewable generation standards for their electric utilities. Building standards are the next target.

By using an existing institution to co-ordinate policies, Canada and the U.S. can pave the way for even more ambitious provincial and state initiatives. That institution is the Montreal-based Commission for Environmental Co-operation, a body created by NAFTA's environmental side agreement. The commission needs additional funds and a stronger mandate from national governments, so it can become the recognized clearinghouse for climate and energy initiatives.

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The commission, for example, can promote co-operation for the construction of a cross-border "smart grid" to distribute electricity. It can co-ordinate "power stations" to encourage the switch to all-electric autos. It can encourage provinces and states to harmonize their definitions of renewable energy, building codes and carbon emission trading schemes.

For the next year, it seems the best that national governments can do is stiffen preventive regulation against oil spills. That's important. But it leaves the overriding greenhouse-gas problem to provinces and states. Even with robust commission co-ordination, provincial and state regulation can't hope to accomplish the greenhouse reduction goals set forth in Copenhagen last year. For fear of disadvantaging local producers or consumers, provincial and state initiatives will go too easy on greenhouse emissions and energy efficiency. Yet, a start at the provincial and state level, promoted by the Commission for Environmental Co-operation, is far better than doing nothing.

Gary Hufbauer is a senior fellow and Meera Fickling is a research analyst at the Washington-based Peterson Institute for International Economics.

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