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An aerial view of an oil sands mine facility near Fort McMurray, in Alta.

Jeff McIntosh

Ottawa will allow Alberta to use its own greenhouse-gas rules – rather than federal regulations being drafted – to corral the soaring carbon emissions of the oil sands, as the Conservative government moves to assure the energy industry that it will not take steps to slow the sector's growth.

Industry and government sources say the federal regulations being drafted will essentially mimic one of the most controversial parts of Alberta's greenhouse-gas regulations, placing limits on the emissions from each barrel of oil, but not on the sector – an approach that would clear the way for the oil sands to double production.

Another key element: the provinces would be free to set their own rules to achieve federal targets, though Ottawa could impose more aggressive goals than exist in Alberta, the only province with greenhouse-gas regulations for the industry.

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Alberta's approach has been widely condemned as insufficient to rein in the sector's rapidly growing emissions, but Ottawa appears ready to adopt key elements of that system.

In recent talks with industry officials, Ottawa agreed to some basic principles, including a commitment not to impair the competitiveness of the sector and to focus on new plant construction, rather than imposing tough new regulations on existing facilities.

At the urging of oil companies, the federal government has indicated it is willing to give producers the ability to pay into a technology fund to meet some portion of their obligations, and to use low-cost offsets. That would allow companies to pay for emission reductions achieved by a third party, industry sources say. Both policies are key features of Alberta's regulations.

Under a principle known as "equivalency," the Harper government will allow Alberta and other provinces to replace federal regulations with their own rules if they demonstrate that they would achieved the same level of emissions reductions.

Environment Minister Peter Kent and his officials have recently held a series of meetings with company executives and their industry associations to prepare draft regulations which he expects to release next year.

"We've already achieved a fairly significant meeting of the minds in terms of where we will go in drafting our regulations," the minister said Wednesday.

Much remains to be decided, but Ottawa has indicated that – like Alberta – it will regulate emissions on a per-barrel basis rather than impose a cap on the sector. That would allow for the expected doubling of production in the oil sands.

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Environmentalists have slammed the so-called intensity-based approach as ineffective in slowing emissions from the oil industry.

Mr. Kent unveiled a new report on Canada's emission trends that projects that, without action, the oil sands' output of greenhouse gases (GHGs) will increase 226 per cent between 2005 and 2020, as a result of the projected doubling of output.

That increase would leave the oil sands sector emitting 104.8 megatonnes of carbon dioxide, equivalent to 17 per cent of Canada's 2020 target of 607 megatonnes and more than the country's entire electricity sector.

According to the Environment Canada report, the country is roughly halfway to its goal of reducing GHGs 17 per cent from 2005 levels by 2020.

But many experts have warned that Canada will not meet that target unless emissions from the oil sands are significantly reined in.

Mr. Kent said Ottawa has "no set target" for the oil and gas industry to reduce emissions, and will rely on primarily on performance standards and technological improvement within the industry to slow the growth of its rising emissions.

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"It's a best efforts [approach] – ensuring that we actually reduce greenhouse gas emissions but without compromising jobs or economic growth," he said.

It's also possible the federal standard will bring nothing new to the industry working in Alberta, where rules already require a 12-per-cent decrease in emissions over time, and those who run over pay $15 per tonne into a fund invested in new technology.

No other province has emission regulations for the oil and gas industry; producing provinces such as Saskatchewan or British Columbia would have the option of living with the federal rules or fashioning their own system that gets equivalent reductions to Ottawa's plan.

The energy industry is pleased that the government is focused on technology and innovation to get the job done, said David Collyer, president of the Canadian Association of Petroleum Producers.

Mr. Collyer said the industry is working to get oil-sands emissions down to a level comparable to other sources of heavy oil, which is increasingly used in the U.S. and global markets.

Energy firms also don't expect the government to demand upgrades to existing facilities, saying the regulations are more likely to apply to new construction only.

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That approach "would be far too weak," said P.J. Partington, a Toronto-based climate change policy analyst with the Pembina Institute.

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