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Natural Resources Minister Joe Oliver is visiting European capitals to argue that the proposed EU fuel-quality standard unfairly discriminates against Canada.

Peter Power/The Globe and Mail

Environmentalists are warning the European Union's proposed fuel-quality directive could curtail imports of oil-sands-derived diesel from the U.S. Gulf Coast and drive down the price of Canadian crude.

It's a warning that Natural Resources Minister Joe Oliver is clearly taking seriously as he visits European capitals to argue that the proposed fuel standard unfairly discriminates against Canada and underestimates emissions of crude now imported into Europe from countries such as Nigeria and Russia.

The standard assesses penalties for high-carbon fuels. Mr. Oliver wants the EU to revamp the existing proposal to reduce the difference in how it would treat oil sands producers versus other sources of oil.

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While Ottawa's objections were once based on fear of a negative precedent that could migrate to this side of the Atlantic, it is now clear the proposal could have tangible impacts on the North American crude market. Canadian producers and U.S. refiners increasingly see Europe as an attractive export destination – both for crude from Canada if a west-to-east pipeline gets built, and for petroleum products made from Alberta bitumen refined in the U.S. Gulf Coast.

A study being released Wednesday by the Brussels-based group Transport & Environment concludes that the directive would drive down Canadian prices by reducing the global market for products derived from oil-sands bitumen.

The fuel quality directive (FDQ) would provide "a powerful incentive to shift investment away from ultra-high-carbon feedstocks to lower-carbon ones, with significant ensuing environmental benefits," the report said. It estimated the lower oil sands production would result in a reduction of 19 million tonnes of carbon dioxide a year, the equivalent of taking seven million cars a year off Europeans roads.

But Natural Resources Canada noted Tuesday that California has released its own low-carbon fuel report listing several widely traded crude types, including those from Nigeria, Russia, Venezuela and Angola, that produce greenhouse gas (GHG) emissions well above the European standard for "conventional fuels" under which they will fall.

The transatlantic market has shifted dramatically in recent years as European refiners can't keep up with demand for diesel. Refiners on the U.S. Gulf Coast have increased exports of diesel to the continent, despite the economic malaise that has gripped the European economy. In the last five years, American exports of petroleum products, primarily from the Gulf Coast, have more than doubled, with the main destinations being Europe and South America.

The Transport & Environment report notes that increasing volumes of Canadian bitumen are reaching the Gulf Coast, and that the stream will become a river if the proposed Keystone XL pipeline is built. But if customers face higher environmental levies in key markets, they will look for lower-carbon sources to process, it concludes.

The report notes TransCanada Corp.'s proposal to construct a west-to-east pipeline that could result in the export of oil sands crude to Atlantic basin markets. While European refiners aren't equipped to process the diluted bitumen that is refined in the U.S., they could import the synthetic oil that is produced by upgraders in Alberta.

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In a conference call from Paris on Monday, Mr. Oliver vowed to keep up Canada's lobbying effort to change the proposal, which is undergoing further study and may be headed for a vote by EU environment ministers this fall.

"We do not object to real tangible measures to reduce GHG emissions for transportation fuels," he said. "We do object to the discriminatory treatment currently contemplated in the FQD, singling out oil-sands-derived fuels without scientific justification."

Canada argues that the proposal from the European Commission sets GHG values only for bitumen and conventional oil, based on averages that overstate the difference between, for example, Saudi heavy crude and Alberta diluted bitumen.

Transport & Environment fuels manager Nusa Urbancic accused the Canadian government of spreading false information about the proposed standard that, she said, does a better job assessing emissions from competing crude sources than Ottawa claims.

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