Canada: EU Fuel Directive: A Discriminatory And Deceitful Sham

Originally published in the Edmonton Journal

Product extracted from Canada's oilsands is being attacked by environmentalists on two fronts: in the U.S. through opposition to the Keystone XL pipeline, and in Europe, through the proposed implementation of a fuel standard that purports to seek a six-per-cent reduction in the carbon intensity of Europe's transport fuel supply by 2020 - to 83 grams of carbon dioxide per megajoule of energy (g/Mj).

The two main sources of carbon are driving and the combustion of coal to generate electricity. A non-discriminatory transport fuel standard that accurately tracks the carbon emissions generated in the production and consumption of specific crude blends would be a legitimate regulatory tool to protect the environment. As designed, however, the EU's proposed standard is not. Rather, it's a disguised restriction on trade that violates a number of WTO provisions, and an arbitrary and unjustifiable means to discriminate against synthetic crude oil made from Canada's oilsands.

The EU standard purports to regulate the total life-cycle emissions of crude oils. Total emissions vary between crude blends due to differences in upstream emissions (caused by different production processes), with emissions generated downstream during refining and consumption being essentially identical for all "petrol." whether made from conventional or unconventional crude.

In fact, some conventional crude blends generate a higher level of upstream emissions than the lowest intensity unconventional product from the oilsands, with the EU itself pegging emissions for various conventional crude blends in the range of 84 to 103 g/Mj, compared to unconventional crudes with scores between an overlapping 98 and 122.

Despite the wide range, and the explicit advice from the EU's key consultant that "regulatory processes will require detailed crudespecific emissions estimates", the EU decided to assign one value for all conventional crude blends, based on weighted imports of fictitious "national average crudes" over the past 10 years. Since the past decade has seen the EU import an increasing amount of crude from Russia and Africa (produced with substantial gas flaring) to replace fast-depleting "clean" North Sea oil, the result is a conventional crude value for 2010 of 87.5 that is at least 10 per cent below the real carbon intensity in 2010 (which is more like 98.3).

Despite knowing that some unconventional crude is cleaner than certain conventional crudes, officials decided to set a separate value for unconventional crude of 107.3 g/Mj. Why a separate value? So that no oilsands crude would score 87.5. Why 107.3? Because the EU's Californian consultant thought 107.3 to be "most likely," since he felt it was "likely" that carbon regulations would discourage oilsands production from using the highest intensity (122) process, though "improbable" that regulations designed to reduce carbon intensity would encourage the importation of the lowestintensity (98) unconventional crude.

The EU's low carbon fuel standard, as designed, is a sham and pretence that discriminates against Canada and deceives Europeans (including one suspects, well-intentioned European politicians). By assigning one value for all conventional crudes, it will allow European refiners to increase the real carbon intensity of their crude supply over the coming decade, while reporting lower carbon intensity for statistical purposes through adding biofuel.

And by deeming unconventional Canadian crude that even the EU has determined is 5 g/ Mj cleaner in fact than the highest intensity conventional crude to be 20 grams dirtier in law, it constitutes an arbitrary and unjustifiable act of discrimination between countries, and against the only nation among all the non-European oil suppliers that (I) already regulates greenhouse gas emissions generated from upstream oil production, and (II) is an energy security ally of Europe through the 1974 Agreement on an International Energy Program (IEP).

What to do? As part of the current Canada-EU trade negotiations, Canada should invite the EU to join in the development of a nondiscriminatory fuel standard for both fossil and biofuels that is accurate, effective and consistent with international trade rights and obligations. In the event the EU rejects this constructive proposal and proceeds with a measure that effectively says Europe does not want Canadian oil, Canada should not only challenge the measure in the WTO, but show Europe the message has been received, by giving the required 12-month notice that it will be terminating its participation in the IEP.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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