Originally published in Blakes Bulletin on
Energy–Oil & Gas: March 2008
In the bustle of activity leading up to the winter recess,
the U.S. Congress passed the Energy Independence and Security
Act (Act) on December 13, 2007. The bill was signed into law by
President Bush on December 19, 2007. The House had previously
passed two versions of the bill that the Senate would not pass
due to certain controversial provisions, including a provision
which sought to fund renewable energy production tax credits by
repealing credits currently granted to domestic oil and natural
The Act has been hailed as one of the largest single steps
toward energy conservation that the United States has taken
since the Arab oil embargoes of the 1970s. The law includes the
following key provisions:
National Fuel Economy Standards –
The Act sets Corporate Average Fuel Economy (CAFE) standards at
35 miles per gallon by 2020. This represents a 40% increase in
fuel economy standards and is expected to save billions of
gallons of fuel.
Renewable Fuel Standard – The Act
sets a mandatory Renewable Fuel Standard (RFS) requiring fuel
producers to use at least 36 billion gallons of biofuel in
2022. Of this, 21 billion gallons must be advanced biofuels,
such as cellulosic ethanol. In order to bring about this
five-fold increase, the Act also increases funding for
bioenergy research and technology.
Carbon Storage – The Department
of Energy is directed to support several large volume tests of
carbon storage in a variety of geological formations in order
to examine the feasibility of geological storage from
industrial sources and coal-fired electricity plants.
While the Act arguably does not affect Canadian producers,
section 526 of the Act is sufficiently unclear in this regard
to have drawn the attention of the Canadian government. Section
526 of the Act provides that U.S. federal agencies may not
enter into any contract for the procurement of an alternative
or synthetic fuel unless the contract specifies that the
lifecycle greenhouse gas (GHG) emissions associated with the
production and combustion of the fuel supplied under the
contract are less than or equal to such emissions from the
equivalent conventional fuel produced from conventional
petroleum sources. It is unclear at this time if fuel produced
from the oil sands would fall into the definition of
It is the position of the Canadian government that such an
interpretation of this provision of the Act would be
inconsistent with section 369 of the 2005 Energy Policy
Act (the Energy Policy Act) which aimed at the development
of sources of U.S.-origin alternative fuels for strategic
reasons. While the Energy Policy Act does define fuel produced
from the oil sands as an "unconventional fuel", the
Energy Policy Act also sets out a directive to strategically
develop such resources in order to "reduce the growing
dependence of the United States on politically and economically
unstable sources of foreign oil imports." It is also the
position of the Canadian government that oil extracted from oil
sands is not an alternative fuel, as oil produced from oil
sands is commercial, and such production is processed in
While it remains to be seen how the U.S. government and its
federal agencies will interpret section 526 of the Act, it does
seem unlikely that oil produced from oil sands will be
interpreted as "alternative fuel". Not only would
such an interpretation be inconsistent with prior legislation,
but oil extracted from the oil sands can be contrasted with
other "alternative" fuel sources such as biofuel,
which is primarily corn-based and differs significantly in
chemical composition from the oil that it is displacing.
Further, there is little fuel on the U.S. market that is 100%
petroleum extracted only by conventional methodology, and
oil-sands-derived petroleum, which makes up 5% of the U.S.
supply, is not segregated from other petroleum within the
supply, which would make compliance with such an interpretation
One of the concerns of the United States in passing the Act
is to ensure a secure supply of energy resources for the United
States going forward. Currently, roughly half of the crude oil
supplied to the United States by Canada is derived from the oil
sands, and Canada is the United States' largest supplier of
crude oil. Eliminating such a secure and proximate supply of
fuel for federal agencies, including the U.S. military, would
not seem to be in keeping with the U.S. government's
efforts to ensure secure and accessible fuel supplies for the
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