Canada: Section 526 Of The U.S. Energy Independence And Security Act Remains Alive And Well – Effect On Alberta Oil Sands Still Unknown

Copyright 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Energy–Oil & Gas, November 2008

The Energy Independence and Security Act (Energy Act) was signed into law by President Bush in December 2007 (see our analysis in the March 2008 Blakes Bulletin on Oil & Gas: U.S. Energy Independence and Security Act – A New Focus on Energy Conservation). Widely viewed as the largest single step since the 1970s that the United States has taken towards energy conservation, section 526 of the Energy Act is of particular interest to Canadian oil producers. This section prohibits U.S. Federal agencies from entering into any contract for the procurement of an alternative or synthetic fuel, including fuel produced from non-conventional petroleum sources, unless the contract specifies that the lifecycle greenhouse gas (GHG) emissions associated with such fuel are less than or equal to emissions from conventional petroleum sources.

Considerable discussion and debate with respect to the interpretation and application of section 526 has arisen both in Canada and the U.S. in the months since the Energy Act became law. The drafters of section 526 have acknowledged that the section was originally intended to prevent the U.S. Air Force from procuring coal-to-liquid fuels, which are estimated to produce almost double the GHG emissions of conventional fuels. They have further acknowledged that section 526 was not intended to apply to oil produced from the oil sands ("oil sands oil"). Despite the original intent, the wording of section 526 is of concern to oil sands producers since oil sands oil is often characterized, and referred to, as non-conventional petroleum. It is also generally understood that the production of oil sands oil currently results in GHG emissions that are greater than oil from non-oil sands sources. Unfortunately, no statement of purpose was included in the Energy Act to limit the scope of section 526 and preclude an expansive interpretation of the section. This has resulted in ongoing confusion on both sides of the U.S.–Canadian border.

The Government of Canada has taken the position that a narrow interpretation of section 526 ought to be adopted. In February 2008, Michael Wilson, Canada's Ambassador in Washington, wrote a letter to Robert Gates, the U.S. Secretary of Defense, in which Mr. Wilson stated that "Canada would not want to see an expansive interpretation of Section 526, which would then include commercially-available fuel made in part from oil derived from Canadian oil sands. "

In support of the position that oil sands oil is not an alternative fuel, he further stated: "Oil produced from the oil sands, like oil from other sources, is processed in conventional facilities. Oil sands production is commercial. The U.S. Administration has recognized the reality that oil sands oil is now part of the mainstream. Since 2003, 174 billion barrels of oil sands reserves have been recognized as proved reserves by the U.S. Department of Energy's Energy Information Agency."

Several U.S. congressmen and senators have voiced their concern regarding the potential impact that section 526 could have on the availability of a proximate, secure fuel supply. In March 2008, Texas congressmen Jeb Hensarling and Mike Conaway introduced legislation to repeal section 526, stating that "though short, this section – which raises concerns over national security, economic security and bureaucratic uncertainty – has powerful and harmful implications and needs to be repealed immediately."

An identical bill was introduced in the House of Representatives by Senator James Inhofe of Oklahoma in April 2008. Senator Inhofe stated his concern as follows: "I worked to include language in the Energy Policy Act of 2005 recognizing that unconventional fuels such as oil shale and tar sands developed in the U.S. and Canada are strategically important and necessary to develop to reduce the growing dependence of the U.S. on foreign oil imports. Section 526 of the 2007 energy bill, however, prohibits federal agencies from contracting for such fuels. This misguided provision was surreptitiously inserted into the 2007 energy bill shortly before final passage."

Neither of the bills repealing section 526 made it past their respective second readings in the House and the Senate. More recently, an attempt to ameliorate the effect of section 526 was included in the 2009 Defense Authorization Bill (Defense Bill), passed by the House of Representatives in May 2008. Section 335 (hereinafter referred to as the section 526 amendment), of the Defense Bill would have enabled U.S. federal agencies, including the U.S. military, to purchase blended fuels containing non-conventional petroleum that are generally available in the marketplace. Since oil sands oil is currently not segregated from other petroleum within the petroleum supply chain, the amendment would have essentially made oil sands oil available for use by all federal agencies. In late September 2008, the Defence Bill was passed by the Senate, however, it excluded the section 526 amendment. The Defense Act (excluding the section 526 amendment) was signed into law by President Bush on October 14, 2008.

In an unusual twist, both environmentalists and Alberta's representative in Washington, Mr. Gary Mar, have heralded the passage of the Defense Act as a victory. Environmentalists have asserted that the exclusion of the section 526 amendment confirms that U.S. federal departments are prohibited from using oil sands oil. Mr. Mar has been quoted as saying that the reason section 526 was not amended was because it was never intended to apply to oil sands oil in the first instance. Both interpretations cannot be correct, and it remains to be seen how the final chapter on the interpretation of section 526 will be written.

The significance of the passage of the Defence Bill by the president and the exclusion of the section 526 amendment appears to have been lost in the midst of the political frenzy leading up to the U.S. presidential election. Early indications are that the new U.S. President will support policies that will decrease the demand for oil sands oil. Senator Barack Obama has vowed that he will break the U.S.'s addiction to "dirty, dwindling, and dangerously expensive" oil if he is elected U.S. president. Senator Obama's senior energy advisor has stated that the U.S. shift away from carbon-intensive fossil fuels could include the oil sands if technologies are not developed to allow this resource to be recovered more efficiently, and with lower carbon emissions. Similarly, Senator John McCain has supported policies that could have a negative impact on the demand for oil derived from the Canadian oil sands in the U.S. At a press conference last year, Senator McCain voiced his support of expanding California's low carbon fuel standard, which measures the amount of greenhouse gases needed to produce fuel and punishes use of heavy crude oil in favour of conventional light crude or alternative fuels. Expanding that plan nationwide would force U.S. refiners to buy less American and Canadian oil and import more oil from the Middle East.

Interestingly, on October 21, 2008, U.S. Acting Deputy Secretary of State, Jeffrey Kupfer, visited Alberta in an effort to highlight U.S.-Canadian energy co-operation. After visiting the Syncrude oil sands project in Fort McMurray, Mr. Kupfer stated, "[the Energy Act] has not impacted our relationship with Canada and shouldn't do, going forward... and by relationship I mean our actual purchasing decisions and our imports from the oil sands". However, Mr. Kupfer also added that the U.S. Department of Energy was continuing to review the Energy Act, and that he was unable to comment on how the incoming administration will treat section 526. The significance of the visit and whether or not a secure, proximate supply of oil from Canada will outweigh concerns over GHG emissions, remains unclear.

In the event that section 526 is ultimately determined to apply to oil sands oil and therefore deleteriously impacts the demand for such oil, it raises the spectre of a NAFTA challenge. The basis of the challenge would presumably be predicated upon a U.S. law that is arguably domestic policy, having a harmful international impact in Canada on the development of the oil sands and demand for oil sands oil. Such a potential impact and the involvement of NAFTA is also on the mind of at least one of the U.S. presidential candidates. During the final presidential debate on October 15, 2008, Senator McCain touched on the issue of blocking the importation of oil sands oil into the U.S. During the debate, Senator McCain reminded viewers that Senator Obama has stated that he will "unilaterally" renegotiate NAFTA if elected president. Senator McCain stated, "and the Canadians said, 'Yes, and we'll sell our oil to China' ... You don't tell countries you're going to unilaterally renegotiate agreements with them."


Section 526 can potentially be interpreted in a manner that prohibits U.S. federal agencies from relying upon oil sands oil for their fuel supply. The impact of such an interpretation may not be that significant today due to the Energy Act only applying to U.S. federal departments and agencies, and the limited amount of oil sands oil that is presently processed into fuel. However, the impact will likely increase as the percentage of oil sands oil used as fuel increases. Oil sands production is projected to grow from the present 1.4 mbd to 3.0 mbd by 2015. Most of this increased production is destined for the U.S. market. There is also a concern that if the policy initiative as set out in section 526 becomes more widespread and is adopted in other U.S. enactments that apply more broadly to industry or the public, it could result in a significant curtailment on the U.S. demand for oil sands oil.

The potential impact of section 526 on the continued development of Alberta's oil sands is a matter of utmost concern to the oil sands industry, the Canadian government, the Alberta government and the U.S. government. The new U.S. president will need to quickly clarify section 526 to ensure that its scope and application is fully understood. If it is ultimately interpreted in a manner that prohibits the use of oil sands oil, it may result in the U.S. becoming more dependent on foreign, less-secure oil. It is ironic that an act entitled "Energy Independence and Security" could contain provisions that lead to the opposite result.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions