CREDIT: Greenpeace A U.S. bill would seemingly bar U.S. federal agencies from buying “dirty oil” products - including those originating in the Canadian oilsands. Here, a protest banner hangs over a tailing ponds in northern Alberta.

CALGARY - A last-ditch effort to amend an energy bill that appears to ban the sale of “dirty oil” products - including those originating in the Canadian oilsands - to U.S. federal government agencies has failed in Washington.

Section 526 of the U.S. Energy Independence and Security Act of 2007 bars U.S. federal agencies such as the military and the postal service from buying alternative fuels if the production creates more greenhouse gases than conventional fuels.

Since it was signed into law last December, opponents have been fighting to repeal or amend it, not so much because they are concerned about Canadian energy exports, but because it appears to counter U.S. Defense Department experiments with coal liquefaction fuels.

Late Wednesday, the U.S. Senate denied an amendment to Section 526 that had been packaged with a Senate authorization bill.

“This is a big step for clean-energy supporters,” said Alberta Greenpeace campaigner Mike Hudema.

“Especially in a Canadian context, it severely limits the U.S. government’s ability to enter into contracts to get oil from the tarsands because of how large an emitter the tarsands are compared with conventional-oil operations.”

He agreed the bill could also be read to prohibit other non-conventional fuels - possibly even biofuels, depending on how they are produced - unless the section is clarified.

The defeat Wednesday means the end of the battle for this president and this Congress, said Matt Letourneau, spokesman for New Mexico Senator Pete Domenici, the senior Republican on the Senate Energy and Natural Resources Committee.

“This is really largely a problem for the next administration to deal with because of the very real issue of making sure the military has the resources it needs and the ability to purchase what it needs.”

He said the amendment didn’t have a realistic chance of passing the Senate anyway, which is controlled by Democrats, but added that a growing number of Washington politicians in both parties are worried about the section’s implications.

“Our concern would be that when those (fuel) contracts expire, a group could interpret 526 in such a way to say that it prohibits the U.S. from obtaining oil from tarsands, for instance, and then there would be a lawsuit from Greenpeace or whoever else and it would work its way through the courts.

“Meanwhile, our military relies on that fuel and we’re fighting a war.”

More than half of the crude oil produced in Canada comes from the oilsands and that proportion is expected to rise.

The Canadian Association of Petroleum Producers and several Canadian politicians have called for clarification of the clause.

Canada’s oilsands industry, already the target this week of a major British investment firm’s campaign against the “climate-hostile fuel,” is now under fire from an international alliance of environment and investor groups, which has urged the U.S. securities regulator to rewrite proposed new rules on reporting petroleum reserves to reflect the “potentially enormous risks” - financially and ecologically - associated with the “carbon-intensive” Canadian energy source.

The latest challenge to the Alberta-based oilsands sector, which has been championed by Prime Minister Stephen Harper as a key part of Canada’s push to become a global “energy superpower”, comes after NDP Leader Jack Layton promised a moratorium on new oilsands developments and three federal parties traded campaign barbs over the controversial resource.

A letter sent last week to the U.S. Securities and Exchange Commission - signed by 19 advocacy organizations and investment companies, including Ontario-based Meritas Mutual Funds - argues the regulator should “pay more careful attention to the implications of climate change and carbon-related regulations before finalizing the new reserves reporting requirements,” which are intended to modernize antiquated rules governing companies’ estimates of how much oil could be extracted from their properties.

“We are concerned that climate change, and policies adopted to combat greenhouse gas emissions, could render certain assets - particularly those with high carbon intensity - uneconomic,” the signatories stated, insisting special reporting rules must be imposed on oilsands because they produce more carbon pollution than conventional oil.

“We do not believe that companies should be allowed to disclose additional oil and gas reserves (other than proved reserves) unless such additional categorical and descriptive information is required, along with any other potential liabilities that could be expected,” concludes the letter, obtained by Canwest News Service. “Unless and until the SEC adopts a strict and diverse disclosure framework, including geographic location and these risks, the current restrictions on including oil and gas reserves from sources that require further processing (e.g. tar sands) should be maintained.”

In June, the SEC announced plans to allow “previously excluded resources, such as oilsands, to be classified as oil and gas reserves.” Deposits of the resource, which require costly inputs of water and energy to extract useable fuel from oil-rich sand as thick as peanut butter, are currently classified by SEC as mining reserves.

“The energy consumption required to extract a barrel (of oil) from the tar sands is very different to a simple barrel of crude from the Gulf of Mexico,” said Elizabeth McGeveran, senior vice-president with U.K.-based investor F&C Management Ltd., which manages about $200 billion in global assets.

“Understanding climate risk will assist investors in understanding and evaluating reserves.”

Meritas CEO Gary Hawton told Canwest News Service that “oilsands operations present considerably higher risks to companies and their investors. We think investors should be made fully aware of those risks,” which he said include financial, environmental, social and “reputational risks.”

But Greg Stringham, vice-president of markets and fiscal policy the Calgary-based Canadian Association of Petroleum Producers, said the SEC petitioners are asking the regulator to “duplicate” reporting data that is already available, in Canada, under federal environmental regulations.

“It’s not necessary that the SEC also collect the same data,” Stringham said, adding that the petitioners “shouldn’t be picking on one fuel” and are lacing their arguments with “potentials and hypotheticals” beyond the purview of the U.S. securities regulator.

“Investors can inform themselves through the government of Canada” about carbon emissions and other costs facing oilsands projects, said Stringham, “as they can with all the other issues associated with biofuels or natural gas production or off-shore (resources). All of that is readily available to the investor, so it doesn’t have to be in the SEC regulation.”

This week, one of Britain’s largest investment companies - ethical funds firm Co-operative Asset Management - launched a campaign to pressure petroleum giants BP and Shell to scale back their plans to exploit Canada’s oilsands.

Widely seen as a future driver of the Canadian economy in a world confronting oil scarcity and premium prices, North America’s oilsands and oil shales have also been targeted by environmentalists as “dirty oil” that produces more carbon pollution than conventional sources, and requires massive inputs of energy and water to extract.

Last week, Layton used an election flyover of an oilsands project in Alberta to highlight “toxic” environmental impacts and to promote his party’s moratorium policy.

The proposal was lambasted Saturday by Conservative Leader Stephen Harper, who accused the NDP of trying to “shut down a big chunk of Canada’s oil industry, the oilsands.”

The Liberals’ natural resource critic, Omar Alghabra, has argued the oilsands should be seen as an “asset, not an enemy,” but the party’s centrepiece Green Shift proposal has been denounced by Harper as an attack on Western Canada’s energy industry.

The U.S. Energy Independence and Security Act passed last December, without a fuss on this side of the border.

Yet Section 526 of the 822-page piece of legislation should have set Canadian alarm bells ringing. The section forbids any federal agency — such as the Defense Department or the U.S. Postal Service — from buying “synthetic” fuel from non-conventional sources for any “mobility-related” uses.

The section was authored by Congressman Henry Waxman, a California Democrat, and chair of the House of Representatives committee on oversight and government reform.

In a letter to the U.S. Department of Defense, Waxman made the law’s intent clear:

“This provision ensures that federal agencies are not spending taxpayer dollars on new fuel sources that will exacerbate global warming,” Waxman wrote. “This provision is also applicable to fuel derived from tar sands, which also produce signficantly higher greenhouse gas emissions than are produced by comparable fuel from conventional petroleum sources.”

How practical the law is remains unclear — after all, it’s not as if you can buy special oil or gasoline derived exclusively from oilsands. The crude we export comes from a mix of conventional and non-conventional oil. (Right now, Alberta produces about 1.2 million barrel of synthetic crude a day, versus 586,000 barrels a day of conventional oil.) It’s hard to fathom how the U.S. Postal Service or Defense Department could ever prove to Congress that they weren’t buying gas or jet fuel derived, in part, from synthetic crude.

Still, neither the Alberta government, nor the federal Department of Foreign Affairs and International Trade seems to have realized the potential impact of the Energy Independence and Security Act before it passed.

As my Journal colleague Archie McLean first revealed last week, the Alberta government only learned the details of section 526 when the Globe and Mail broke the story last Jan. 15, a month after it became law.

It does seem outrageous. The Alberta government has a special trade office in Washington, with a budget of $1.4 million a year and a staff of four, headed by former Alberta cabinet minister Gary Mar, whose job it is to promote and protect this province’s economic interests.

Mar admits his office missed the importance of the section — but he blames the mix-up on the convoluted American legislative process.

“Section 526 wasn’t in the original text of the act. It was an amendment that came late in the stages of debate,” he says.

“But even if someone had seen it, given the context, they might not have been concerned.”

Mar says Waxman originally framed his amendment to focus on technology to turn coal into liquid fuel and sold it that way to the House. No one, he says, including the petroleum industry, understood that Section 526 would ban the use of synthetic fuels.

Still, if the Globe could see that the Energy Independence and Security Act might be a problem, why couldn’t the Alberta trade office? It’s embarrassing to think that a matter of this much importance to our province’s economy somehow flew under our provincial radar.

It’s not fair to put all the blame on Mar and his tiny staff, though. It’s not actually a provincial responsibility to monitor and lobby American legislators. That’s the job of the federal government, specifically the Department of Foreign Affairs and International Trade. On Monday, no one at Foreign Affairs could tell me exactly when the department first became aware of the implications of the Energy Independence and Security Act.

But it’s clear that Ottawa dropped the ball — failing to head this legislation off at the pass, failing to give the Alberta government any warning it was coming.

With the U.S. economy sliding into recession, protectionist sentiment south of the border is heating up. No matter who wins the presidency, we’ll likely see a more protectionist Congress when the American elections are over.

At the same time, the international public relations campaign against the oilsands — or tar sands — grows louder all the time. Even if a law like the U.S. Energy Independence and Security Act poses little practical risk to our oil exports, it poses a significant political threat, by singling out and demonizing, as it does, synthetic crude as a particular environmental threat. Whether the criticism is justified or not, our oilsands have become a most convenient international whipping boy for green activists.

All told, there’s never been a more crucial time for the province and the federal government to be working together to protect our interests on Capitol Hill. It’s no easy task to outlobby the lobbyists, especially in a cutthroat political culture like Washington’s. But at the very least, we should be able to rely on our politicians, diplomats and civil servants to be vigilant when it comes to proposed legislation that could have a major influence on national economic and political interests.

psimons@thejournal.canwest.com

Two major industry associations representing oilsands producers are refusing to support key tenets of a long-awaited plan to protect Alberta’s wetlands, citing concerns about rigid rules and restoration costs that could stretch to $1 billion and beyond.

Environmental groups say they have been blindsided by the decision.

“I don’t think a lot of people realize how critical wetlands are,” said Danielle Droitsch, executive director of Water Matters, a Canmore-based environmental group.

Rules to protect the province’s disappearing wetlands — key to both healthy water supplies and wildlife — are long overdue, say environmentalists and other industry groups that are members of the wetland policy project team.

“While we’ve been negotiating this policy for three years, the Alberta government has been licensing (oilsands) operations in the absence of a policy,” Droitsch said.

She said she is concerned about the tremendous amount of influence the Canadian Association of Petroleum Producers and the Alberta Chamber of Resources (representing the mining industry) may have on whatever decision is eventually made by the Alberta government.

“Who does it benefit to have a delay in the policy?” she asked. “It’s basically benefitted the oilsands industry.”

Environmental concerns about Alberta’s oilsands most often centre around the greenhouse gases being produced by the huge developments. But increasingly — and especially after 500 birds died in a toxic oilsands tailings pond in April — worries about protecting wetlands and wildlife have received greater attention.

Some conservationists say 60 per cent of the province’s wetlands have already been destroyed in decades of agricultural, industrial and residential development.

Three years ago, the Alberta government tasked the Alberta Water Council with solidifying recommendations for laws and regulations to stop the damage across the province.

In a letter to the water council this summer, CAPP said it is worried costs to follow through with a recommendation for a “no net-loss policy” — which would require oilsands companies to restore another wetland to make up for a loss — “could exceed billions of dollars.”

“The government of Alberta needs to recognize the land base and monetary cost for compensating for wetland loss at the scale of oilsands mining projects will be substantial,” the letter said.

According to the Alberta government, $52 billion was invested in the oilsands between 2000 and 2006.

But the two industry groups are also concerned the wording contained in the recommendations is too rigid and argue restoration measures should be decided on a case-by-case basis.

They also want the new rules to be grandfathered so they won’t affect current oilsands projects.

kcryderman@theherald.canwest.com

CALGARY — Albertans are torn between wanting to reap the full benefits of their natural resource wealth and protecting the environment, a new survey suggests.

“They’re very concerned about the environment, but they don’t want to mess around with the economy,” says Leger Marketing pollster Marc Tremblay.

More than half the Albertans surveyed in the poll for the Calgary Herald - 58 per cent - said governments should take steps to reduce greenhouse gas emissions - even if it means limiting economic development or eliminating jobs.

However, 29 per cent disagreed, according to the poll.

When asked to pick one over the other, 45 per cent agreed that “economic development and growth is more important than protecting the environment”, while 53 per cent disagreed.

About six in 10 of those surveyed said the Alberta government should limit greenhouse gas emissions produced by the Athabasca oilsands, even if it means some projects might be delayed or cancelled. Roughly three in 10 rejected that idea.

The ranks of those who prize environmental protection are especially strong among Albertans age 18 to 34, Tremblay said.

“They’re very ‘in the now,’ ” Tremblay said. “The environment trumps the money and toys right now for many youngsters.”

But with one in six Albertans directly employed by the energy industry, and the province enjoying wealth that still measures favourably against the rest of North America, experts wonder if people are being truthful when they profess to treasure soil, water, and trees more than their potential earnings.

“Not for a second,” said Andrew Leach, a professor of energy and environmental economics at the University of Alberta’s school of business. “They value it when it’s free.”

The online poll surveyed 962 Albertans aged 18 and over between Aug. 25 to 29.
It has a margin of error of plus or minus 3.2 percentage points, 19 times out of 20.

The survey was conducted before Friday’s sudden rise in pump prices.

But even with hurricane Ike pushing gasoline costs higher, there are signs Alberta’s economy is slowing.

The price of crude oil dropped to less than $100 US a barrel this week for the first time since April.

Residents in Edmonton and Calgary have seen the price of new houses dip recently, the worst performance of those markets in 23 and 12 years, respectively.

Alberta still has the lowest unemployment rate in the country, but Statistics Canada recently reported the province lost 4,200 jobs in August, while the rest of the country added 15,200 positions.

The poll results come as federal parties debate the merit of introducing a carbon tax that would attach a price to greenhouse gas emissions.

At the same time, the Alberta government is investing billions of dollars to reduce carbon dioxide emissions, as well as charging large-scale emitters such as power plants and refineries.

One of the poll’s key findings was the difference in attitude between younger and older Albertans.

More than seven in 10 surveyed between 18 to 34 years of age said the government needs to limit greenhouse gas emissions produced by the oilsands, even if it means that some projects might be delayed or cancelled.

By contrast, only 56 per cent of people over 55 years old support the notion.
The differences in attitudes doesn’t end with age.

There are also major differences between the sexes.

Significantly more women (68 per cent) said they agree the government needs to limit greenhouse gases - even if there are negative economic consequences - than men (55 per cent).

In a separate question, seven in 10 Albertans said they think the oil and gas industry cares more about making a profit than protecting the environment.

About one-quarter disagreed.

Calgary Herald

kcryderman@theherald.canwest.com