Canada Warns U.S. Against Energy Law Barring Fuel From Oil Sands

The Canadian government is urging the United States to avoid an "expansive interpretation" of a new U.S. energy law that could block government purchases of fuels derived from Alberta's booming oil sands region.

Section 526 of the law that President Bush signed last December bars government contracts for alternative fuels--including non-conventional petroleum sources--whose lifecycle emissions of heat-trapping greenhouse gases exceed those of conventional fuels.

"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," Ambassador Michael Wilson told Defense Secretary Robert Gates in a Feb. 22 letter. Wilson also sent copies of the letter to Energy Secretary Samuel Bodman and Secretary of State Condoleezza Rice.

The letter obtained by Greenwire says the provision is apparently aimed at fuels "other than those which are commercially available as part of the stream of petroleum fuels."

But Wilson notes that while there was "no indication" when Congress considered the energy bill last year that the provision would go beyond a limited scope, the measure also had no "statement of purpose" to limit its reach.

Wilson outlines several reasons why the energy law's provision should not be read as applying to fuels derived from oil sands. For one, he says Canada does not consider oil extracted from the sands to be alternative fuel, noting it is commercial and processed in conventional refineries.

"There is little fuel on the U.S. market that is 100% petroleum extracted only by conventional methodology," Wilson writes. "Oil sands-derived petroleum represents approximately 5% of U.S. supply and is not segregated from other petroleum."

The letter acknowledges that oil sands production has higher greenhouse-gas emissions than conventional crude but adds that Canada and Alberta are committed to curbing emissions.

Canada is the largest U.S. oil supplier. It sent 1.8 million barrels per day of crude oil and 500,000 barrels per day of refined products to the United States in 2006, the letter says. About half of Canadian crude is derived from oil sands, with sands production forecast to reach about 3 million barrels per day in 2015.

"Most of this new production is destined for the U.S. market," Wilson writes. "Both President Bush and Energy Secretary Bodman have publicly welcomed expanded oil sands production, given the increased contribution to U.S. energy security."

Environmentalists and their allies in Congress are getting worried about greenhouse gases from oil sands production as well as potential emissions from proposed plants that would make liquid fuels from coal. Without controls on emissions of carbon dioxide, these sources have higher emissions than conventional fuels.

The energy bill provision, which was added by Rep. Henry Waxman (D-Calif.), is aimed largely at the Pentagon plans to buy coal-based jet fuels.

Asked about the Canadian Embassy's letter, an aide on the Oversight and Government Reform Committee, which Waxman chairs, said: "Section 526 is very simple: It says that the government shouldn't spend taxpayer dollars on fuel from unconventional sources, if that fuel has higher global warming pollution than comparable conventional fuel. The letter does not dispute that tar sands are an unconventional fuel source, and it recognizes that production from tar sands has higher greenhouse gas emissions than conventional oil production. It makes no sense for the government to promote unconventional fuel sources that make the problem worse."

Waxman recently asked the Defense Department how it intends to comply with the provision. Waxman's letter also asks DOD to explain "how the department will comply with Section 526 with respect to fuel that is derived from tar sands or other unconventional petroleum sources but is purchased under a contract that does not specify the source of the fuel."

Developers hoping to build coal-to-liquids plants say they plan to capture carbon that at least initially would be sold for use in enhanced oil recovery. Large-scale CO2 sequestration is considered to be far from commercial-scale deployment.