Energy @ Gowlings - March 15, 2012 - Volume 10, Number 4

Edited by Paul H. Harricks

Canada's Oil Sands Innovation Alliance - COSIA

On Thursday, March 1, 2012, twelve of Canada's largest oil sands producers announced the signing of a charter forming a new alliance under the banner "Canada's Oil Sands Innovation Alliance" ( the "Alliance") to tackle oil sands environmental issues through collaborative action and innovation. The Alliance consists a veritable 'who's who' among the current senior ranks of Canadian bitumen producers: BP Canada Energy Company, Canadian Natural Resources Limited, Cenovus Energy Inc., ConocoPhillips Canada Resources Corp., Devon Canada Corporation, Imperial Oil, Nexen Inc., Shell Canada Energy, Statoil Canada Ltd., Suncor Energy Inc., Teck Resources Limited and Total E&P Canada Ltd. The Alliance has agreed to focus their collaborative efforts on tailings ponds, greenhouse gas emissions, land and water.

Such collaboration is intended to overcome obstacles in respect of intellectual property, human resources and funding that might otherwise impede timely improvement of environmental performance of large scale oil sands projects. Alliance members have agreed to share and collectively develop more environmentally sound extraction and production methods, while further engaging with government and external stakeholders in the stewardship and monitoring of the environmental impact of oil sands development.

The formation of the Alliance is further evidence of the Alliance members' awareness of the necessity to manage, in a concerted manner, environmental issues that are impacting the oil sands industry's social licence to operate. While other industry associations may have a similar focus on oil sands environmental issues, including the Oil Sands Tailing Consortium, the Oil Sands Leadership Initiative and the Canadian Oil Sands Network for Research and Development, this recent development is the most broadly-based initiative to date.

Oil Sands and European Union Fuel Quality Directive (FQD) - An Update

In April 2009 the European Union (EU) adopted a new Directive (2009/30/EC) revising an earlier FQD (98/70/EC) and requiring fuel suppliers to reduce the greenhouse gas intensity of energy supplied for road transport. Article 7a of the revised FQD sets a target of a 6% reduction in greenhouse gas emissions from road transport by 2020, based on the level of emissions in 2010.

In order to implement the reduction, and monitor its achievement, the EU must establish emission values for various types of fossil fuel. By the end of 2010 most fuels had been given their emission values but it remained to be seen whether fuels derived from oil sands would be given the same value as those from conventional crude oil or would be given a higher value, with intense lobbying on both sides.

On 4 October 2011, the European Commission, the EU's executive arm, decided to put forward a proposal to treat oil sands differently from conventional crude oil, ascribing a greenhouse gas value of 107 grams CO2 equivalent per megajoule (CO2 eq/MJ) to fuel derived from oil sands, as opposed to an average of 87.5 grams CO2 eq/MJ for fuel derived from conventional crude oil.

To be adopted by the EU, the proposal by the European Commission needs approval from the EU's 27 member states by means of qualified majority voting. The effect is that the proposal needs to be approved by at least 14 of the member states having in aggregate at least 255 out of a total of 355 votes (votes are allocated to member states broadly in proportion to size of population).

A meeting of the EU's Fuel Quality Committee composed of environmental experts delegated by the member states met on 23 February 2012 and voted on the Commission's proposal.

The votes at the Fuel Quality Committee were as follows:

For

Against

Abstained

Member

State

Number

of Votes

Member

State

Number of Votes

Member

State

Number

of Votes

Romania

14

Italy

29

France

29

Greece

12

Poland

27

Germany

29

Austria

10

Spain

27

U.K.

29

Sweden

10

Czech Republic

12

Netherlands

13

Denmark

7

Hungary

12

Belgium

12

Finland

7

Bulgaria

10

Portugal

12

Ireland

7

Lithuania

7

Cyprus

4

Slovakia

7

Estonia

4

Latvia

4

Luxembourg

4

Slovenia

4

Malta

3

TOTAL

89

128

128

The votes were therefore insufficient to approve the proposal and Foreign Minister John Baird said he was "pleased that so many countries oppose this discriminatory measure". The European Commission, however, continue to stand by their proposal and Climate Action Commissioner Connie Hedegaard said after the vote, "It is only reasonable to give high values to more polluting products than to less polluting products. I of course hope that the member states will follow the commission on this environmentally sound initiative".

The proposal will now be considered by the member states at ministerial level, with further lobbying on both sides expected ahead of the meeting of ministers.

Canada does not currently export oil sands crude to Europe but is concerned that, if the EU treats oil sands differently from conventional crude, it will set a precedent strengthening the hand of opponents of oil sands in other countries, including the United States. As Natural Resources Minster Joe Oliver has said "We just don't want that kind of stigmatizing judgement to be made against our oil...