Europe is one vote away from making Canada very unhappy. Since 2009, Canada and the EU have been negotiating a trade deal, the first between the two entities, which would liberalise their bilateral trade. Canada is currently the EU’s 12th largest trading partner. In 2011 exports to Canada from the EU totaled €29.6bn, and imports from Canada to the EU totaled €22.8bn.
Adoption of the Canadian-European Comprehensive Economic and Trade Agreement (CETA) hangs in the balance of another piece of EU legislation, the European Union Fuel Quality Directive (FQD), passage of which would be greatly upsetting to Canada and its oil interests. A first vote on adoption of amendments to the FQD took place in February 2012, but voting failed due to opposition and abstentions from France, the UK, Netherlands, Germany, Belgium, Portugal, and Cyprus. A second vote is scheduled to take place in early 2013.
The Fuel Quality Directive
The FQD is a 2009 amendment to an existing piece of EU Legislation from the 1970s that sought to regulate chemical additives in gasoline. The amended FQD (2009/30/EC), as part of a wider campaign to reduce greenhouse gas (GHG) emissions, introduces legislation intended to reduce the life cycle GHG burden of fossil fuels and to promote the use of bio-fuels within the EU.
Of concern to the fossil fuel industry is Article 7a which states that EU members will ‘ensure that a fuel supplier makes choices to achieve, in an optimal manner, a reduction in aggregate GHG intensity for the fuel and energy supplied to road transport and non-road machinery’ as well as to, ‘optimize GHG performance of biofuels, encourage the use of lower GHG intensity fuels, and reduce GHG emissions from fossil fuel pathways’.
In order to achieve the stated goals, Article 7a requires that fuel suppliers report the total volume of each type of fuel or energy supplied, indicating where purchased, its origin, and the lifecycle GHG emissions per unit of fuel.
Why Canada Cares
Through the FQD the EU intends to purchase fossil fuels with lower GHG burdens in order to reduce the carbon footprint of the EU. The FQD will effectively label some crude oils as ‘cleaner’ in comparison to others. Canada is concerned that the FQD will effectively label almost all of its vast crude reserves as more polluting than conventional crude oils.
Canada is the world’s 6th largest Oil producer and holds the 3rd largest proven oil reserves after Saudi Arabia and Venezuela. Almost all of Canada’s reserves are found in oil sands, also known as bitumen or tar-sands. Bituminous oil is an exceptionally viscous, almost solid, unconventional crude. Because of its high viscosity, bitumen must be surface mined more like coal, or extracted through steam injection, rather than being pumped out of the ground through a well as is done for less viscous conventional oil.
Once removed from the ground the almost solid bitumen is then refined or ‘upgraded’ to a conventional viscosity in order to be transported through pipelines. Petroleum geologists measure the viscosity of oil according to the American Petroleum Institute’s Gravity index. Conventional gravity for commercial crude is around 40º; oil from tar-sands is about 5º when it is extracted.
Opponents of oil from tar-sands contend that it has a much greater GHG burden than conventional oil because of the energy intensive extraction and refining process necessary to produce the final product. Of the total GHG burden of a fuel, 80% of emissions occur at the combustion point (a car engine for example). This emission volume is uniform across crudes. Differences in the remaining 20% of total emissions occur as a result of differences in extraction, refining, and transportation procedures between crudes. Crude oil that is more energy intensive to extract, needs to be heavily refined, and needs to be shipped great distances to its consumption point will have a necessarily higher lifecycle GHG burden compared to other crudes that do not.
Canada worries that passage of the FQD would result in almost all of its current oil production being labeled unfit for consumption in the EU due to its higher GHG burden.
Currently Canada does not export any oil to European markets. Almost all of Canadian production is consumed domestically or exported to the US and, more recently, to China. As Canada seeks to diversify its export portfolio, passage of the FQD would put an effective block on the possibility of creating a European market for Canadian oil. As almost 98% of Canada’s huge reserves are in tar sands, Canada justifiably feels that the FQD unfairly targets Canadian production. As a result Canada has been lobbying European, especially UK and French governments, hard to vote against the FQD, threatening that passage of the FQD would put an end to CETA negotiations. Canadian lobbyists contend that oil from tar-sands is no more polluting than conventional oils and that new technologies are making extraction and refining of oil from oil sands more efficient.
On the other side, environmental activist groups in Europe have been aggressively protesting against what they view as a highly polluting and environmentally destructive fuel source that they do not want to reach their shores.
The methodologies for measuring life-cycle GHG emissions of a fuel are not perfect. A study conducted on behalf of the Canadian government by Jacobs Consultancy, an American engineering and consultancy firm, concluded that only 85% of GHG emissions were well understood in the life cycle of a fuel. Whether or not oil from tar-sands is truly more GHG intensive, therefore, remains unclear. As the EU has yet to release any results on how exactly it will be measuring the lifecycle GHG for different fuel sources it remains impossible to conclusively calculate values according to EU methodology; at the moment interested parties can only guess.
Additionally, the lifecycle GHG emissions for biofuels, which the EU is trying to promote, are even less understood than those of fossil fuels. Some studies have shown that biofuels can have a lifecycle GHG burden far greater than fossil fuels due to GHG emissions associated with land use. With so many uncertainties surrounding it, debate about the FQD remains confused and hotly contested. The outcome waits to be seen until 2013 when the next vote will occur.