When Barack Obama met with Stephen Harper in Ottawa on Feb. 19, his message on the oil sands sounded like it could have been written in Calgary. He talked about the need for government investment in new technologies to cut greenhouse gas emissions, and he wanted to work together to achieve it. “I love this country and think that we could not have a better friend and ally,” Obama said. “And so I’m going to do everything that I can to make sure that our relationship is strengthened.” He added: “We are very grateful for the relationship that we have with Canada, Canada being our largest energy supplier.” Tom Corcoran, a former Republican congressman from Illinois and head of a Washington lobbying outfit for the oil sands and other “unconventional” fuels, remembers the day: “It was encouraging and made us feel good.”
But it turns out that Obama has a knack for making people feel good when perhaps they ought to be watching their back. “Then the realities begin to take root when you look at what is taking place here in Washington,” says Corcoran. The reality is that Obama is leading an aggressive effort to remake American energy policy with potentially severe consequences for the oil sands, and by extension, the Canadian economy.
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The oil sands currently export about half of their production of 1.2 million barrels per day to the U.S. Over the next 25 years, according to the Canadian Energy Research Institute in Calgary, that production will more than double, to four million barrels per day, with most of that oil going to the U.S. For Canada, that will mean 380,000 new jobs—and an additional $1.4 trillion in GDP, which will kick off $252 billion in tax revenues, more than half of which would go to Ottawa.
So Canada has a lot at stake in the process that Barack Obama set in motion by calling on Congress to pass climate change legislation this year. In the House of Representatives, where the American clean energy and security bill has been drafted, Democratic leaders such as Speaker Nancy Pelosi and California’s Henry Waxman, the chairman of the energy and commerce committee, have Alberta’s oil patch squarely in their sights.
Oil sands production emits up to 15 per cent more greenhouse gases than the production of conventional oil, not to mention the toll it takes on the landscape. These concerns have caused American policy toward the oil sands to undergo a complete U-turn under Obama and congressional Democrats. The Bush administration saw the oil sands as a strategic continental resource. George W. Bush dispatched his energy secretary to Fort McMurray, Alta., to see the operations for himself, and the 2005 energy bill even included a section to partner with Alberta to share information on developing oil from U.S. tar sands and shale. But the 1,000-plus-page climate change bill now wending its way through Congress is full of potential uncertainty for Alberta and Canada.
The legislation, written by Waxman and Ed Markey, a Massachusetts Democrat, calls for reducing U.S. greenhouse gas emissions by a whopping 80 per cent by 2050. It also includes a cap and trade system, and a requirement that utilities get at least 15 per cent of their electricity from renewable fuels. “Alberta has an uphill battle,” says Liz Barratt-Brown, a senior attorney for the environmental group, National Resources Defense Council in Washington, who has been closely watching the oil sands issue. “These are large reductions. They change the way we use fuels. You can see the writing on the wall for tar sands.” Even more distressing for Canada, the bill includes provisions that would punish imports from countries whose carbon regulations are deemed by Washington to be less stringent than those of the U.S.—making it a potentially much more broadly protectionist act with implications for other sectors of the economy as well.
Those measures are meant to address the potential “competitive imbalance” created for some U.S. industries by the costs of compliance with the new cap and trade regime. In order to protect domestic industry and to mitigate so-called “carbon leakage”—factories moving to countries with less stringent rules—the legislation calls for a tariff to be imposed on imports of manufactured products from countries whose carbon reduction regulations are deemed not to be “at least as stringent” as those of America. Canada’s environment minister, Jim Prentice, has denounced the measure as “green protectionism.” He told Maclean’s that he is “confident that Canada at the end of the day will have environment legislation that is commensurate with that in U.S.” However, he warned, the legislation leaves open the possibility of abuse. “Once you have protectionist authorities in the legislation, there is always the possibility for mischief in the application in a way that is prejudicial to Canada.”
The provision would apply to goods, ranging from steel and pipes to pulp and paper, from a nation whose rules are not deemed “commensurate” with that of the United States. Obama may be a self-proclaimed multilateralist, but the provision holds the potential for a unilateral economic wallop—or at least allowing Washington a very heavy hand in the writing of climate rules of its trading partners. Worries Prentice, “Like beauty and fairness, the definition of ‘commensurate’ will apparently lie in the eye of the American beholder.”
For as much as Canadians love Obama, is it possible he doesn’t love us back? His climate change legislation comes at a time of severe protectionist sentiment in Congress and an erosion of trust in Canada in response to “Buy American” provisions in the US$787-billion stimulus bill. When he met with Harper, Obama vowed that his administration would adhere to commitments in international trade agreements. But American municipalities and states have demanded only American-made steel and manufactured goods in their procurement contracts. Canadian municipalities voted this month to retaliate by excluding U.S. suppliers from municipal contracts unless the Harper government can negotiate an amended trade agreement with Washington within four months.