Notably, the Buy America provision was born in Congress, the same body that’s been tasked by Obama to work out the exact details of the climate bill. So the President’s position on Canada may be less antagonism than a case of not-so-benign neglect. Either way it’s worrisome for a country that relies on the U.S. for 70 per cent of its exports. “The problem for foreign countries is they need the President to exercise leadership and restraint on the legislatures. He’s still got to be a check on sectional interests,” says Chris Sands, a specialist in Canada-U.S. relations at the Hudson Institute, a Washington think tank. “I think there was a mutual exchange of goodwill in February, which was encouraging, but goodwill alone is not enough if it doesn’t translate into actions. Friends don’t cut each other off at the knees.” He adds: “We are running out of the honeymoon period with Obama both in the U.S. and Canada where people are willing to cut him slack. And the frustrations are beginning to build.” Or perhaps Canadians are getting what they asked for: a centre-left politician who promised to do something about climate change and even mused about amending NAFTA. After all, it was his opponent, John McCain, who in the middle of a presidential campaign trekked to Canada to give a speech defending free trade.
On a trip to Niagara Falls on June 13, U.S. Secretary of State Hillary Rodham Clinton met with Foreign Affairs Minister Lawrence Cannon and defended the Buy American provisions, saying the bill is “not being enforced in any way that is inconsistent with our international trade obligations.” Technically, she is correct. NAFTA does not preclude measures like the Buy American provisions. (It was the Canadian provinces, in fact, that chose not to bring government procurement into the deal in 1993.)
Clinton, however, said the administration would “take a hard look as to what more we can do to ensure that the free flow of trade continues.” And earlier this month, Canadian diplomats from across the U.S. were rounded up and deployed to Capitol Hill for a series of close to 80 meetings with lawmakers and staff members, armed with maps of individual states and congressional districts that showed precise numbers of American jobs that depend on trade with Canada. But the battle is certain to be a long one. For its part, the U.S. Chamber of Commerce wrote a letter to Obama arguing that U.S. water and waste-water manufacturers alone stand to lose US$3 billion if the provisions are enforced, while hundreds of steelworkers in Pennsylvania could lose their jobs because their employer produces some of its steel abroad. Meanwhile, at least two other bills in Congress are copying the language and its supporters want the provisions to remain intact long after the recession ends. Stephen Harper has called the increase in protectionism “the biggest risk we have to global economic recovery.”
The fact that the Democrats control Congress, and that they’ve historically been more protectionist minded, is part of Canada’s problem. The other part is that Canada is trying to promote what many Democrats consider “dirty oil” at a time when Washington is finally ready to do something about climate change. Henry Waxman, co-author of the pending climate bill, is a hard-charging Democrat whose southern California district includes Hollywood. He’s long been sounding alarms about the oil sands. After the Democrats took over Congress in 2006, he interpreted a provision of a 2007 energy bill to ban the U.S. government—America’s single largest consumer of fuel—from buying from refineries that use fuels producing more emissions than conventional oil. Initially, the law was aimed at preventing the U.S. Air Force from contracting to buy liquid fuels made from coal. But Waxman declared it also banned the U.S. government from purchasing fuel extracted from oil sands. Despite aggressive lobbying by Canada and Alberta, the law remains in place—while efforts continue to modify it. “It was a sneak attack,” says Corcoran.
The first draft of the climate change bill was even tougher on the oil sands. Waxman wanted to create a new national version of the bold new “low carbon fuel standard” regime that had been adopted in his home state. California law limits the carbon content of gasoline sold in the state—and requires that the “carbon intensity” of fuels be reduced by 10 per cent by 2020 with greater cuts thereafter. The cuts are achieved by blending the fuel with more expensive biofuels, or by paying for offsets. The rub for Alberta was that in measuring the “carbon intensity” of a fuel, California looked not only at the tailpipe emissions—which is the same for oil sands and conventional fuel—but took a sweeping “cradle-to-grave” approach from production to combustion. Because the energy-intensive production process of the oil sands emits more greenhouse gases than drilling for conventional oil, their “carbon intensity” is higher. Canada advocated against the law and Ambassador Michael Wilson wrote to Gov. Arnold Schwarzenegger to argue it discriminated against oil sands. But environmentalists say that’s the point. “In order for the standard to be effective, it has to discriminate. Otherwise you are missing a huge part of the carbon intensity,” said Barratt-Brown.
The California standard itself was relatively harmless since Alberta ships very little oil to California. (Most U.S-bound oil sands production goes by pipeline to the Midwest or the Great Lakes regions.) But more than a dozen states have already said they will follow suit. An early supporter of the policy was Barack Obama, who in May 2007, while still a senator, introduced his own legislation calling for a low-carbon fuel standard (it did not pass), and now applauds California’s efforts. When Waxman included the same standard in Washington’s climate change bill, Canada and Alberta lobbied fiercely against it. But Obama brought in all the Democrats on the energy committee to a personal meeting at the White House and pressed them to pass the bill out of the committee by the end of May. This time Alberta got a reprieve. The bill passed out of committee by Obama’s deadline, but the fuel standard provision was dropped in order to secure enough votes.
Nonetheless, the idea of a national low-carbon fuel standard is not dead. “The expectation is the Democratic leadership in the House will attempt to put the low carbon proposal back in the bill,” says Corcoran, the lobbyist. Whether there is enough support to pass it is unclear. “The issue is not going to go away. [Oil sands] are viewed as big emitters and any big emitters are going to be on a list in the mind’s eye of a lot of people,” says Sheila Hollis, a Washington lawyer who specializes in energy and has advised several provincial governments.
The potential impact of the U.S. legislation poses another dilemma for Canada: should it wait to see what its biggest energy customer comes up with before setting in stone its own legislation—or should it forge ahead independently, and be a leader not a follower? For Obama, climate change legislation is one of the hallmarks of his ambitious agenda. He has said he wants a climate change bill on his desk to sign in time for the mid-December United Nations climate change conference in Copenhagen, both to show that the U.S. is making progress and to pressure countries such as China and India to do their share.
Between then and now, the bill has to go through eight other powerful House committees, and the Senate has to draft, debate and pass its own legislation that will have to be reconciled with the House version. There is still a lot of horse-trading to be done, in other words, and even once a final bill is passed and signed by Obama, many of its provisions will be open to interpretation by various executive agencies, including the Environmental Protection Agency.
Some in the oil patch argue Ottawa should wait to see what Washington comes up with. “There are so many uncertainties still lingering over this issue that to race into a final design without seeing the impact on trade, commerce, and energy transfers would be premature,” says Murray Smith, a former Alberta energy minister and former representative in Washington who now sits on the boards of several energy companies. Gary Mar, Alberta’s representative in Washington, says it is crucial that the Canadian system is deemed comparable to the American: “The concern is that if you don’t have a system that is recognized as comparable then you get into the possibility of the U.S. putting up all kinds of trade barriers—things like carbon duties as material enters the U.S.” But at the same time, Alberta’s environment minister, Rob Renner, warns that Canada should “not get so far ahead of the U.S. in implementation of a climate change initiative that we become uncompetitive and impose significant costs on our economy.”
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