Preventing Canadian Oil Sands from Damaging Europe’s Renewable Machinery?

By Lisa Brandt (former Trade Analyst at ECIPE)

The European Commission is not burying its head in the sand when it comes to promoting sustainable energy. Not even accusations of ‘unfairly’ discriminating against Canadian oil sands ‘without scientific justification’ appear to shake the Commission’s rock-steady commitment to renewable energy. But is it really genuine? And is this an efficient way to fight climate change?

The backdrop of this issue is the Fuel Quality Directive from 2009, with the objective to reduce the carbon intensity of transport fuel by 6% by 2020. In order to facilitate the implementation, the Commission has proposed default CO2 emission values for different sources of energy. Unconventional oil sands, also called tar sands, is attributed an emission value of 107g CO2 equivalent/Mega joule, due to the energy intensive production process, while average conventional crude oil for instance gets a value of 87.5g CO2eq/MJ.

Fair enough. However, the holder of the world’s biggest proven reserves of oil sands is not too happy about this. As a result of the oil sand findings, Canada ranks number two in the world in terms of oil reserves (second only to Saudi-Arabia), with 174 billion barrels of oil in an area of more than 140 000 square km in the province of Alberta. Oil sand is a mix of sand, clay and water, which contains thick bitumen that can be processed into synthetic crude oil. However, most of the deposits are not easily accessible through open mining. Instead, so called in situ extraction is required, which implies drilling deep down in the grounds. The viscous oil is separated from the sand through an energy intensive and costly process requiring great amounts of water and steam.

So what would be the implications of discouraging imports to Europe? Today, the EU does not import any large amounts of Canadian oil; it represents only 0.01% of the EU’s fuel consumption. Nevertheless, attributing a high CO2 default value to oil sands would have symbolic ramifications at a time when Canada is seeking to attract investors. Recently announcing its intention to leave the Kyoto Protocol, Canada has set the goal to double the production and notably to increase the export to the US, thereof the $7bn Keystone XL pipeline project.

But why tar and feather Canada in this way? With 59.3% of the total energy consumption being derived from imports in 2009, the EU is striving to diversify and secure its energy supply. Importing from a country like Canada, where the production is transparent and regulated, would seem an attractive alternative. It would also be more morally defendable than importing from non-democratic countries where human rights are being violated. Moreover, economic interests in the EU, in the form of oil companies like BP, Shell and Total, favour an expansion of the oil sand production. Not to mention the anxiety in Europe that the Fuel Quality Directive would disturb the CETA trade negotiations or that Canada would bring the issue to the WTO Dispute Settlement Body. As for Canada, the black gold is of course expected to generate economic growth and jobs.

However, all this does not appear to matter. The EU’s strong commitment to sustainable energy prevents it from succumbing to any pressure that might threaten its policy for a greener future. Or?

Well, even with the best of intentions, also the EU has feet of clay. It is of great importance to have a stringent policy to reduce CO2 emissions for a better future environment. One must however recognise that aspects of the Fuel Directive naturally favour economic interests in Europe. Shielding the European market from ‘dirtier’ foreign energy is a way of protecting investors in the EU from foreign competition. The production from renewable sources in the EU has increased by 53.4% in 2002-2009. Investment in renewable energy in Germany alone amounted to $41 bn in 2010, and $14 bn in Italy. The EIB lent 4.6bn euro to projects related to renewable energy in 2009. The sector is however struggling. For instance, the share of Biofuels in the transport sector was only 3.94% in 2009 (EU average), and the installed production capacity for Biofuels (24327 thousand tonnes/year) greatly exceeded the actual production in 2009 (14529 thousand tonnes).

Time for EU action, in other words. But what would be a realistic and efficient EU policy to promote sustainable energy and reduce energy dependency? In contrast to today, EU policies would benefit from a bottom-up approach focusing more on consumer and producer incentives, thereby fostering innovation. Making it cheaper, easier and more convenient for consumers to opt for renewable sources of energy is key. The market conditions must also be improved in order to encourage investment.

A genuine policy for renewable energy must build on solid pillars of efficient market conditions, not on pillars of sand.