Canada's oil sands could be subject to these so-called border adjustment programs, says Dennis Mahony in Point Carbon.

Canada's Tar Sands Face Potential Threat from the United States

April 02, 2009

The U.S. House’s energy and commerce committee leaders introduced a cap-and-trade bill this week to cut emissions 20% below 2005 levels by 2020 and 83% below 2005 levels by 2050.

Environment Canada has confirmed that it will create a carbon regime that will be compatible with—but not mirror—these U.S. plans.

The U.S. bill seeks to protect U.S. industries that could be financially hit by the costs of complying with carbon caps by providing rebates to these sectors. If the rebates are deemed inadequate to compensate industrial emitters for the costs of compliance, the bill would require importers of foreign goods in those sectors to buy special allowances—a kind of tariff—to account for the carbon content of their imports.

Dennis Mahony says Canada's oil sands could be subject to these so-called border adjustment programs. Canadians have been closely examining climate bills introduced in the U.S. Congress because they are likely to have a big influence on Canada's own carbon regulations, he says.

The United States is the largest importer of Alberta tar sand oil. Oil extraction from the tar sands is the fastest growing source of Canada's greenhouse gas emissions.

Canadian oil companies may be disheartened by the border adjustment program provisions in the bill, but they could also benefit from the idea of rebates for industries hit financially by compliance costs. Says Dennis: "If Canada were to implement a regime like in the U.S., the oil sands would be a candidate for the subsidies."

Although Canada's federal government is clear it wants to create a joint North American emissions trading scheme, the U.S. House bill is equally clear that it would only accept allowances from emissions trading schemes in countries that have set absolute emissions caps on emitters.

Canada is one of the world's few western countries that has proposed emission-reduction targets relative to productivity or economic output. Under the Canadian federal government's proposals to cut carbon emissions, large emitters would be required to reduce their emissions intensity by 18% below 2006 levels by 2010 and by 2% annually thereafter.

Hard caps
Alberta's provincial government may, however, find the absolute target requirements in the U.S. House bill hard to swallow, given the province's commitment to intensity-based targets. Alberta requires industrial emitters to reduce the carbon intensity of their emissions by 12% below a 2005 baseline. "Albertans will be concerned the idea of intensity targets is not sticking," says Dennis.

One aspect of the U.S. House bill that resonates with Canadian and Albertan climate policy is its promotion of carbon capture and sequestration technology (CCS). Both Canada and Alberta are investing heavily in CCS technology to reduce emissions. Alberta is spending C$2 billion to develop the technology.

The U.S. House draft provides for the development of CCS pilot projects, incentives for broad commercial deployment of the technology, and performance standards for new coal-fired power plants.


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