Law Times

Law Times • November 23, 2009 FOCUS American carbon rules raise concerns New laws could curb Canadian energy exports BY DARYL-LYNN CARLSON For Law Times forts by the United States to reduce imports of carbon-emit- ting energy sources, lawyers who facilitate trade and compliance for producers based mostly in Western Canada's oilsands have significant concerns. California is spearheading W the carbon-reduction efforts as its Air Resources Board in- troduces the world's first low- carbon fuel standard that sets a maximum threshold for emis- sions in either the production or consumption of all fuels. While oilsands fuels aren't readily exported to California, more than a dozen other states are eyeing its carbon emission regulation as a model. The U.S. federal government has also signed into law a com- mitment to lower emissions generated by the army and the postal service, legislation that observers expect authorities will only broaden over time. David Young, in an ar- ticle entitled "Green Fuel — A Threat to the Oil Sands?" warned that if Canada's oil producers don't act, they could find themselves shut out of the U.S. market entirely. "For Canadian oil produc- ers with a view to the American market, the adoption of the En- ergy Independence and Security Act of 2007 and the introduc- tion of the American clean en- ergy and security act of 2009 are of particular concern," Young, a partner at Lang Michener LLP and a member of its environ- ment, energy, and emissions trading group, wrote. "Taken together, these laws will prohibit U.S. federal agen- cies from purchasing energy with life-cycle greenhouse gas emissions greater than those of conventional oil while setting demanding emission allow- ances for other U.S. importers and refineries." He pointed out, too, that the emissions intensity of crude bitumen derived from the Ca- nadian oilsands "can be up to a third higher than that of con- ventional oil," and so it may soon become "almost impos- sible for Canadian producers to access the U.S. market" due to duties and taxes imposed. In an interview with Law Times, Young acknowledges the United States is facing somewhat of a dilemma. "On the one hand, there are many initiatives to en- hance clean energy," he says. "But on the other hand, they see the oilsands as the most sig- nificant and secure energy sup- ply available to them." Regardless, he says lawyers representing Canadian energy producers will need to keep pace with developments to be able to assist clients with con- tinued market access. www.lawtimesnews.com hile environmental- ists are for the most part applauding ef- "We have a significant practice in this trade area and are seeing an increase in issues that are affecting our clients," he says. He notes that oil bound for the United States repre- sents about 30 per cent of Canada's total net exports, and while it's too early to calculate the full impact of the two U.S. laws, even a small decrease could have an impact on our trade. "My sense is the oil pro- ducers and [the government of] Alberta will have to adopt standards that respond to clean-energy standards to some degree," he says. "This will put pressure on costs of fuel and increase that whole process through technology to improve the efficiency and reduce the carbon intensity." The federal clean energy The U.S. legislation is also based largely on an emissions cap-and-trade program, which in Canada is just in its infancy. Some lawyers, however, say such restrictions would vio- late the North American Free Trade Agreement or rules set out under the World Trade Organization. NAFTA provides that companies and products from Canada, the United States, and Mexico are not discriminated against on the basis of nationality or origin in intercontinental trading. When California passed New U.S. environmental rules may make it 'almost impossible for Canadian producers to access the U.S. market,' says David Young. and security act, also known as the Waxman-Markey bill, aims to cut emissions to 20 per cent below 2005 levels by 2020, eventually reaching an 83-per- cent reduction by 2050. It narrowly passed the U.S. House of Representatives in September and was set to go before the Senate this fall. In the meantime, some senators, including California's Barbara Boxer, have called for drafting a new version that would be more equitable and therefore have a greater chance of passing. Get Our Environmental its carbon limits last spring, Simon Potter, a partner at McCarthy Tétrault LLP, told reporters the legislation vio- lated rules under both trade agreements. "This is California decid- ing they are going to treat oil differently depending on . . . where it comes from. It's an obvi- ous violation of the requirement for national treatment," he said. "To the extent that these measures make oil from one part of the world that they consider dirty more expensive Get Our Environmental w Specialistson Your Team! We help you help your clients. Call us. than identical oil from another part of the world they consider clean, they've got a discrimina- tory treatment issue." Young agrees there could be a NAFTA argument against the restrictions if, or when, U.S. states adopt them more widely. He says the key to alleging the legislation discriminates against Canadian oil producers would be to successfully argue that oilsands bitumen is indeed similar to conventional oil. But that might not be pos- sible, Young warns. The geological composition of bitumen produced by West- ern Canada's oilsands and the production process for refining it are different from conven- tional oil. As a result, opposing the laws may prove difficult. "The whole story hasn't played out because legislation hasn't yet come down so we don't know how it will have an impact," Young says. "But we may face a situation where the tarsands will be clearly in an inferior position" in terms of meeting the requirements to export to the United States in the future. LT PAGE 11 Law Specialists*on Your Team! Our team of environmental lawyers includes 5 Environmental Law Specialists* www.willmsshier.com * Certified by the Law Society of Upper Canada ENVIRONMENT, ENERGY & RESOURCES LAW Law Times #MS07-06B – 7-7/8" x 4-7/8" Juli Abouchar 416 862 4836 Doug Petrie 416 862 4835 John Willms 416 862 4821 Donna Shier 416 862 4822 Marc McAree 416 862 4820

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