The Terminator turns Agitator in Canada

New liberal leader takes lesson from Schwarzenegger’s get-tough approach to ‘dirty fuels,’ applies to oil sands

Gary Park

For Petroleum News

It’s just another of those troubling distant early warning calls that sends a nervous tremor through the oil sands, but it plays right into the hands of the man who could be Canada’s next prime minister.

It begins with California Gov. Arnold Schwarzenegger who has announced a new fuel standard he hopes to introduce in 2008 that will require a 10 percent reduction by 2020 in the carbon content of all fuel sold in the state.

That means California would count all greenhouse gas emissions during the life cycle of a fuel from production to consumption — bad news for the oil sands which currently consume large volumes of natural gas to extract and refine raw bitumen, making them a leading source of greenhouse gases.

Currently, very little oil sands production finds its way to California, but preliminary plans are taking shape for delivery connections from Alberta to California, including the possibility of 100,000 barrels per day or more being shipped by tanker from a northern British Columbia deepwater port.

“Let us blaze the way for the U.S., for China and for the rest of the world,” Schwarzenegger said in his State of the State address Jan. 11. “Our cars have been running on dirty fuel for too long.

“California has the muscle to bring about such a change. I say use it.”

And Schwarzenegger is not operating in a vacuum of his own making.

In the U.S. Northeast states such as New York, Connecticut, Massachusetts, New Jersey and Maryland are implementing greenhouse gas standards for electrical utilities, pointing to vehicle fuel standards as the next obvious move.

Traditionally, Oregon and Washington follow California’s lead, while 37 states belong to an ethanol coalition, which could draw momentum from the new California standards.

Liberal party’s Dion urging penalties

Entering the lion’s den of energy-producing Alberta on Jan. 11 and 12, he said Canada should impose penalties on energy companies that fail to reduce greenhouse gas emissions and water use, especially in the oil sands region.

“If you do the right thing, you pay less; if you don’t do it, you pay more,” was how Dion described his strategy.

Those who fail to act should be “penalized in the market where they need to be competitive,” he said.

Dion suggested that if the government sets a target of a 10 percent cut in emissions and companies achieve a 15 percent reduction they should be able to sell the surplus to gain credits.

Prime Minister Stephen Harper has consistently rejected the idea of trading carbon credits on the international market.

But Dion continued to bear down on oil sands producers, arguing they should lose generous royalty incentives if they fail to meet emissions standards and continue to be a drain on fresh water.

He brushed off any concerns that harsh regulations would kill oil sands investment, arguing it was time for Canada to follow the example of European countries and some U.S. states.

Dion said his proposed environmental tax reforms would make the Alberta oil sands more sustainable for many years to come.

If he becomes prime minister, he promised to be the “best partner” the oil sands ever had in the federal government.

Making the sector sustainable by curbing greenhouse gases would allow Canada to export “our new technologies, our know-how and we will make megatons of money with it,” he said.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, even welcomed Dion’s proposed new incentive mechanism to promote technologies that could address environmental issues.

But Dion turned thumbs down on the use of nuclear power in the oil sands.

He said it is not a viable option because of lingering concerns over the disposal of spent fuel, although he conceded the ultimate decision rests with the Alberta government.

The hard-line stance came amid word that Husky Energy is studying the nuclear option to provide power for its future oil sands developments, while privately held Energy Alberta Corp. said it expects to unveil a plan within 90 days to build a nuclear power plant.