LOBBYING:

Gulf disaster sparks battle over Canadian oil sands

The massive BP PLC oil spill that prompted questions about drilling in U.S. waters now is fueling arguments about petroleum production in Canada.

Oil industry lobbyists say the turmoil over offshore drilling underscores the importance of having a diversified energy supply, one that includes crude from Canada. Environmental groups contend the Gulf of Mexico catastrophe proves fossil fuel developments need more regulatory oversight. Canadian oil sands projects, they say, present particularly pressing concerns.

Influence efforts on Canadian oil sands come as the State Department evaluates whether to allow expansion of pipelines that carry the fuel into the United States. And Congress could soon find itself revisiting the oil sands issue.

Arguments from both sides likely will resonate politically in the post-BP oil spill period, said Ken Green, resident scholar at the American Enterprise Institute think tank.

"This spill was so large that it will be used as a filter to talk about virtually everything involving energy, where you get it, how much of it you use, how you use it, how you transport it," Green said. "This is an iconic event, and people are going to try to tap into the interest to try to push their particular view."

The issue generates heavy lobbying. The Center for North American Energy Security, a group created to push industry's position on oil sands, is funded by ConocoPhillips, Exxon Mobil Corp. and Royal Dutch Shell PLC, all of which have operations in Canada. Exxon has a majority investment in one of Canada's largest oil companies, Imperial Oil Ltd., which has stakes in three major oil sands projects. Oil and natural gas trade group American Petroleum Institute and the National Association of Manufacturers also are members of the Center for North American Energy Security.

ConocoPhillips, Chevron Corp. and Shell also separately paid lobbyists this year to advance their oil sands positions. TransCanada Corp., which has a new pipeline pending, funds persuasion efforts as well. League of Conservation Voters lobbies against expansion of oil sands petroleum use in the United States.

Canada is the largest foreign supplier of crude used in the United States. This country consumes about 900,000 barrels of Canadian oil sands fuel per day, an amount developers hope to triple in the coming years. (The United States uses about 19.5 million barrels of oil every day.) A report from IHS Cambridge Energy Research Associates in May projected that Canadian oil sands will become the top source of U.S. imported oil in 2010.

"Our companies see that as a safe, reliable source from our friendly neighbor to the north," said Matt Koch, API's director of federal relations and a registered lobbyist. "Our companies have been making changes to their refineries and looking more regularly to the north as a way of making sure we have that supply."

But the country's use of fuel from Canadian oil sands is controversial. Oil in the Alberta province, a heavy crude called bitumen, exists as a tar-like coating on the sand. Several companies with investments from large international oil interests extract after cutting down forest to get to the ground underneath. They erect large, open-pit mines and inject natural gas-powered steam to heat the bitumen and force it to pool near the surface. Removed earth then is dropped into "tailings lakes" 50 square miles wide.

Environmentalists, who call the fuel "tar sands" say that practice destroys swaths of land, requires large amounts of water and produces high levels of greenhouse gas emissions. Tar sands projects in Alberta dump 3 million gallons of "toxic sludge" every day into the tailings lakes, which are leaking into the ground, said Kate Colarulli, director of Sierra Club's "dirty fuels" campaign.

"It's environmental Armageddon," Colarulli said, adding "it's an oil spill on land."

Extraction of crude from oil sands in Canada emits more carbon dioxide than conventional oil production. Environmentalists say that level is three times as much, although Green said technological advances have reduced that to about 1.4 times the amount of other crude development.

The oil industry insists that Canada's strict safety regulations limit environmental damage and that technology has improved to make extraction less destructive and less energy intensive.

"The process is no longer what it was 25-30 years ago," said Tom Corcoran, managing director for Center for North American Energy Security.

The State Department will soon decide whether to allow expansion of imports into the United States by granting a permit for a new pipeline that would carry fuel 2,000 miles from Canada to Gulf Coast states. The line would cross Montana, South Dakota, Kansas, Nebraska, Oklahoma and Texas and deliver up to 900,000 barrels of oil per day. Those for and against TransCanada's proposed Keystone XL pipeline spoke Tuesday at a State Department public hearing. Comments on the proposal are due tomorrow.

Fifty House members last week wrote a letter to Secretary of State Hillary Rodham Clinton, urging the department to scrutinize the greenhouse gas emissions associated with fuel from the oil sands, which those in the letter called "tar sands."

"Building this pipeline has the potential to undermine America's clean energy future and international leadership on climate change," said the letter from members that included Reps. Barney Frank (D-Mass.), chairman of the Financial Services Committee; Zoe Lofgren (D-Calif.), chairwoman of the Standards of Official Conduct Committee; and Carolyn Maloney, (D-N.Y.) chairwoman of the Joint Economic Committee.

API and others in the oil industry at the same time are lobbying lawmakers on reasons new pipelines are needed, including enhanced energy security and job creation in the United States as refineries expand, Koch said.

"They understand it's an important resource," Koch said. "There's a bit of support there for continuing use."

Supporters of Canadian oil sands projects are in some ways helped by the BP spill and moratorium on offshore drilling, said Green with AEI. The country's oil use means it must be obtained, he said.

"You have a choice where you get your oil, but you don't have a choice using it," Green said.

As they talk to lawmakers, the Natural Resources Defense Council and other environmental groups argue that taking fuel from oil sands is not worth the environmental costs. In addition, the country needs to move away from fossil fuels to address climate change, said Susan Casey-Lefkowitz, NRDC's director of international programs.

"We're trying to raise awareness in the U.S. to the fact that tar sands oil is dirty, it's risky, and it should not be part of our energy future," Casey-Lefkowitz said.

Amendment targeted

As the pipeline issue advances, the Democratic leadership's push for an energy bill could simultaneously reignite congressional debate over Canadian oil sands.

The energy bill passed in 2007 contains a provision that has affected the fuel. That provision, in Section 526 of that law, bars federal purchases of alternative or synthetic energy sources that have higher greenhouse gas emissions than those of fuels developed conventionally. Authored by Rep. Henry Waxman (D-Calif.), Section 526 largely was aimed at Defense Department plans to buy coal-to-liquid fuels. But there have been questions about whether it applied to transportation fuels derived from Alberta's oil sands.

The Sierra Club earlier this month sued the Department of Defense, saying it was violating that law by purchasing fuel from Canadian oil sands.

"We believe that we have proof that the Department of Defense is knowingly violating that section and contracting to buy tar sands oil," said Colarulli with the Sierra Club. The intent of the law, she said, is that taxpayer dollars do not go toward fuels that produce high levels of greenhouse gas emissions, especially given the Obama administration's commitment to cleaner energy.

The Center for North American Energy Security now is lobbying lawmakers to repeal that 2007 provision. If an energy bill goes to the floor, it is one potential place language on the provision could be included.

"Tar sands is big oil. It's all the same big companies," Colarulli said. "It's a very powerful lobby, and they've been working very hard over the last couple of years to repeal this law."

Corcoran with the oil industry group said he is working to tell lawmakers about the Sierra Club suit and how important it is that the law be changed.

"It's a critical part of the agenda for the environmentalists and they will do everything they can, I believe, to keep [the provision] in its present form," Corcoran said. "They have strong allies in Congress and the administration. It will be real challenge but it's something that must be faced."

A modification of Section 526 already is in the bill passed out of the Senate Energy and Natural Resources Committee last year. Sen. Jeff Bingaman (D-N.M.), the committee chairman, authored an amendment that would rewrite that provision on nonconventional fuels.

Bingaman's amendment stipulated that the 2007 provision does not bar federal contracts from buying "generally available" fuels produced entirely or in part from nonconventional petroleum sources. Contacts, however, would be prohibited from offering any incentive for refinery upgrades or expansions that would increase use of nonconventional sources.

Bingaman's bill is seen as one that could potentially go to the floor. Bill Wicker, the Senate Energy panel's spokesman, said the issue of the amendment has not come up in recent discussions about the legislation, but that if the bill went to the floor "seeing as it's his amendment and his clarification that the Senate Democrats worked to get in the legislation," Bingaman likely "would leave it as is."

The Center for North American Energy Security supports the Bingaman amendment, while NRDC and the League of Conservation Voters are among those lobbying to have it removed should the bill move to the floor.

Bingaman also is working on a new energy bill that could serve as an alternative to the one with the amendment that passed out of the committee last year.

Last month a House committee also moved to retool Section 526. An amendment to the House's 2011 Defense authorization bill would allow federal agencies to buy commercial fuel if less than half of it comes from alternative fuels whose lifecycle greenhouse gas emissions exceed those of conventional fuels(E&E Daily, May 28).

Carbon battle

The higher carbon emissions level of oil sands fuel has been the target of legislation, and lobbyists are tracking whether those efforts will restart.

An early version of the House climate bill from Waxman and Rep. Ed Markey (D-Mass.) contained a provision that would impose a national low-carbon transportation fuel mandate. It would have required refiners to ensure that the lifecycle greenhouse gas emissions of fuels sold in the United States between 2014 and 2022 would be no higher than a 2005 baseline level. Starting in 2023, the bill would have required increasingly lower emissions.

That language was pulled out as a move to corral votes before the Energy and Commerce Committee approved the bill and sent it to the House floor. The Center for North American Energy Security lobbied against that low-carbon fuel standard, which Corcoran with the industry group said would have treated fuel from oil sands differently than conventional fuels.

"We were instrumental in the ultimate result," of the language being removed, Corcoran said. "We contacted a number of members of the committee. We distributed briefing papers with the problems we saw with the low carbon fuel standard. As a result it was not included."

Casey-Lefkowitz with NRDC said environmentalists right now are focused on securing passage of a climate bill but that in the future they want to pursue a low-carbon fuel standard.

"It's something that we see as a next stage," Casey-Lefkowitz said.

Several states already are considering a low-carbon fuel standard, and California has one in place.

California's Air Resources Board (CARB) in 2009 enacted a low-carbon fuel standard that requires yearly cuts in the carbon intensity of gasoline and diesel over the next decade, with a drop of 10 percent by 2020. A U.S. District Court judge earlier this month, however, let stand a lawsuit challenging that rule.

The Center for North American Energy Security, industry group Consumer Energy Alliance, the National Petrochemical and Refiners Association and the American Trucking Association in February filed suit against CARB, saying that the rule violates the Commerce Clause because it regulates fuel going in and out of the state.

The judge's decision could increase the pressure from environmentalists and some lawmakers to impose a national low carbon fuel standard, Corcoran said.

"There's more of a likelihood that an effort will be made to give the U.S. Environmental Protection Agency the authority to develop a national low carbon fuel standard," Corcoran said. "That is something we need to monitor very closely.

Oregon and Washington are looking at standards that would reduce fuel carbon levels 10 percent in 10 years. Governors of 11 states in Maryland, Pennsylvania and New England in December 2009 established a framework to look at ways they might cut the carbon intensity of transportation fuels and heating oil by 10 percent in a decade. The standard would apply to lifecycle carbon emissions, measuring from extraction to combustion.

Alberta's Environment Minister Rob Renner earlier this month toured Northeastern states and warned that new carbon mandates would kill jobs and trigger spikes in gas and heating oil prices (ClimateWire, June 14).