New EU Proposal Would Find Oil from Tar Sands Last Among Equals

A chart showing just how much oil sands (tar sands) have contributed to Canada's total oil reserves estimates (Source: BP Statistical Review of World Energy 2007).

All oil is not created equal – or, at least, all oil is not produced with equal environmental impacts, according to estimates proposed last week by the European Commission. The proposal, now under consultation amongst European Union (EU) member states, would add new definitions of the greenhouse gas (GHG) footprints for oil from tar sands and shale oil to the EU’s 2009 Fuel Quality Directive (2009/30/EC) and would present a tough barrier to the import of tar sands oil into European markets on the basis of its high life-cycle GHG emissions. The Fuel Quality Directive (FQD) mandates a 6 percent reduction in the average carbon intensity of fuels supplied to the EU (to about 79 grams carbon dioxide-equivalent per megajoule, or g CO2e/MJ) by 2020. It also establishes a mechanism in Article 8 requiring fuel suppliers to report the life-cycle GHG emissions of the fuels they supply and reduce them from 2011 onwards. With its recently proposed value of 107 g CO2e/MJ, oil from tar sands would be high above the target recommended under the FQD.

Tar sands, the colloquial name for highly viscous deposits of oil and bitumen, are expected to become a major source of global oil supplies over the next few decades. The largest known deposits in the world, thought to hold 170 billion barrels of oil reserves and as much as 2 trillion barrels of oil in place, are concentrated in and around the Canadian province of Alberta. Compared to conventional oil deposits, tar sands require production techniques that are more expensive and are associated with greater environmental impacts, particularly in terms of GHG emissions. Shallow deposits are typically accessed using strip-mining techniques, while deeper deposits are generally accessed using in situ techniques whereby steam is injected into the reservoir to heat the bitumen until its viscosity decreases sufficiently to allow it to flow out of the reservoir.

On a well-to-wheels basis, the International Energy Agency (IEA) estimates that life-cycle CO2 emissions from Canadian tar sands are between 5 and 15 percent higher than from most conventional oil. Heating water to produce the steam used for in situ techniques and bitumen-sand separation uses large amounts of energy, typically natural gas, and produces correspondingly large amounts of emissions. In addition, bitumen produced from tar sands must go through more extensive refining than conventional oil, producing additional emissions.

The prospect of importing substantial amounts of oil from tar sands has provoked intense controversy in the United States, where the proposed Keystone XL pipeline, which would bring oil from Alberta to the Gulf of Mexico, has met with stiff opposition from environmental and conservation groups. With its recent proposal, the European Commission has put a figure to the environmental disadvantage of oil from tar sands over conventional sources.

Although the EU is not expected to be a substantial potential market for oil produced from Canadian tar sands, the Canadian government has nonetheless protested that the inclusion of the proposed values in the FQD would set a precedent they do not wish to see replicated elsewhere. By specifically targeting oil produced from tar sands, Canadian representatives have argued, the EU would be setting up a non-tariff barrier to trade, disadvantaging oil produced in Canada over oil produced in other nations – a violation of the World Trade Organization’s non discrimination principle. European officials point to the inclusion of values for shale oil (131.3 g CO2e/MJ) as evidence that this role does not single out Canadian imports.

EU members Poland and the United Kingdom have also indicated their opposition to the proposal. Both countries have substantial deposits of natural gas in shale formations, and with recent research suggesting that natural gas produced from shale has higher life-cycle GHG emissions than gas produced from conventional formations, shale gas could receive similar treatment to oil sands in future amendments to the FQD.

While life-cycle emissions are important to consider when developing energy and climate policy, it is notoriously difficult to assign accurate, representative life-cycle emissions values to particular fuels. The original purpose of the EU’s FQD was to promote the substitution of renewable biofuels for fossil fuels. But although biofuels emit less GHGs than their fossil fuel counterparts at the point of combustion, many protest that on a life-cycle basis, when all of the emissions associated with producing the crops that serve as biofuel feedstocks are considered, biofuels could have an even worse GHG footprint than oil. More recently, a range of life-cycle studies have come to differing conclusions on the true life-cycle GHG emissions associated with natural gas produced from shale versus conventional sources.

In fact, life-cycle emissions are heavily affected by the production techniques employed, which may vary significantly from well to well or field to field and may evolve rapidly as technology improves. Consequently, policies linked to particular fuels on the basis of GHG emissions values defined in legislation run the risk of promoting particular fuels without necessarily optimizing for the lowest-carbon fuel mix. For example, according to the IEA’s life-cycle analysis, oil produced from conventional reservoirs in Nigeria has a life-cycle GHG footprint comparable to that of oil from Canadian tar sands extracted using in situ techniques due to the fact that Nigerian oil producers flare large quantities of associated natural gas because they currently lack markets for it. According to the IEA’s estimates, Californian heavy crude has even higher life-cycle emissions than oil form Canadian tar sands. The variation in the actual emissions associated with production in different regions poses a serious challenge to designing policy that can drive a shift to lower-carbon fuel sources.

Consultation with EU member states is taking place over the next weeks and aims at finding consensus around defining a methodology for calculating and reporting the GHG intensity of energies and fuels, other than biofuels (article 7a(5a)), to establish a baseline to determine the GHG intensity of fossil fuels supplied in 2010 (article 7a(5b)). The final methodologies and baseline will be adopted through the EU’s comitology procedure, by which committees composed of administrators from member states, and chaired by the Commission, assist the Commission with the decision. After the process of consultation, the updated Decision 2009/30/EC would provide the member countries guidance and a benchmark for their fossil fuels supply options.

The reality of the global oil market is that it is global.  Consumers may desire lower-carbon fuels but may have imperfect information on the life-cycle emissions associated with production from various regions. Individual governments can require operators within their borders to use certain technologies that can reduce their activities’ overall emissions, but they cannot mandate such actions in countries beyond their borders. For consumers such as the EU that wish to transition to lower-carbon fuels, the model of the FQD is a useful tool, but must be designed carefully. At a minimum, fuel quality standards should use values based on transparent and rigorous life-cycle analyses and include mechanisms by which these values can periodically be reviewed and updated.

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