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September 23, 2013

Discouraging Use of Tar Sands or Expanding Trade: Which Do You Think is More Important?

Tar sands—the world’s dirtiest oil—are one of the most climate-disrupting fuels that exist and have extreme consequences for water sources, animals, and human health. Recognizing the threat that tar sands pose to communities and the environment, the European Union (EU) is currently negotiating a new policy that would discourage use of the dirty fuel. The policy however, has come under attack by Big Oil and the Canadian and U.S. governments, which claim that the policy amounts to an "unfair trade barrier" that discriminates against those looking to export tar sands or diesel that contain fuel from tar sands.

The policy at hand—the European Union Fuel Quality Directive (FQD) —requires countries in the EU to reduce the greenhouse gas intensity of transportation fuels by 6 percent by 2020. Fuel companies are expected to meet their pollution-reduction target by shifting toward low-carbon fuels. In order to measure progress toward the target, the European Commission (EC) has drafted a detailed set of rules that assigns a set of greenhouse gas “default values,” or estimates of the amounts of greenhouse gas emissions released during the life cycle (extraction, refinement, transportation, combustion) of different fuels. Based on the default values, suppliers looking to cut emissions in order to meet the target are encouraged to move away from fuel types with high greenhouse gas values.

Naturally, there are “winners” and “losers” in the EU’s greenhouse gas ranking system. Estimates show that the production of tar sands oil and its byproducts produces 22 percent more carbon emissions than average crude oils used in the U.S, making oil derived from tar sands one of the dirtiest fuel sources on the FQD list.

The FQD’s requirement to reduce greenhouse gas intensity of transport fuels combined with its classification of dirty fuels—including tar sands—is exactly the type of policy needed to discourage use of climate-disrupting fuels.  However, instead of recognizing the climate imperative of moving away from dirty fuels, U.S. industry and the office of the U.S. Trade Representative (USTR) are beginning to fight back.

The American Fuel and Petrochemical Manufacturers (AFPM), American Petroleum Institute (API), National Association of Manufacturers (NAM), and the U.S. Chamber of Commerce’s 21st Century Energy Institute (EI) are among the groups expressing strong opposition to the FQD on the basis that it would “discriminate against crudes and fuels derived from oil sands and oil shale.” In a joint statement, the companies stated that should this proposal be adopted in its current form, they “will give serious thought to requesting that the U.S. Government seek redress at the WTO.”  

Moreover, in July 2013, during the first round of negotiations for the recently launched US-EU free trade agreement, the AFPM requested that the USTR include the fuel quality directive as a topic to be addressed in the negotiations.

The Office of the USTR seems to be listening to industry’s concerns.  Last week, Inside US Trade reported that USTR Ambassador Michael Froman, addressing concerns of Members of Congress, stated that he shares the objections on the proposed amendments to the FQD and has raised them “repeatedly” with European Commissions officials, including in the context of the U.S.-EU free trade agreement negotiations.

Importantly, U.S. industry and the USTR aren’t the only ones displeased with the EU Directive. The government of Canada – one of the largest producers of oil-sands crude – has reacted strongly to the EU’s classification of oil-sands crude as a high polluter, and it has also hinted at the possibility of bringing a WTO lawsuit against the FQD. Canada is concerned that labeling tar sands as a high-polluting fuel will harm its exports of the dirty fuel.

While the future of the FQD and tar sands may be up in the air, one thing is clear. Our current model of free trade is once again interfering with sound climate policy. The Fuel Quality Directive is an important policy that could play a role in limiting use of tar sands in the EU and more broadly. The concerns of Canada, which produces tar sands; U.S. businesses, which refine tar sands; and the U.S. Trade Representative, whose mandate is to expand free trade, must not threaten this important policy. The expansion of trade must take a back seat to the need to address climate chaos, and governments must not be stripped of their ability to protect us and our planet.  

-Ilana Solomon, Director, Sierra Club Responsible Trade Program. Research by Quentin Karpilow

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