The tar sands of Canada had been the “almost” story of the global oil industry for decades, but the economics and technical challenges of turning a semi solid bitumen into a petrol and diesel prevented – until the last decade – the rapid expansion of one the biggest fossil fuel reserves on the planet.
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UK position paper on EU fuel quality directive
But primary among the multiple drivers for that strategic decision has been the fact that international oil companies (IOCs) are facing pressure from investors and analysts to maintain a high reserves replacement ratio (RRR) which measures the amount of proven reserves during the year relative to the oil and gas extracted.
The IOCs are threatened by both the end of easily accessible oil from conventional sources, and the rise of resource sovereignty in the Middle East, Russia and Latin America, where governments are increasingly asserting control over the natural resources located in their territories.
This is driving the IOCs to ever more extreme forms of oil and gas extraction – such as the Canadian tar sands, the Arctic and the ultra-deep waters of the Brazilian pre-salt.
Unfortunately – for the oil industry – this has coincided with the growing awareness that the tar sands are the most polluting form of fossil fuel being extracted at a commercial scale, both in terms of local environmental impacts and at the global level of carbon emissions.
The expansion of the tar sands industry in Alberta has driven Canada’s failure to achieve its modest climate change targets within the Kyoto Protocol in the first years of the 21st century and the projected export of tar sands derived fuels to Europe would undermine the more ambitious European climate targets, so in 2009 a European regulation – the Fuel Quality Directive (FQD), originally intended to limit the environmental impacts of biofuels, was adapted to address the worst impacts of the import of high carbon fuels- such as those derived from tar sands - into the EU, and to reduce the carbon intensity of the European fuel supply chain by 6% by 2020.
This modest objective was to be met in part by assigning a higher “default value” to the petrol and diesel derived from high carbon “feedstocks” such as the tar sands derived crudes in comparison to those from conventional sources. The oil industry – and the Canadian Government - has waged a relentless campaign against this modest measure – because it would send a very strong signal to the market to avoid the tar sands derived products - and undermine the Canadian oil industry, which is at the heart of the power base of Canadian Prime Minister Stephen Harper.
The FQD has had a rocky road since 2009, but in 2011 the European commission proposed to member states a FQD that included a higher default value for tar sands derived products. In 2010, before the election of the coalition government, the UK supported the commission proposal. After the election the UK government and the Norman Baker, the transport minister began to waiver, but did not actively oppose the measures, nor actively support them and abstained on the last vote on the FQD in the Council of Ministers in 2012.
But under the on-going pressure of the oil industry and the Canadian Government, the UK and Transport Minister Norman Baker seems to be retreating even from this weak position. Maintaining a strong FQD is crucial to steady the wavering ambitions of the EU in addressing climate change.
