Photo: Don Cochrane/flickr

Those who think Canada’s global influence has plummeted since the Conservatives took power are not paying attention to what is happening in Europe. This is not really a success story. More a shameful example of the heroic efforts the Harper government will make to protect Big Oil from even modest attempts to lower greenhouse gas emissions.

The European Fuel Quality Directive was a modest and obscure climate measure to reduce emissions from transport fuel by six per cent by 2020. Part of the plan was to assign specific carbon intensities to different types of oil, with tar sands and shale oil obviously having higher values.

The FQD would already be working if the Harper government and oil industry backers hadn’t escalated the situation to DEFCON 1. But for two years now the federal and Alberta governments have been sending “high-level” delegations to lobby European institutions and national governments against the policy.

The Canadian counter-narrative has two parts. The first involves spreading the same message the Europeans are hearing from big oil companies invested in the tar sands, which is that the directive creates an unfair burden for the (let’s be honest) highly subsidized, poorly regulated and highly profitable oil sector.

How much of a burden? A review of the various industry, academic and EU studies on the financial impact of differentiating between fuel types based on carbon intensity puts the cost at less than a Euro cent per litre. So not much of a burden at all. And in reality, very little tar sands oil currently goes to Europe.

The Harper government is more worried about other countries adopting similar measures with the capacity to close markets to tar sands products than it is about industry bottom lines. So Canadian officials, including Alberta’s energy and trade ministers who again toured Europe last week (on the public dime), needed a second part to their counter-narrative. It was to argue the fuel policy discriminates against Canadian oil in contravention of global trade rules.

Like the industry complaints about costs, this argument should also melt into nothingness on closer inspection. The problem is that it isn’t.

The Harper government has threatened to challenge the Fuel Quality Directive at the World Trade Organization if it includes a distinct carbon content for tar sands products. Two weeks ago, United States Trade Representative Michael Froman doubled down on this message, concerned that the directive would close the door to Gulf Coast oil that originated in the tar sands. Froman wants to use a new EU-U.S. free trade negotiation to make sure policies like the Fuel Quality Directive never get off the ground.

The Canadian government has also used bilateral trade and investment negotiations with the EU as a pressure point, apparently with some success. There are rumours that the Commission doesn’t want to announce or vote on its Fuel Quality Directive until the Canada-EU Comprehensive Economic and Trade Agreement (CETA) negotiations have concluded, which could be any day now.

This is extremely unfortunate. Perhaps more than any amount of Canadian lobbying, the Canada-EU deal, and the start-up negotiations between the EU and United States, pose a significant threat to our ability to address climate change on both sides of the Atlantic.

The market rules

The CETA dimension of the European fuel debate has been overlooked. If the EU concludes a deal with Canada without properly excluding the Fuel Quality Directive and other current or future climate change measures from market access and investment rules in the deal, Canada and Big Oil will win additional tools to undermine effective regulation of the pace and character of tar sands development.

From 2012 drafts of the CETA text, we know there was a sharp difference between Canadian and EU proposals concerning market access for goods. The Council of Canadians, Indigenous Environmental Network and Friends of the Earth Europe commissioned a legal study of that text, which we shared with European and Canadian decision makers.

The study explained that Canada was, at least at the time, seeking to preserve the status quo on trade in goods across the Atlantic, which it argues prohibits measures that take into account the environmental impacts of extracting and processing bitumen from the oil sands. The EU, on the other hand, wanted to establish an exception for trade measures that are taken to meet EU obligations under multilateral environmental agreements, including the Kyoto Protocol.

Having repudiated the Kyoto Protocol, Canada pressed to limit or remove these exceptions from the deal and may have succeeded. Though the Commission refuses to say whether tar sands are one of the problem areas holding up the CETA negotiations, European parliamentarians close to the talks think it most certainly is. We won’t know for sure until we see another leak or the deal is made public.

The investor profits

Potentially even more dangerous for Canada, the EU and its member countries is a planned investment protection chapter and investor-to-state dispute settlement process in CETA.

Over the past five years, investor claims against Canada under an investor “rights” chapter in NAFTA have proliferated and increasingly target government measures related to the environment or resources. There are eight active NAFTA lawsuits targeting Canadian and provincial policies, not one of which can honestly be said to discriminate against the U.S. companies filing the claims.

The most recent example is a $250-million NAFTA claim from oil and gas firm Lone Pine Resources challenging a precautionary moratorium on shale gas exploration and extraction (fracking) in the province of Quebec. Company lawyers are arguing that Lone Pine is entitled to compensation from Canada for Quebec’s environmental protection measure, since the moratorium effectively reduces or eliminates the company’s ability to profit from its investments. The case will be decided by a three-person tribunal of paid arbitrators. Their decision will be final and binding on Canada, with no opportunity for an appeal.

It is mind-boggling to think that Canada may one day have to pay Lone Pine to not frack for gas under the St. Lawrence River. This perverse and increasingly criticized investor “rights” scheme could easily be used by tar sands companies to threaten or punish European governments for moving more quickly or with more urgency to reduce emissions than laggards like Canada.

In the U.K., for example, refiners such as Valero in Pembrokeshire, Wales are preparing to import tar sands crude. Planned eastern pipelines in Canada would facilitate more exports to Europe, which, as already mentioned, are not significant. A European policy like the Fuel Quality Directive, by making tar sands-derived fuel more expensive or even prohibited on the European market, could trigger an investor-state claim from a company like Valero, arguing the policy expropriates its investment and future profits. Successful corporate challenges to similar government decisions have resulted in multi-billion dollar fines.

A sustainability impact assessment of CETA for the European Commission recommended against including an investor-to-state dispute process. The European Parliament would rather CETA included only a state-to-state dispute process. Canada’s dreadful NAFTA experience with an investor “rights” chapter — we are the sixth most sued country in the world — justifies these warnings. Yet a June 2013 leak of CETA’s investment chapter, which includes investor-state arbitration, shows that neither Canada nor the European Commission has heeded them.

The story goes on…

Thankfully, this sad story isn’t over. There is enormous pressure on the Commission to pass the Fuel Quality Directive in its current form, with higher carbon values for tar sands, shale oil and other unconventional fuels. This week, 21 Nobel laureates wrote to Commission President Manuel Barroso with that message. The UK Tar Sands Network invited George Poitras, a former chief of Mikisew Cree First Nation, to speak to U.K. parliamentarians and government officials about the impact of runaway tar sands development on First Nations.

“The government of Alberta’s pro-tar sands tour of Europe is taking place at the same time that I am advocating for the EU to take action to stop tar sands imports,” says Poitras, who lives downstream from tar sands developments. “The Alberta government will try to emphasize their efforts on environmental monitoring, greenhouse gas reduction, and investment in alternative energy technologies. However, the truth is that tar sands are devastating First Nations communities and the environment, and having far reaching impacts on the global climate.”

This is all happening as the Intergovernmental Panel on Climate Change warns, yet again, that the window for protecting ourselves and future generations from the worst effects of climate change is closing very quickly. To quibble over a modest and at first obscure European fuel quality policy, as the Harper and Alberta governments continue to do, is lunacy. To prioritize expanding trade in dirty energy at the expense of effective environmental regulation and climate change action is just as foolish.

There is still time for the European Commission to make the right choice on the Fuel Quality Directive. But even then it will be our challenge to make sure that it and similar policies are safe from trade or investment challenges in CETA and other deals that unreasonably restrict our public policy options in the interests of profit.

Photo: Don Cochrane/flickr