EU Commission Revises Transport Fuel Proposal, Drops "Tar Sands" Distinction

9 October 2014

The European Commission released a new proposal this week for implementing the 28-nation bloc’s Fuel Quality Directive. Notably, this revised plan omits a requirement that oil extracted from tar sands be labelled as “highly polluting,” in a move that is expected to assuage past tensions with Canada on the subject while drawing the ire of environmental groups.

The EU’s Fuel Quality Directive (FQD) was amended in 2009, in the context of an agreement on a legislation package to govern the bloc’s climate and energy policies until 2020. Among the revised FQD’s aims is a requirement that suppliers slash the “life-cycle greenhouse gas intensity” of energy sources for road vehicles – including fuel – by 6 percent by 2020 from 2010 levels.

Among the specific changes in the new FQD was a stipulation that, from 2011, suppliers would need to report on the greenhouse gas intensity of the fuel stocks provided to relevant authorities in EU member states.

However, the legislation at the time did not include rules to account for greenhouse gas (GHG) emissions from various crude oil sources, instead requiring the EU executive to propose relevant implementing legislation.

The European Commission proposal announced on Tuesday would no longer require that oil derived from tar sands be classified separately from other types of oil, contrary to a previous iteration of the proposals made nearly three years ago.

Instead, it will establish a methodology for calculating the carbon intensity for four broad fuel types, namely, petrol, diesel, Liquefied Petroleum Gas (LPG) and Compressed Natural Gas (CNG). These figures will then be used by suppliers for the required exercise of the overall fuel feedstock. The new proposal also obligates suppliers to inform the Commission as to the origin of their feedstock.

Some environmental groups have historically argued that tar sands oil should be assigned a separate carbon intensity value. Extracting oil from clay-like sands requires large volumes of water and energy and the derived oil is known to emit more carbon over its life-cycle. Green campaigners have also warned that the process can destroy fragile ecosystems and leave lasting scars on the natural landscape.

While Canada has only recently begun shipping tar sands crude to Europe, the government had hoped to be able to expand energy exports across the Atlantic, especially at a time when the 28-nation bloc is looking to diversify away from dependence on Russian oil.

Officials in Ottawa have in the past said that a de facto “dirty oil” label could also potentially damage other energy trade prospects. A proposed plan to run a pipeline from the Canadian Albertan oil sands down to refineries on the US Gulf Coast has also been met with resistance from various stakeholders in both countries. The Keystone XL pipeline, as the project is formally known, has faced a myriad of delays and has become a lightning rod for controversy over the last six years. 

The change in the Commission’s proposal comes hot on heels of the successful signing of a bilateral free trade pact between the EU and Canada. The Comprehensive Economic and Trade Agreement (CETA), was inked last month, nearly a year after officials reached agreement in principle of the subject.

The bilateral deal slashes almost all customs tariffs on both sides barring a few exceptions. Provisions are made for scaling up mutual access to various energy utilities and services markets, although the pact does not include a separate energy trade chapter.

However, the agreed-upon bilateral deal will, require ratification by the legislatures of both parties, a step that could prove a possible stumbling block given negative reactions by certain EU member states since the signing. (See Bridges Weekly, 2 October 2014)

The revised FQD proposal may also have implications for a separate bilateral Atlantic trade pact the EU is in process of negotiating with the US. The Transatlantic Trade and Investment Partnership (TTIP) could have an energy and raw materials chapter, although the US currently has a long-standing restriction on crude oil and gas exports in place.

Push-and-pull

The prospect that tar sands could be singled out as particularly polluting  had been a sore point between the EU and Canada, given that the Canadian province of Alberta has one of the world’s largest oil reserves, surpassed only by Saudi Arabia and Venezuela. The energy sector as a whole accounts for 6.5 percent of Canada’s GDP and the country has weighed in among the top ten energy producers in the world in recent years.

In February 2012, a vote to pass a different version of the proposal – one that would have revised the bloc’s Fuel Quality Directive by adding a new rank of “tar sands” – ended in deadlock, with an EU committee unable to reach the “qualified majority” needed to either pass it or defeat it. (See Bridges Weekly, 29 February 2012)

While environment ministers had been set to vote on the subject in June of that year, that plan was also put on ice in order for the Commission to have time to conduct an impact study of the measure, specifically on how it would affect markets and businesses.

Reports in 2011 had suggested that the issue could have soured the then-ongoing CETA negotiations. A week ahead of the February 2012 committee vote, Ottawa was rumoured to be considering the possibility of filing a WTO case against the planned move, had the original Commission proposal advanced. (See Bridges Weekly, 2 March 2011 and 22 February 2012, respectively)

“It is no secret that our initial proposal could not go through due to resistance faced in some member states,” said outgoing EU Climate Action Commissioner Connie Hedegaard in a statement on Tuesday. “However, the Commission is today giving this another push, to try and ensure that in the future, there will be a methodology and thus an incentive to choose less polluting fuels over more polluting ones, like for example oil sands.”

The new proposal must now go to the European Council for approval within the next two months. The proposal will then be submitted to EU parliamentarians for review.

The announcement also comes just weeks ahead of a leaders’ meeting to review the Commission’s proposed 2030 climate and energy framework. Among the new mitigation targets on the table for consideration is a 40 percent cut to greenhouse gas emissions from 1990 levels. (See BioRes, 23 January 2014)

Fuel used in various forms of transport currently accounts for around 31 percent of the EU’s total carbon emissions, making it one of the bloc’s most polluting sectors.

Environmental groups react

The new proposal has drawn sharp criticism from some environmental groups, with Greenpeace EU energy and transport policy director Franziska Achterberg warning that the measure “will do nothing to stop climate-wrecking fuels like tar sands from entering the EU market.”

“This should be a lesson to [incoming Commission President] Juncker and his team. Public opposition will only intensify if he allows trade deals to be used to undermine the EU’s environmental legislation,” Achterberg added.

Transport & Environment (T&E), a group that is said to represent over 50 organisations across the bloc that focus on sustainable transport policies, similarly slammed the move.

“[The proposal] is not just a tragedy for the climate; excusing the oil industry from carbon reduction efforts is unfair, inefficient, and costly as well,” said Nusa Urbancic, who runs the fuels team at T&E.

Meanwhile, industry groups welcomed the new FQD proposal, saying it outlined an effective methodology. FuelsEurope, an association for Europe’s refiners, said the reporting rules approach would “limit the impacts on the competitiveness of the European refining industry.”

ICTSD reporting; “UPDATE 2-EU vote on tar sands oil delayed until 2013,” REUTERS, 20 April 2012; “Canada Gets EU Oil Sands Reprieve,” WALL STREET JOURNAL, 7 October 2014; “European Union drops plan to label oilsands crude ‘dirty’,” REUTERS, 7 October 2014.

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