The European Commission has proposed a methodology for calculating greenhouse gas (GHG) emissions pursuant to the EU Fuel Quality Directive that would assign a GHG emissions value to oil derived from tar sands that is significantly higher than that assigned to conventional crude.

Analysts claim that the proposal, if approved, would all but ban tar sands oil from the EU and comes despite intensive lobbying by industry and the Canadian government which has described the proposal as discriminatory and has threatened legal action. The proposal also cast questions over the future EU approach to other unconventional sources, particularly shale gas.

EU Fuel Quality Directive

The Fuel Quality Directive (FQD) sets out the specifications of petrol, diesel and gas-oil and introduces a mechanism to monitor and reduce GHG emissions by setting objectives for the reduction of the GHG intensity of energy supplied for use in road vehicles and mobile machinery.

Article 7 of the FQD requires transport fuel suppliers to reduce the GHG emissions of their fuel products by 6% by 2020 compared to 2010 levels. Article 7 also requires the Commission to establish a methodology for calculating the GHG intensity of fuels on a life cycle basis from extraction as a natural resource through to combustion. Using the Commission's proposed methodology, oil derived from tar sands would be assigned one of the highest GHG emission values of all fuels at 107 grams of carbon dioxide per megajoule of energy (gCO2/MJ) compared to 87.5 gCO2/MJ for crude oil.

Tar sands

The extraction of heavy oils from bituminous sands (commonly referred to as oil or tar sands) is controversial as it requires techniques more akin to mining than drilling. It is generally considered to consume more energy and water than conventional production and therefore generate more GHG emissions, but the precise effects and comparisons with conventional oil are disputed. Environmental campaign groups also claim that production leads to destruction of large areas of forest and increased water and air pollution.

Canadian government and industry response

The proposals face strong opposition from Canada, the world's leading producer of oil derived from tar sands, with Alberta containing an estimated 85% of the global resources. Canada's exports of the oil to the EU are very small, but it is concerned that EU measures could set a precedent in other jurisdictions and particularly the United States where most oil derived from tar sands is currently exported.

Canada's natural resources minister, Joe Oliver, said that the Canadian government would take steps to defend its energy interests, which may include a complaint to the World Trade Organization. Mr Oliver described the proposals as discriminatory on the basis that the EU imports crude oil from Nigeria and Russia, which Canada claims has GHG emissions at least equal to that of the crude bitumen found in Alberta's tar sands.

A number of industry commentators and lobbyists also claim that Canada offers an ethical alternative to the conventionally produced oil from the Middle East. On-going negotiations between Canada and the EU to conclude a free-trade agreement may also be jeopardised.

Other unconventional sources

Other unconventional sources are affected by the Commission's proposals with oil shale assigned a GHG emissions value of 131.3 gCO2/MJ, coal-to-liquid 172 gCO2/MJ and gas-to-liquid 97 gCO2/MJ. Shale gas is not covered by the proposals given the focus of the FQD on transport fuels, but the Commission's proposals have increased industry concerns that shale gas may be targeted by future EU measures.

Next steps

The final workings of the proposed methodology will be adopted through the comitology procedure in the Council of Ministers' regulatory committee. It was due to be adopted this autumn but a vote is now not expected until December 2011 or January 2012, with reports that some Member States including the UK are calling for further research and consultation.