Canada says it may take EU to WTO over oil sands dispute

By Robin Emmott

BRUSSELS (Reuters) - Canada threatened on Wednesday to take the European Union to the World Trade Organization over its plans to label Canadian oil sands as dirty, but promised not to delay a bilateral trade pact.

The issue has overshadowed relations as Canada and the EU try to deepen economic ties through a trade deal that could generate $28 billion a year in new business and commerce.

Canadian Natural Resources Minister Joe Oliver, on a week-long lobbying trip to Europe, accused the EU of breaking international trade rules and discriminating against Canadian exports.

"We are going to take whatever action we need to, and we may well go to the WTO," Oliver told a news conference. "We will defend our interests vigorously."

The WTO has the power to order the EU to change its rules if they are found to be unfair, but the process is lengthy.

Canada's oil sands are the world's third largest crude reserves, but most are in the form of tar sands. Extraction from the clay-like deposits takes more energy than pumping conventional oil and results in higher carbon emissions.

The European Commission has proposed labeling oil from tar sands as "highly polluting" to help implement an EU goal to cut the carbon intensity of its transport fuels by 6 percent by 2020.

The Commission denies that it is singling out Canadian oil as its proposal also defines other unconventional sources of oil as carbon-intensive.

Asked whether the trade deal could be signed even if the EU goes ahead with its fuel labeling, Oliver said: "Yes ... These issues are entirely separate."

He said Canada did not intend to use the issue as a bargaining chip.

Talks on a free trade deal began in 2009 and are in the last stage, diplomats say, but have stumbled over a series of issues.

Canada, which is anxious to find new markets for its oil and gas outside the United States, argues that Europe should embrace it as a stable, reliable energy producer.

Yet many in the environment lobby say long-term investment in new heavy crude infrastructure and development would badly undermine attempts to limit climate change.

Twelve climate scientists and energy experts said in a letter to Oliver this week that Canadian policy was delaying the transition to an economy that was less reliant on carbon.

"We are at a critical moment," the group, among them academics from Harvard in the United States, and from British Columbia and Queen's universities in Canada, wrote in the letter, seen by Reuters. "The responsibility for preventing dangerous climate change rests with today's policymakers."

A report on Wednesday indicated the European Commission's tar sands proposal would shift investment towards lower-carbon oil sources and could save up to 19 million metric tons of carbon dioxide per year - equivalent to removing 7 million cars from Europe's roads.

(Additional reporting by Barbara Lewis; Editing by Kevin Liffey)

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Canadian minister takes fight for oil sands crude to Europe

By David Ljunggren

OTTAWA (Reuters) - A European Union plan to label crude from the Alberta oil sands as dirty is unfair and could damage Canada's bid to find new export markets, the Canadian resources minister said at the start of a mission to lobby against the idea.

As part of a plan to cut greenhouse gases from transport fuel, the EU's executive commission has developed a Fuel Quality Directive that would single out oil from Alberta's tar sands as more polluting than conventional crude.

Canada, whose oil sands are the world's third-largest proven reserves of crude, strongly opposes the move.

Natural Resources Minister Joe Oliver, speaking at the start of a week-long trip to Paris, Brussels and London, said the directive should be changed to ensure it does not discriminate against crude from the oil sands.

"We think that's critical as an alternative to what we view as a flawed and ineffective approach that's proposed by the commission," he told Reuters in an interview from Paris.

Extracting crude from the clay-like Alberta oil sands requires more energy than conventional oil production. Environmentalists say that increases greenhouse gas emissions, making the oil sands a top target for the green movement.

Ottawa is unhappy the directive would not penalize Russia, which both burns and releases natural gas while extracting oil. Oliver said this means Russian crude extraction produces at least as many emissions as tar sands oil, if not more.

"If you're giving a free pass to a high emitter who happens to be one of the biggest exporters into the Union, then how are you achieving your objectives? This is all very logical, it's hard to argue against," he said.

Last year, amid heavy Canadian lobbying, the EU held an inconclusive vote on the directive and then decided to assess the full impact of the plan. That assessment is due in the next few months, paving the way for another vote.

Although Canada sends almost no crude to the EU now, that could change if proposals to create pipeline capacity from Alberta to Canada's East Coast are successful.

"We're not exporting to the EU at the moment but we don't want to see our crude oil stigmatized, which could possibly have implications elsewhere," said Oliver, adding that Canada did not oppose the goals of the fuel quality directive.

"What we want is a scientific fact-based approach that makes its judgment based on the scientific realities and not sort of a preconceived idea ... that our oil should be treated differently," he told Reuters.

Canada sends 99 percent of its oil exports to the United States. But a glut of supply and full pipelines are cutting prices, a problem that underlines the Canadian industry's need to find new markets.

The EU vote on the directive last year ended in stalemate amid misgivings from Britain and the Netherlands. Both nations have stakes in Royal Dutch Shell Plc, which operates in the oil sands, as does France's Total SA.

Oliver is meeting senior executives from both companies during his mission, as well as officials from the European Commission and industry groups. He declined to predict how successful his trip would be.

"I've got this great hand but the final results aren't yet in. We're arguing from logic and we're arguing from equity, in all fairness. You hope that prevails," he said.

(Reporting by David Ljunggren; Editing by Peter Galloway)

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Water escapes Suncor oil sands pond into Athabasca River

By Scott Haggett

CALGARY, Alberta (Reuters) - Contaminated water may have spilled into the Athabasca River from a broken pipe at Suncor Energy Inc's oil sands project in northern Alberta, sparking new fears about pollution of the river from the massive oil sands developments along its banks.

The Athabasca is the main source of drinking water for aboriginal and other communities downstream and has been the subject of several controversial reports on its water quality.

The province of Alberta's environment department said it does not yet know whether the water that spilled from a holding pond contained toxic materials. Samples from the pond are being sent for analysis and it will take at least a day before results are returned. Environment department staff have been at the project site north of Fort McMurray, Alberta, since early on Monday.

Wayne Wood, a spokesman for provincial Environment Minister Diana McQueen, said the volume of water sent into the river has not yet been determined.

"We're on the ground monitoring the situation," Wood said. "The pipe got turned off relatively fast."

Suncor, Canada's No. 1 oil producer, and other oil sands companies store contaminated water, a byproduct of stripping tar-like bitumen from the sands, in holding ponds. Those ponds became the focus of environmental protests in 2008, when 1,600 ducks died after landing on a tailings pond operated by Syncrude Canada Ltd.

While new regulations introduced after the mass deaths aim to eliminate the toxic ponds, they remain controversial because of the risk of spills into the Athabasca River.

"No one in Alberta should have to be worried about the safety of their drinking supply but that's exactly the situation we have," Mike Hudema, a climate and energy campaigner for Greenpeace Canada, said in a statement.

Suncor said the industrial waste water from its oil sands extraction and upgrading operations escaped on Monday morning after a four-inch pipe broke after freezing, spilling the water into a partially frozen outflow pond containing treated water.

However Sneh Seetal, a spokeswoman for the company, said Suncor is not yet certain that any of the water actually flowed into the Athabasca.

"We do not know if this process-affected water was released into the river," Seetal said. "We are analyzing samples of the pond and the river as part of the investigation."

Seetal said Suncor's oil sands project was operating normally despite the spill.

Suncor shares were up 9 Canadian cents at C$30.82 at midday on Tuesday on the Toronto Stock Exchange.

($1=$1.02 Canadian)

(Reporting by Scott Haggett; Editing by Gerald E. McCormick and Peter Galloway)

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