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California’s new fuel rule and NAFTA

Reuters reports that, “California’s new low-carbon fuel rules may be a violation of NAFTA and World Trade Organization provisions because they would unfairly limit exports of crude from Canada’s oil sands to the state, a prominent Canadian trade lawyer said on Friday.”

“California adopted a first-ever rule on Thursday requiring refineries, producers and importers of motor fuels sold in the state to reduce the “carbon intensity” of their products by 10 percent by 2020, with greater cuts thereafter. The measures to slash such emissions would force refiners to consider the carbon footprint of the fuels they produce, a potential blow to synthetic crude upgraded from Alberta’s oil sands, whose production emits more carbon-dioxide than conventional oil. However, the state may have no business imposing such rules on oil produced in other countries, a Canadian lawyer said, and the provisions may violate international trade treaties.”

Simon Potter, a partner at the McCarthy Tetrault law firm whose practice includes trade and competition law, says, “There’s definitely a NAFTA case and a WTO case. There’s no doubt in my mind about it. This is California deciding they are going to treat oil differently depending on…where it comes from. It’s an obvious violation of the requirement for national treatment. Once you get across the border, you have to be treated like everybody else. To the extent that these measures make oil from one part of the world that they consider dirty more expensive than identical oil from another part of the world they consider clean, they’ve got a discriminatory treatment issue.”

On Thursday, the Globe and Mail reported that federal Natural Resources Minister Lisa Raitt had written Governor Arnold Schwarzenegger about California’s proposed new low carbon fuel standard saying, “We are concerned that crude oil derived from Canada’s oil sands may be discriminated against as a high (carbon-intensity) crude oil, while other crude oils with similar upstream emissions are not singled out This could be perceived as creating an unfair trade barrier between our two countries.”

The Globe and Mail reports this morning that the Canadian Association of Petroleum Producers “and representatives of the Canadian and Alberta governments attended a hearing in Sacramento on Thursday, urging the board to drop provisions that they claim discriminate against Canadian oil sands and other crudes that aren’t currently refined or marketed in California.”

“Simon Mui, a San Francisco-based scientist with the National Resources Defense Council, said the Canadians are wrong in arguing that the regulations discriminate against the oil sands projects. He said the regulations assess fuel sources by their carbon content, regardless of origin.”

Mr. Mui says, “They are lobbying for a solution that would unfairly disadvantage low-carbon intensity alternative and renewable fuels and leave themselves off the hook. They’re effectively looking for an exemption from the rule.”

Energy campaigner Andrea Harden-Donahue has written a letter to the editor on this issue that we will post to our website shortly.

The Reuters article is at http://uk.mobile.reuters.com/mobile/m/AnyArticle/p.rdt?URL=http://uk.reuters.com/article/oilRpt/idUKN2442251220090424

The Globe and Mail article is at http://www.theglobeandmail.com/servlet/story/LAC.20090425.RCOVERPANEL25ART1911/TPStory/Business

Natural Resources Minister Lisa Raitt’s comments are noted in my campaign blot at http://canadians.org/campaignblog/?p=373