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Section 526 remains a potential impediment for US purchases of oil sands fuel

Presidents and Prime Ministers are normally big picture people, so it’s not surprising that when US President Barack Obama and Canadian Prime Minister Stephen Harper met last week in Ottawa, the Canadian Embassy confirmed that they did not talk about Section 526.
For those who are blissfully unaware of obscure legislative references, Section 526 is a provision in the US Energy Independence Act of 2007. It prohibits Federal agencies from buying an alternative or synthetic transportation fuel produced from non-conventional petroleum sources if the lifecycle greenhouse gas emissions associated with that fuel (from production to refining to consumption) are greater than such emissions from fuel produced from conventional petroleum sources.


Representative Henry Waxman, Democrat-California, chairman of the House Energy Committee, said last year that the provision “ensures that federal agencies are not spending taxpayer dollars to promote new fuel sources that will exacerbate global warming.”
Waxman said it was included in the bill “in response to proposals under consideration by the Air Force to develop coal-to-liquid fuels, but applies to all federal agencies.”
Canadian politicians saw it as a potential threat to expanding imports of Alberta oil sands crude, which has a Sasquatch-size carbon footprint. Expansive interpretation of Section 526 would include “commercially-available fuel made in part from oil derived from Canadian oil sands,” Canadian Ambassador Michael Wilson wrote Robert Gates, defense secretary in the Bush administration who holds the same position in the Obama administration. “Canada does not consider oil extracted from oil sands as alternative fuel,” Wilson wrote. “Oil produced from the oil sands, like oil from other sources, is processed in conventional facilities. Oil sands production is conventional.”
Oil sands production is forecast to reach about 3 million barrels/day in 2015, with most of the new production destined for the US market, Wilson said. There was no indication when the energy bill was considered “that section 526 was intended to go beyond a limited scope,” Wilson wrote. “However, there is no statement of purpose to limit that scope.”
Which is how Waxman sees it: Section 526 “applies to fuels derived from unconventional petroleum sources such as tar sands [the term widely used for the Alberta deposits until the industry decided that oil sands sound so much well, less unpleasant], which produce significantly higher greenhouse gas emissions then are produced by comparable fuel from conventional sources,” Waxman said in a letter to the Senate Commerce Committee.
The provision doesn’t bar federal agencies from purchasing generally available fuels that may contain incidental amounts of fuel from tar sands, Waxman said. “The provision would block a federal agency from using government contracts specifically seeking to promote or expand the use of fuel from tar sands.”
However, Senator Jeff Bingaman, Democrat-New Mexico, and chairman of the Senate Energy Committee, said he understood Canadian concerns and that it was not his intent to apply Section 526 to oil sands.
Matt Fox, senior vice-president of oil sands for ConocoPhillips told the Toronto Globe&Mail last year that if Section 526 is not limited in its application, “It could bring [oil sands] development to a screeching halt. You’d have to think twice about oil sands development if your intention was to deliver oil to the lower ’48.”
However, earlier this month, Charlie Rowton, a spokesman for ConocoPhillips, said in an email to Platts that, to date, “Section 526 hasn’t had an impact on our operations and we are moving forward with our plans to develop this important resource.”
An amendment to limit the scope of Section 526 was dropped from the Defense Authorization act last year. A bill repealing the provision was introduced earlier this year by Senator James Inhofe, Republican-Oklahoma. Similar legislation died in the last Congress.
So, for the moment, Section 526 remains on the books. But until Congress sorts out how broadly Section 526 should apply, Federal procurement officers can decide, and their decisions may roil the Canadian government.

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Section 526 remains a potential impediment for US purchases of oil sands fuel Section 526 remains a potential impediment for US purchases of oil sands fuel Section 526 remains a potential impediment for US purchases of oil sands fuel Section 526 remains a potential impediment for US purchases of oil sands fuel

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