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Royal Dutch Shell PLC
Exxon Mobil Corp
Fort McMurray, in Western Canada, is surrounded by thick boreal forest, but you can still make out the oil-rich town from dozens of miles away. Plumes of carbon-rich smoke hover above it, a byproduct of the oil industry’s efforts to mine a peanut-butter-thick form of crude from vast stretches of tar sands.
Canadian oil companies know there’s no hiding it’s a dirty business and the country’s fastest-growing source of greenhouse-gas emissions. They worry their oil will be barred from foreign markets because it’s a bigger polluter than other fossil fuels. To stave off costs that could come with more regulation, the industry is doing something unusual: It’s asking the Canadian government to slap a national pollution tax on its filthy crude.
The companies have attracted an unlikely ally in environmentalists, who promote carbon taxes because they raise the cost of energy and lower demand, generally reducing pollution as a result. In British Columbia, one of two provinces that already has a regional carbon tax, families are paying an average $376 more in energy costs annually, according to a recent report from the Canadian Centre for Policy Alternatives. The Ottawa think tank says the tax helped reduce per capita emissions almost 10 percent from 2008 to 2010.
Standing in the way of the pollution tax, however, is Prime Minister Stephen Harper. His cabinet says it prefers to set emissions standards industry by industry rather than endorse a tax hike that could trickle down to voters. “Our government is committed to reduce greenhouse-gas emissions at the industrial source rather than through an economy-distorting carbon tax regime,” Rob Taylor, a spokesman for Environment Minister Peter Kent, says in an e-mail.
Although Canada had long leaned left on social and environmental issues, it’s become something of a green pariah under Harper, who’s emphasized job growth over government regulation during his seven-year tenure. Last year, as the country was struggling to cut emissions as required under the 1997 Kyoto Protocol, he pulled Canada out of the agreement, making it the only nation to withdraw. Emissions have risen 17 percent in the last 20 years.
That record has created complications in the U.S., where the development of TransCanada’s (TRP) 875-mile Keystone XL pipeline is uncertain and opposition to it is still strong. “Canada is failing to meet what nations around the world need to be doing in terms of reducing carbon emissions,” says Susan Casey-Lefkowitz, director of international programs at the Natural Resources Defense Council. A tax or cap-and-trade system would show activists that Canada is working harder, she says.
Producers know there’s more than one way to clean up their act and would welcome either option, says Daniel Gagnier, president of the Energy Policy Institute of Canada, a lobbying group whose members include Shell Canada (RDSA), ExxonMobil’s (XOM) Canadian affiliate Imperial Oil, and Total E&P Canada. “The world is monetizing carbon,” Gagnier says. “If a country looks at Canada and says your energy exports are too carbon intensive, then it becomes an economic competitiveness issue.”
Many lawmakers are hoping the uncertainty over Keystone will finally nudge Harper to act on the industry’s recommendations. As Elizabeth May, leader of the Green Party and a member of Parliament, puts it: “Canada being a laggard and reducing our environmental protections put us in the worst possible place for pitching a pipeline.”
The bottom line: Canada’s oil companies want a carbon tax so other countries don’t shut out their dirty crude, a key export.