The US and Canada are leading to a prolonged battle owing to the new rule which has been enacted by the US legislation to curb using unconventionally produced oil for their energy needs. The Energy Independence and Security Act 2007, adopted by Congress and approved by the Bush administration in December, prevents U.S. government departments and agencies from buying alternative fuels which generate more pollution in their life cycle than conventional fuel from customary petroleum sources.
Canadian oil production is based on extracting oil from tar sands, which has higher Green House Gases (GHC) emissions as compared to conventional methods of production. Though the production has witnessed drastic cut in emissions with emerging technologies, still the environmentalists believe extracting a barrel of crude from oil sands results in five times the amount of GHC emissions than conventional ways. Canada currently supplies 2.3mn barrels of crude oil per day and has surpassed Saudi Arabia to become the largest supplier of the US.
The new restrictions on buying crude oil by the US on the basis of addressing the calls of climate change will have far-flung implications on the trade relations with Canada. The US department of defense is the single largest crude oil buyer in the world. However, the energy department tentatively agreed to assess the situation and said it would co-operate with Canada in all related issues. If the law is implemented to full effect, the world as a whole has to face dire consequences in the form of higher inflation and price spiraling in commodity markets.
The US could justify its new rule on the limited environmental grounds permitted by World Trade Organization guidelines, yet there is no established precedent on this issue. The Canadian government has sent a letter to the US stating that the narrow interpretation of the law would be detrimental to both countries who are engaged in a slew of business partnerships for a long time now. Nevertheless, the Bush administration has agreed to reduce reliance on Middle East imports and encouraged developing oil sands; considering the US’s favorable relationship with Canada.