Finally.

“At a time when the worldwide economy is still deep in recession and we’ve seen a significant drop in global trade,” Mr. Obama said, “I think we have to be very careful about sending any protectionist signals out there.”

He’s referring to a provision in Waxman-Markey, which passed the House on Friday. It would penalize exports from countries that do not accept limits on global warming pollution by requiring the president to impose a “border adjustment” or tariff on certain goods from countries that do not act to limit global warming emissions.

The provision was, natch, designed to appease Rust Belt state lawmakers concerned about job losses in their high-carbon industries. (The New York Times reported the provision was “inserted at midnight the day before the bill passed.” That doesn’t give the full picture. Though the specific wording may have gone in at that time, aspects of this kind of thinking have been in place since this bill was first drafted, back in March of this year.)

Even if Obama has to spend a bit of political capital here, he’s smart to finally speak out against this particular bill’s efforts to move the goalposts on trade. Such barriers are designed to help American high-carbon industries adjust to a low-carbon future, largely at the expense of those who export to the U.S. Should the bill pass the Senate with this provision intact, it would wreak serious havoc on the business models of most high-carbon industries exporting to the U.S., upending global export flows at just the moment recovery is starting to kick in.

But perhaps it’s finally dawning on Obama that the optics of pulling this kind of trick could destroy America’s credibility as a global leader. It’s beyond absurd for the world’s second biggest polluter – and the country that uses up 24% of the world’s resources annually – to make this kind of move, now that it’s finally decided it wants to go green.

Of course, cautions about sending out protectionist signals come a tad too little too late for this President, given his decision to allow Buy American riders in stimulus spending to be enforced at the state and local levels of government back in February is now inspiring retaliatory measures around the globe. (Canada’s anti-Buy American effort, details of which I’ll be covering off in the upcoming issue of the print edition of Canadian Business, is relatively mild in comparison with the Buy China trade bazooka that that country pulled out a week and a half ago.)

However, given what’s at stake here, Obama’s action Sunday is better than nothing.

It’s the first time a national bill that attempts to put a price on carbon has been passed by either House.

Some, including President Barack Obama, heralded the bill’s passage as a major step forward on tackling climate change.

In a radio and Internet address that aired late yesterday, Obama said the bill was designed to spur innovation, rather than hamper economic growth. He called on senators to disregard its critics. “We must not be prisoners of the past,” he said. “Don’t believe the misinformation out there that suggests there is somehow a contradiction between investing in clean energy and economic growth. It’s just not true.”

The president said the bill’s passage is a testament to a changing dynamic in both the scientific community and in the public, which he said have become far more convinced of the dangers of global warming. “There is no longer a debate about whether carbon pollution is placing our planet in jeopardy. It’s happening,” he said. “And there is no longer a question about whether the jobs and industries of the 21st century will be centered around clean, renewable energy. The question is, which country will create these jobs and these industries?”

In the long term, Obama is right. Global warming is happening, whether we choose to ignore the fact or not. In relatively short order — a matter of decades — the economic impact of legislation such as this will seem like nothing in comparison to what’s in store for those companies that don’t figure out how to hedge their energy costs, or those coastal cities that don’t figure out how best to reduce their exposure to rising sea levels. As the Sir Nicholas Stern and other reports have shown, if left unchecked, business as usual’s economic costs will render debates about the short-term economic impact of carbon-pricing legislation entirely academic.

However, that analysis leaves aside the very salient question of whether now is the right time to bring in new legislation to price carbon on a significant scale. There is no question that attempting to price carbon during a fledgling economic recovery, when fossil fuels still power 95 percent of the U.S. economy, is going to result in severe economic dislocation – for industrial polluters, sure, but also for average American consumers who are existing on marginal incomes. (According to MASSPIRG, a Massachussetts-based public interest research group, Americans on average spend an astounding 20 percent of their annual income on transportation, more than they pay for food or even health care. Approximately 10 percent of Americans spend more than 50 percent of their annual income on transportation costs.)

Given the economic pain the United States is already experiencing, the timing of dramatic new legislation designed to push up the price of emitting carbon is inevitably going to complicate the recovery. What’s more, critics charge new green technology and transportation infrastructure is not yet at a point where it would be able to offset the shock of newly spiking crude oil and fossil-fuel-fired electricity prices.

As for Canada, the implications are even more severe. When oil hit US$63 a barrel, back in summer 2005, our economy tilted dramatically in favour of developing high-carbon unconventional fuels such as oilsands syncrude, as opposed to lower carbon energy plays such as wind farms and solar power plants. This bill, if passed, will amount to a form of economic shock therapy on the increasingly carbon-rich economy those and other decisions created. (It’s also not good news for other, more prosaic reasons, that have to do with new protectionist measures in the bill, covered in yesterday’s blog post here.)

The core of the legislation is a cap-and-trade system that sets a limit on overall emissions of heat-trapping gases. It would allow utilities, manufacturers and other emitters to trade pollution permits, or allowances, among themselves.

President Obama campaigned on a pledge to auction off all the pollution permits as a means of raising revenue that would then go to help industries adapt to the challenges of a world where carbon is priced. However, in order to get the bill passed, bill co-sponsors Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) made significant concessions to industry: for the first five to ten years, many industrial players, including coal producers, will qualify for such permits for free. (From an economic perspective this is a good thing, as the increased costs coal-fired electricity producers would incur from purchasing those permits would most likely be passed on to struggling consumers. Environmentalists, however, charge that giving permits out for free to the largest polluters will function in practice as an incentive to pollute – the opposite of the intended goal.)

Another key part of the bill is the Renewable Energy Standard. Bill co-sponsor Henry Waxman started out with a plan that would require 25 percent of the country’s energy to come from wind, solar and biomass by 2025, with some compliance possible through efficiency measures.

The cap would grow tighter over the years, pushing up the price of emitting carbon. The goal is for industry to find cleaner ways of making energy.

Many in the U.S. are surprised the bill has gotten as far as it has, given the range of forces opposed. And the bill has yet to pass the Senate, where opinion on its merits is even more stark than in the House. Regardless of whether it passes the Senate, though, the bill can be considered a marker for the United States’ position when international negotiations on a new climate change treaty begin later this year.

Outside the formal political process, opinion on the bill in the U.S. is also sharply divided. Greenpeace opposed it, and many charge it is a hodgepodge of moves that will not ultimately achieve the goal of lowering emissions sufficiently to prevent cataclysmic climate change. The National Association of Manufacturers and the U.S. Chamber of Commerce also opposed it. It was, however, supported by many large corporations, including Ford.

What’s next out of this extraordinary country? Watch this space.

The bill will also have to pass the Senate before becoming law. But one way or the other, we’ll soon have much greater clarity on what is going to happen to Canadian oilsands exports to the U.S.; whether further protectionist barriers are likely to go up against Canadian exports of “high carbon” goods; and to what extent this Congress is willing to put teeth to the green legislation it has been bandying about since March.

In recent weeks, the Administration has been trying to make out as though there’s a juggernaut of support for this bill. However, according to Hill sources, it’s still unclear as to whether it will actually pass. The Dems need 218 hard yeses to get this bill through. Given there’s 254 Dems in the House, you’d think it’d be no issue, but there are holdouts, given frenzied opposition from, among other lobbies, shale oil and coal-producing states, farm states, and the Department of Defense.

In the latest horse-trading on Tuesday, bill sponsor Henry Waxman (D-CA) bought Agriculture committee chair Collin Peterson (D-Minn)’s vote after they reached a deal by agreeing that the Dept. of Agriculture will oversee the definition of a carbon offset, rather than the Environmental Protection Agency. (Cue another round of spiking food prices.)

In light of that deal, many undecided Democrats are now expected to back Waxman-Markey, and the New York Times has been reporting the vote as though it’s going to pass. However, the extra support from farm producers still doesn’t indicate everyone is on board. There are a handful of Democrats displaying outright opposition to the bill, including Mike Ross (Ark.), who was one of four Democrats to vote against it in committee. Ross issued a press release on Wednesday referring to the House bill as an “energy tax” and touting an alternative bill, the American-Made Energy Act of 2009, that he released this week.

The heart of the deal is a cap-and-trade on carbon produced by industrial emitters. The goal is to reduce carbon emissions by 17% by 2020 and 83% by 2050. Other major concessions include giving 85% of pollution permits to large industrial emitters such as coal producers away for free, rather than auctioning them off. (Originally the plan was to use those funds to pay for health care.) But despite frenzied lobbying from Alberta and Canada, what’s still in the bill doesn’t bode well either for Canadian oilsands producers or for Canadian manufacturers as a whole.

Suncor, which has been self-reporting its climate change initiatives for years, says it reduced greenhouse gas emissions intensity (a meaure of emissions per unit of production) at its oilsands operations by 45% since 1990. Sounds impressive, but this does not mean a reduction in absolute emissions, as the report itself clearly indicates: Suncor will release 26% more CO2 by 2011, for a total of about 14 million tonnes. But the company then predicts emissions will drop in both 2012 and 2013, precisely when it will be producing more oil.

The company produced 228,000 barrels of oil in 2008, spewing out 9 million tonnes of CO2 from its oilsands operations. By 2012, Suncor wants to more than double production to 550,000 barrels per day, a 141% increase. Its sustainability report predicts emissions from the oilsands will increase by only 23% during the same time period, and will actually fall by 3.5% between 2011 and 2012. (This is in contrast to last year’s report on climate change, which shows emissions increasing beyond 2011.)

How is this possible? The company doesn’t specifically address how it intends to abate absolute emissions while boosting production, and a spokesperson wasn’t any more specific with me over the phone:

“The majority of the improvements that we project are going to come from improved performance efficiencies, and efficiency gains through our internal operational excellence initiatives that we’re doing. Then on top of that, Suncor is in the process of constructing a sulphur recovery unit. It’s an $800-million investment up at our Firebag operation. So in addition to the efficiency gains we expect to achieve, we would also expect that we would realize some gains in our GHG reductions coming from that sulfur recovery unit.”

The construction of the recovery unit stems from a 2007 enforcement order by Alberta Environment about hydrogen sulphide emissions (which produce that rotten egg smell) exceeding air quality guidelines, not so much to do with CO2. The spokesperson said carbon capture and storage was not a factor in the company’s CO2 projections, so Suncor must have one heck of an efficiency program underway.

The money has been collected in the Climate Change and Emissions Management Fund since last year, when emissions caps for heavy emitters took effect. Facilities that produce more than 100,000 tonnes of GHGs must scale back emissions “intensity” by 12%, or pay $15 into the Fund for each tonne over their reduction targets. (Companies can also purchase carbon offsets.)

I spoke with Newell shortly after his appointment—an appointment that raised a few eyebrows in the environmental community. Newell spent 15 years at oilsands giant Syncrude, as CEO and then as chair. He sits on the board of Nexen today, received more than $230,000 in compensation last year from the energy company, and owned more than $1 million worth of shares as of March. The optics aren’t exactly great: a guy with strong ties to an industry that is one of the worst offenders in terms of emissions is now responsible for doling out cash in an attempt to curb those emissions.

And so Newell will have a lot to prove. He is still in the process of assembling a board, which will then take submissions from companies hoping to secure some of the cash to fund emissions-reduction projects. Newell wants to start accepting submissions by the end of the year.

So what does Newell have in mind? He is a big supporter of carbon capture and storage, for one, despite the ample funding both provincial and federal governments are providing for the technology. The Alberta government is already pledging $2 billion, and the federal government is committing $650 million from its Clean Energy Fund, established earlier this year as part of the stimulus package. (Federal Environment Minister Jim Prentice is also now saying carbon capture and storage has limited applications in the near-term in the oilands, the fastest growing source of emissions in Canada.)

Newell is going to have to be careful about the makeup of the board. He wants to include a broad section of industry and academia, but the plan so far calls for a large presence from heavy emitting industries—coal-fired power generation, the oilsands and conventional oil and gas production. My initial reaction is that a board consisting of representatives from the traditional fossil fuel industries could have a hard time making a meaningful impact. After all, these are not businesses known to have taken bold action when it comes to the environment.

I discussed this (and more) with Newell below:

What interested you about this position?
First of all, I think technology is critical to the future of the energy industry and we need technology solutions to keep making our fossil fuels more sustainable, but also to “green” the energy mix and develop an appropriate portfolio of renewable energy alternatives.

How big of an impact do you think the fund can have?
I don’t think our role is to try to allocate money depending on what each individual industry sector or company puts in. I think our role as a board—and I’ll encourage people—is you want people to leave their hats at the door. And really we’re going to be picking the projects that are going to do the most to reduce our carbon footprint. That’s with the fossil fuels, but also with the renewables. If you went with the other philosophy, where people were in there to support their industry sector, you’d never get any renewables going. Fundamentally, my philosophy is we’ve got tremendous energy resources, but the world is going to need every form of energy it can find. Even when I ran Syncrude, I didn’t think of renewables as competitors.… But I don’t have rose-coloured glasses on here. Most of the energy growth is gonna have to be picked up by the fossil fuels—oil, gas and coal—and so we want to put a lot of effort into making them more sustainable and reduce their carbon footprint. At the same time, we gotta look longer-term and start developing an appropriate portfolio of renewables.

How much of a role can renewable energy can play then?
It will grow with time, but between now and 2030, if I look at what the International Energy Agency is saying, 80% of the growth during that period will have to come from fossil fuels. So yeah, renewables will grow, but they’re not going to replace fossil fuels, not in our lifetime. I’m sorry, I just have to say that. It doesn’t mean I’m against them. People just don’t understand. Mr. Obama in the south, saying he’s going to double renewables in three years, he’s leading people astray as to what they think is going to happen.

How so?
Even doubling it, it’s still a very small percentage. That doesn’t mean you don’t do it. I spent a lot of my career in the oilsands and it took 40 years from the time Karl Clark figured out how to separate the oil from the sand until Great Canadian Oil Sands was built in 1967. And then my company started up in 1978. So these things do take a long time to develop and get to a real significant level. But it’s important that we start now.

Where are the board members going to come from?
This is a bit of a debate. I do think that even though it should be predominantly industry, I think it would be critical to have a deputy minister of environment or someone like that from the government. But then, who are the big contributors to this fund? The biggest are the coal-fired power stations. They are the biggest generators, so we want to have very good representation from coal-power areas, but I also will get someone very senior from the electricity generation end, because that will bring renewables in, like solar and wind. The other key areas are of course the oilsands and conventional oil and gas.

Is this just giving money back to heavy emitters?
There is the view, and I don’t totally share it, that this is the industry’s money and they should therefore get to spend it the way they want to. That’s not quite what I’m saying. I know we’ll get criticism. But I’d rather do it this way, where you have that strong knowledge base with people actually making the best picks, so that we do a good job and get a good end result in terms of the impact of this technology fund.

How do you get people to leave their hats at the door, as you said?
People are quite willing to work together. In fact, what you find is a lot of the technology platforms cross over. If you think about whether it be clean coal or the oilsands, it’s all about carbon capture and stuff like that.

How are you going to decide how to allocate the money?
There was work done by Alberta Environment, and the way they think the fund will likely break down is about 20% would go to energy efficiency projects, and maybe 30% will get directed to carbon capture and storage—because that’s so expensive, we just have to find ways to do it cheaper. But about 50% of it would be to greening the energy mix, and that includes more fundamental breakthroughs in the fossil fuel areas, as well as developing an appropriate portfolio of renewables.

What do you mean by fundamental breakthroughs?
There are some areas in which applying genomics to the oil business will lead you to fundamentally different technology paths to upgrade the product, and it would be a lot less energy intensive if we make them successful. But the one that has the biggest potential in the short-run is carbon capture and storage. The reality is it’s very, very expensive. So we need to think up better ways of doing it that are more cost effective.

But is carbon capture really any closer to being a commercial reality than renewable energy?
Yeah, it is closer. If you use the big fund that the Alberta government put in place, the $2 billion, they’re looking at trying to come up with 5 million tonnes of reduction by 2015, and not that that’s a panacea, but if we could actually demonstrate that, that would give people a lot of base to move that technology a lot faster from there.

The Alberta government is using “intensity” targets, which means overall emissions can rise if production increases. Is that really doing enough?
The answer to that is no, and that’s what’s driven carbon capture. It’s the only thing on the plate that can make a significant overall reduction in the short run.… These things are going to take time. I’m not just trying to get the monkey off the back of industry. Industry has to perform too, but people have to realize that if we’re going to really be successful with the targets that have been set, the whole society is going to have to rally together and find ways to reduce our use of energy.

The carbon content is defined “from well to wheel.” That means the regulation takes into account the carbon burned to make the fuel, as well as the carbon released in burning it, when determining which fuels can be burned in that market. Fuels that are determined to be high in carbon-content are not welcome. The goal is to help California slash emissions in automotive fuels and spur the market for cleaner gasoline alternatives.

“California’s first in the world low-carbon fuel standard will not only reduce global warming pollution, it will reward innovation, expand consumer choice and encourage the private investment we need to transform our energy infrastructure,” Governor Arnold Schwarzenegger said in a statement yesterday.

At least 11 other states are considering similar low-carbon fuel standard policies. Draft environmental legislation proposed by Congressmen Henry Waxman and Edward Market to the House of Representatives recommends bringing national U.S. fuel standards in line with California’s. And U.S. President Barack Obama campaigned on a promise to put policies in place designed to reduce greenhouse gas emissions 80% by 2050.

Considering the carbon content of oilsands syncrude from the Alberta oilpatch is among the highest in the world, this development has significant implications for Canadian exporters of Alberta syncrude. These were first discussed in Canadian Business in Go Green or Go Home, published June 2007.

California does not yet represent a major market for oilsands syncrude from Canada. However, should a version of this law be adopted in the rest of the United States, the implications for both the Canadian oilpatch, in terms of reducing the carbon content of its fuel, and for the cost of transportation fuel in the United States, are immense. Canada supplies the United States with approximately 13% of its fuel supply.

In a recent Briefcase we reported on Ivanhoe Energy’s agreements to purchase interests in oilsands leases from Talisman Energy (TSX: TLM). Well, today Ivanhoe announced it has officially completed the acquisition of the working interests to two of the leases for a total purchase price of $90 million. It had originally wanted to buy interests to three leases, and had agreed to pay $105 million, but a part owner of the third lease scuttled that deal.