Alberta United Kingdom Office High Commission of Canada 1 Grosvenor Square London W1K 4AB Tel: +44 (0)20

7258 6349 Fax: +44 (0)20 7258 6309 www.albertacanada.com

October 19, 2011

Dear Sir: This letter is intended to bring to your attention the grave concerns held by the Government of Alberta (Canada) over the language contained in the current European Commission proposal for an implementation measure of the Fuel Quality Directive dated October 4, 2011. I am writing to you as representative for the province of Alberta, Canada. You may be aware that Alberta, Canada holds the third largest oil reserves in the world, most of which are in the form of oil sands, a naturally occurring mixture of sand, water and bitumen, a heavy form of oil. Alberta has followed the development of the European Unions Fuel Quality Directive (FQD) closely and it is important that you know that Alberta fully supports the intent of the FQD as we share the same carbon reduction vision as the European Union. However, we have grown increasingly concerned as it has become apparent that the proposed implementing measure has been deliberately crafted in such a way as to discriminate specifically and uniquely against oil sands derived fuels. Simply stated, we are asking for a principled approach and ask that the implementation measures be developed in a way that it ensures the following: 1. Equal treatment of all crudes and not based on selective discrimination: There is no scientific reason to single out Canadian oil sands from other crude sources as the lifecycle GHG emissions are within the continuum of existing source crudes entering the European market; 2. Policy is based on reliable data and sound science: Evaluate each source of crude on its own merit using a consistent methodology; 3. Avoid duplication: Account for Albertas carbon reduction law (carbon price); 4. Do not penalize transparency: The province of Albertas energy sector is among the most transparent and highly regulated jurisdictions in the world. The current language would penalize transparency and create a disincentive for other jurisdictions to develop more transparent reporting.

Alberta shares the European Unions goal of carbon reduction, and is in fact a leader in that regard in North America. However, to be effective carbon reduction regimes must be developed in a way that is transparent, science-based and non-discriminatory. The FQD implementing measure as currently drafted is none of these. Albertas concerns begin with the lack of transparency with how both the EU average default value and the oil sands derived fuels default value have been assigned. The Commission has never fully disclosed the methodology used to develop these values and they do not agree with the preliminary analysis of outside experts, which find that there is actually very little difference between the life-cycle GHG intensity of oil sands derived fuels and other sources of EU supply. This FQD implementing measure proposal tries to justify its discriminatory treatment of oil sands fuels by creating an artificial separate category of natural bitumen. This definition has not been found previously in the literature but rather was specifically and arbitrarily designed to encompass only the oil sands while not impeding other crudes that are associated with similar or higher carbon intensity. A separate emissions intensity value for oil sands fuels is possible only because Alberta is an open and transparent regulator, with data about emissions from our industry openly available. The draft implementing measure itself states that Although it would be desirable to attribute specific greenhouse gas intensity to each fossil fuel feedstock from each and every geographical source globally, such an approach would require a massive amount of information which is currently not readily available on evenly distributed geographic basis. The difficulty in obtaining accurate information about others is not an excuse to discriminate against those for whom information is easy to obtain. Alberta feels that it is being punished by the current proposal for our very openness, whereas other jurisdictions that are not so forthcoming are in turn rewarded for their lack of transparency. The proposed implementation measure thus provides a perverse incentive for other oil producing jurisdictions not to be more open with data about the GHG intensity of their industry as to do so would invite the same kind of discrimination that Alberta faces. This is compounded by the incentives to reduce flaring found in the draft implementing measure. Flaring is the largest source of GHGs in the production of crude oil, but in the current proposal , high flaring crudes would not only be assigned the average default value (which does not seem to include emissions from flaring), but would apparently also receive credit for any reductions in flaring that would apply not to their actual emissions but to the default value. This would greatly advantage high-carbon flared crude oil production in comparison to oil sands crudes that may be, in actuality, lower in emissions intensity.

I mentioned earlier that Alberta has been a leader in North America in low-carbon policies. This includes being the first jurisdiction in North America to regulate carbon emissions for large industry (including all oil sands operations), with mandated reductions in intensity and a price on carbon emissions for those unable to comply. The FQD draft implementing measure does not, however, credit oil sands derived fuels for this, but rather imposes a second penalty on producers. Again, the FQD would seem to act as a disincentive for other jurisdictions to implement carbon reduction measures such as Albertas, in order to avoid also being double regulated for the same emissions. For all of these reasons, Alberta believes that the Commission proposal as it is currently drafted would not be an effective means of reducing carbon emissions but would rather act as a deliberate and discriminatory barrier to a single specific kind of crude oil Canadian oil sands, while incentivizing a lack of transparency among other crude oil suppliers. Alberta believes that the FQD implementing measure as it currently stands would be incompatible with the EUs international trade obligations. As you may be aware, California is proposing to amend their Low Carbon Fuel Standard regulation. They have recently put forward a proposal that treats all crudes equally within a jurisidictional average, and sets reduction requirements off of this single average. Such an approach could fully and transparently capture changes in crude supplies over time and avoid incentives for crude shuffling, while achieving real reductions in greenhouse gas emissions. Other non-discriminatory approaches to low carbon fuel standards are also possible. If the Fuel Quality Committee feels that it would benefit from more detailed information about these concerns with the Commission proposal, Alberta would be welcome the opportunity to answer, in person or in writing, any technical questions the Fuel Quality Committee may have. In the mean time, please find attached for your further information, a more in-depth analysis of Albertas concerns with the draft FQD implementing measure and additional information about GHG emissions from the oil sands and Albertas carbon management regulations. Please do not hesitate to contact me for further information.

Yours sincerely, Alberta-United Kingdom Office

Jeffrey G. Sundquist Managing Director jeffrey.sundquist@international.gc.ca Tel: 44-020-7258-6349 Fax: 44-020-7258-6309 Enclosed