Nevertheless, Mr. Levi, concludes, the 170 billion barrels of recoverable reserves can help mitigate North American concerns about global security without causing extreme planetary degradation. The key is for US and Canadian policymakers to coordinate climate policy, combining efforts to regulate greenhouse gas emissions, for example, by at least linking their respective cap-and-trade proposals that are almost sure to be enacted within the next 12 months.

The oil sands won’t free the US of its dependence on the Middle East and other troublesome regions, but there are important security concerns that make their exploitation essential. Because Canada’s oil sands are the only non-OPEC source with the potential for large production growth over the next several years, US policymakers therefore ought to avoid imposing low-carbon fuel standards or special import tariffs.

The oil sands could reduce OPEC’s revenues, weakening the cartel and those members that often undertake policies hostile to US interests. Replacing 2 million barrels per day of OPEC production with oil sands production would lead to a USD70 billion per year cut in revenue to OPEC states, even with prices at USD100 a barrel.

“If, over the long term, Canadian oil sands growth displaces production in places like Iran or Venezuela, or drives down the prices that such states receive for each barrel of oil they sell, it will weaken them,” writes Mr. Levi.

Importing more oil from Canada and less from the Middle East would also probably drive down the US current account deficit. Money diverted to Canada to purchase energy is much more likely to be recycled back into the US economy through direct purchases of goods and services than if that same capital is sent to Saudi Arabia and other OPEC states.

The average lifecycle emissions for a barrel of oil produced from the sands exceeds that of the average barrel consumed in the US by 17 percent, due mainly to emissions from production and upgrading. The current 1.2 million barrels a day of oil sands production results in about 40 million tons of carbon dioxide (CO₂) emissions a year, equal to about 5 percent of Canada’s total, 0.5 percent of US emissions from energy use, and less than 0.1 percent of total global emissions–Alberta’s massive reserve base contributes relatively little to the problem at a global scale.

This greenhouse gas footprint has been one contentious issue among many in climate legislation now working its way through the US Congress. Previous drafts of a House energy bill had sought to link the greenhouse gas emissions of a nation’s energy sources to potential trade restrictions, something Canadian officials protested.

The version of the bill that emerged from a key House committee in late May didn’t have these provisions. Neither did it include a low carbon fuel standard that could have measured a fuel’s greenhouse gas emission impacts from production to burning.

But the California Air Resources Board in April approved just such a standard, drawing the ire of Canadian officials. The state may face a legal challenge from the Canadian government over the issue.

CFR’s Levi concludes, “There is a compelling case, even absent the oil sands, for harmonizing US and Canadian carbon pricing schemes; the oil sands factor, in both its energy security and climate change dimensions, only makes that case stronger.” The simplest way to do this would be to allow cross-trading of emission allowances between two systems, leading to carbon prices that are roughly the same on both sides of the border. A combined cap-and-trade system would be even better.

If each government proceeds on its own, each creating, in Mr. Levi’s phrasing, a “carbon autarky,” the prospect for inefficient pricing is greatly enhanced. And “uneven pricing” could lead to what Mr. Levi calls emissions leakage:

Since more than half of the emissions from oil sands production come from upgrading, overly high Canadian prices would put increasing pressure on oil sands producers to ship bitumen to Asia for upgrading in unregulated markets. This move could ultimately drive up greenhouse gas emissions and would deprive the United States of some of the energy security benefits of importing oil from Canada rather than from other parts of the world.

Mr. Levi concludes that a price on carbon is unlikely to add huge costs to the oil coming from the sands; a carbon price of USD20 per ton of CO₂ equivalent, roughly in line with prices in the European Union’s Emission Trading Scheme, would add USD2.21 per barrel of additional production costs to the oil sands. A price of USD50 per ton of CO₂ equivalent would add an extra USD5.53 per barrel.

The bottom line is that the US and Canada, pursuant to both enhancing energy security and limiting long-run global greenhouse gas emissions, should work together on a North American cap-and-trade regime. Mr. Levi also recommends that oil sands producers be granted sufficient allowances at the start of the system because immediate new costs would benefit low-cost producers such as OPEC members and would have little impact on limiting emissions. An attempt to establish a “low-carbon fuel standard” to the detriment of non-conventional producers such as those operating in the oil sands would leave the US less secure and won’t reduce global emissions.

The US is the natural destination for oil sands product, a fact of geography augmented by the close commercial ties between it and Canada. US government policy will therefore impact oil sands development.

Speaking Engagements

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The Roundup

Oil & Gas

Paramount Energy Trust (TSX: PMT-U, OTC: PMGYF) has extended the deadline to June 15 the deadline for shareholders of Profound Energy to tender their shares in response to Paramount’s offer. According to the terms of its offer, 66.67 percent of the common shares of Profound outstanding must be tendered; as of the original June 1 deadline, approximately 53 percent had been tendered.

Based on Paramount’s intraday price June 1, Paramount’s extended offer represents a 146 percent premium above Profound’s share price the day immediately preceding Paramount’s original offer. Paramount Energy Trust is a buy up to USD5.

Pengrowth Energy Trust (TSX: PGF-U, NYSE: PGH) announced that the Alberta provincial government, through Alberta Energy’s Innovative Energy Technologies Program, will spend CAD3.54 million on Pengrowth’s carbon dioxide (CO₂) enhanced oil recovery project at its Judy Creek facility.

Pengrowth’s pilot project at Judy Creek involves the injection into the reservoir of a combination of CO₂ and waste acid gases from the gas conservation plant at the site to boost oil recovery. Results from the initial test will be used with other engineering initiatives to define a commercial CO₂ project for the Judy Creek field. Pengrowth Energy Trust is a hold.

Electric Power

Canadian Hydro Developers (TSX: KHD, OTC: CHDVF) bought the Windrise Prospect, a site located amid existing company operations in southern Alberta, from EarthFirst Canada for CAD250,000. The wind-power facility represents potential capacity generation of 99 megawatts, enough to power 100,000 homes.

Development of the site is dependent on a proposed 240 kilovolt interconnection to the Alberta grid, which is expected to be in place in 2010. Canadian Hydro is gathering data and working through the permitting process to prepare its application for provincial regulators. Canadian Hydro Developers, the largest, most diversified renewable energy company in the country, is a buy up to USD3.

Gas/Propane

Energy Savings Income Fund (TSX: SIF-U, OTC: ESIUF) is now Just Energy Income Fund; it trades on the Toronto Stock Exchange under the symbol JE-U, on the US over-the-counter (OTC) market under the symbol JUSTF. Just Energy Income Fund, formerly Energy Savings Income Fund, is a buy up to USD11.

Business Trusts

BFI Canada Ltd (TSX: BFC, OTC: BFCUF) has changed its name to IESI-BFC Ltd and now trades on the Toronto Stock Exchange under the ticker BIN. Management also reiterated its intent to list the company’s shares for trading on the New York Stock Exchange and has reserved the symbol BIN for this purpose. Until that application process is complete, IESI-BFC will trade on the OTC market under the symbol IESXF.

In addition, the company has filed its final shelf prospectus allowing it to make offerings in the US and Canada of up to USD400 million in stock. IESI-BFC Ltd, formerly BFI Canada, is a buy up to USD14.

Energy Services

Peak Energy Services Trust (TSX: PES-U, OTC: PKGFF) has renewed its syndicated credit facility through May 30, 2010. The facility consists of a CAD65 million syndicated extendable term revolving credit facility, of which Peak has approximately CAD28 million drawn. Peak’s previous line had a limit of CAD75 million, and an “accordion” feature that allowed the company to request a CAD25 million increase has been removed.

The interest rate will range from the prime rate plus 1.75 percent to 4 percent depending on the level of total long-term debt less outstanding cash balances to trailing earnings before interest, taxes, depreciation and amortization. Peak Energy Services Trust is a hold.

Energy Infrastructure

Inter Pipeline Fund (TSX: IPL-U, OTC: IPPLF) is raising CAD150 million through the bought-deal sale of 18.2 million units at CAD8.25 per. The price is a 6 percent discount to Inter’s May 29 closing price.

The deal includes an over-allotment option that allows the members of the underwriting syndicate to buy an additional 2.7 million units, which, if exercised, would boost total proceeds to CAD173 million.

Inter Pipeline will use the money to pay down debt, but will use a strengthened balance sheet to develop a network that serves the Kearl project in the upper reaches of the Athabasca Oil Sands region. Inter Pipeline Fund is a buy up to USD10.