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McCain oil plan relies on Middle East

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Sen. John McCain caps his weeklong push for U.S. energy independence with a trip Friday to Canada, but his own environmental plan discourages use of Canadian oil and drastically increases American reliance on oil from the Middle East and other potentially unfriendly places.

The presumed Republican presidential nominee called last year to expand California's low carbon fuel standard, which measures the amount of greenhouse gases needed to produce fuel and punishes use of "dirty" heavy crude oil in favor of conventional light crude or alternative fuels.

Expanding that plan nationwide would force U.S. refiners to buy less American and Canadian oil - which come increasingly from dirty sources like shale and tar sands - and instead use more oil from the Middle East.

"We are likely to increase our dependence on just those very countries we all worry about," said William Koetzle, senior vice president of public policy at the Institute for Energy Research, a think tank that promotes free-market solutions. "If you create disincentives for the use of Canadian oil, it'll have to be replaced with oil from another place, and that probably means oil from OPEC."

Mr. McCain, who just this week praised Canada as a secure source of oil, embraced a national fuel standard plan last year at a press conference with California Gov. Arnold Schwarzenegger. Mr. McCain has made his support for environmental issues a major part of his presidential campaign, and uses it as a key issue where he breaks with many other Republicans.

McCain campaign spokesman Brian Rogers responded with the following statement late last night:

"The concept behind California's Low-Carbon Fuel Standard is to use less oil in our transportation sector. Canada joined in to this agreement self-imposing emissions standards on the extracting of their oil resources. Ultimately, an international cap and trade system will allow us to regularize the system by which countries offset and reduce their emissions, but in the short term we should look for a cleaner and more efficient way to extra to oil resources from the tar sands."

The senator from Arizona has been outspoken about the need to end dependence on oil from dangerous places, but he is not the only one to embrace expanding California's standard nationwide. Sen. Barack Obama, the likely Democratic presidential nominee, last year introduced a bill in the Senate to do just that.

"Beginning in 2010, we will require petroleum makers to reduce the carbon content of their fuel mix 1 percent per year by selling more clean, alternative fuels in its place," Mr. Obama told the Detroit Economic Club in May 2007. "This proposal will spur greater production and availability of renewable fuels like cellulosic ethanol and biodiesel, and it will even create an incentive for the production of more flexible-fuel and plug-in hybrid vehicles that can use these clean fuels or charge up with renewable electricity."

A low carbon fuel standard looks at the entire greenhouse gas emissions it takes to drill for, transport and use fuel, known as a wells-to-wheels analysis.

By that measure, heavy crude taken from Canada's tar sands or oil shale in the U.S. are judged worse than conventional light crude, which is easy to tap and bring to market.

Canadian crude accounted for 18.7 percent of U.S. imports in March, which was the highest foreign source. That is expected to grow to beyond 35 percent, according to an estimate from Mr. Koetzle's group, unless a national fuel standard is created.

About half of Canada's petroleum exports come from oil sands, but that proportion will expand dramatically. The Energy Information Administration (EIA) estimates that Canada has oil reserves of 179 billion barrels, all but 4 billion of which is in the form of oil sands.

California's new regulation doesn't take effect until 2010 and it won't have much impact on Canadian oil because the state receives most of its supply from Alaska or overseas, but Canadian oil dominates markets in the Midwest. Of the 1.1 million barrels of oil imported per day, 1 million come from Canada, and refineries there are set up for Canadian heavy crude.

"There are a number of refineries right now in the U.S. that are revamping themselves and getting ready to handle these heavier grades of oil, because we cannot continue depending on this light sweet crude we're getting," said Malcolm Bucholtz, a former commodities market trader in Canada who now writes at TheMarketTraders.com.

Tommy Vietor, a spokesman for Mr. Obama's campaign, said a national fuel standard will lead to better efficiency and spur the development of technology needed to meet the increased demand for cleaner fuels. He said Mr. Obama also has proposed spending $150 billion over 10 years to research biofuels and push plug-in hybrid vehicles.

He said the new technology and a reduction in demand will more than offset the need for Canadian crude.

Mr. Bucholtz said the technology is not available to make up the difference, and neither are the renewable fuel supplies such as corn.

"That whole argument is flawed," he said. "You can't really blend the heavier crudes with biofuels."

"It's now become a political issue. To get the environmental vote, they're pandering," Mr. Bucholtz said. "At some point we're going to have to ween ourselves off of the good stuff and start to use this heavier oil. And if we do it right, I think we can refine it without damaging the environment."

Mr. McCain addresses the Economic Club of Toronto on Friday, but his support for the low carbon standard is unlikely to surface. He is expected to talk instead about trade relationships between the two countries and to praise Canada for helping in the war on terror.

Just this week, while calling for expanded offshore drilling, Mr. McCain also touted oil from Canada and Mexico.

"There is a world of difference between relying on two democratic neighbors and partners in NAFTA, and relying on often hostile and undemocratic regimes in the Middle East and elsewhere," he said.

His top domestic adviser, Douglas Holtz-Eakin, told reporters on a conference call that those countries represent "stable" sources for oil.

"Those are relationships that a knowledgeable and sophisticated president will enable, and not disrupt," he said.

Mr. McCain first embraced a national fuel standard on Feb. 21, 2007, at a press conference with Mr. Schwarzenegger, praising California's plan and saying it would go hand in hand with Mr. McCain's own cap-and-trade bill to address climate change.

Robbie Diamond, president and chief executive officer of Secure America's Energy Future, said a bill can be written for a low carbon fuel standard that doesn't discourage Canadian or U.S. oil supplies, but noted that it will be up to the campaigns whether they see the value in that kind of balance between U.S. supplies and environmental concerns.

"The devil's in the details," he said. "You always have to make decisions about competing values. This is where energy security, economics and the environment all come together."

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