The battle over U.S. approval of the Keystone oil pipeline shows the difficulty in regulating carbon emissions through the supply of crude oil, barring an unlikely global agreement to curb demand.

If approved by Washington later this year, the pipeline would transport land-locked, high carbon Canadian tar sand crude to Gulf Coast refineries and from there to world oil markets.

A U.S. Department of State report last Friday concluded that denying the pipeline would have a negligible impact in reducing climate change, because railways or alternative pipelines would still find the crude a global outlet.

By implication, the U.S. Environmental Impact Statement saw no way to stem the flow of tar sands crude in the absence of some kind of global regulation reining in oil demand, although the report did not examine options for regulation.

Options might include an upstream carbon tax or a carbon labelling standard.

Such regulation is all but unthinkable at present, leaving policy focused on national fuel economy standards for cars which are less controversial, as they would save U.S. consumers money, but which green groups may find too slow and incremental.


Crude oil carbon labelling has so far struggled because global standards for measuring greenhouse gas emissions are at an early stage.

The European Union’s executive Commission has tried to regulate transport fuel through a low carbon fuel standard which would label the upstream carbon emissions of different crudes and biofuels.

The EU already sets refiners carbon intensity targets, under its Fuel Quality Directive, which coupled with carbon labelling could in theory rein in demand for high-carbon Canadian tar sands, although these presently have no European market.