California, the US’s most populous and wealthy state and Alberta, a far less populous but nonetheless vital part of Canada’s economy sparred this week, as California seeks to push forward ever bolder Climate Change initiatives. The battle pits two states that could hardly be more dissimilar when it comes to Climate Change. California has trail blazed its way through Climate change, running against the Bush administration and much of his own party, Schwarzenegger reached out to states in the US and Canada in his attempt to direct California’s entrepreneurial dynamism to capitalise on green economics.

Alberta, has been rather different, opting for “reduction in intensity” over actual reductions in its Climate Change reduction, it has been got on well with the Harper administration’s under-whelming Climate Change efforts. The reason lies in Alberta’s not so secret oil sands which have endured a barrage of infamy from protests in Poznan, to a National Geographic report. Tar sands already in development could become an exceptionally lucrative export if as predicted oil prices continue to rise, and the US continues to look for energy supplies to be brought closer to home. While the latter is already underway in some US states and a Climate Change bill currently in discussion, the oil sands future took a different turn as rather than a continually rosier future it met it’s first major clash when one of its largest potential markets passed a bill on Thursday that will eventually ban fuels, that are deemed to emit too much carbon in their production phase.

The Bill, which passed on Thursday, (a neat summary is here) aims to diversify California’s fuel supply with a  move towards expanding the market for low-carbon based fuels, some producers of which are in California and place restrictions on high end polluting fuels.

The principle is typically bold of California, even if in the short term it will only make small changes, it effectively legislates against high end pollution fuels such as Alberta’s tar sands which are likely to become viable in the future of oil prices over the next decade rise as expected to.

The worry for Alberta is twofold, California on its own wouldn’t be a problem , as it doesn’t import any fuel from Alberta at present but a number of other states across the US and even Canada could follow suite (California is already in alliances with US and Canadian states such as in the WCI), and it effectively rules out California and potentially other states as future markets for Alberta. Furthermore, once a few states start, what’s to stop more states taking up their lead?

While ruling out future markets, is one bonus for environmental campaigners, the second is the more immediate investment impact this could have on tar sand development. As it stands tar sand is relatively undeveloped compared with its potential in Canada, but it relies on heavy investment, given the exceptional costs of extracting tar sands, although this won’t be any means derail their development, tar sands could find it increasingly harder to find the willing investors if many of the key north American markets are locked out so early.

Perhaps frustratingly for environmentalists is that this is another example of the Harper Government (who also lobbied with Alberta against the legislation) incorrectly gauging the changing tides in North American Climate Change politics.. As a recent editorial in the Chronicle Herald highlighted, Harper’s like many other politicians saw environmental legislation as a drain on the economy, despite considerable economic evidence and in sharp contrast to the position of many states, within such as Quebec and Ontario, who have been ramping up their investment to capitalise on the future market. The Harper government may well have missed a valuable window of opportunity to consolidate Canada’s position in green

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