By David Ljunggren

Reuters

OTTAWA - Canada's Conservative government is interested in negotiating a climate change pact with the incoming administration of U.S. President-elect Barack Obama, which looks set to take a tougher line on the environment than did President George W. Bush, an official said on Thursday.

Obama's election could cause problems for Ottawa, since he favors tougher emission cuts than the Conservatives and has expressed alarm over what he sees as excessive U.S. reliance on "dirty oil" -- much of which comes from Canada's tar sands.

Concluding a pact could placate Washington by agreeing on tougher emissions standards while recognizing the importance of the tar sands, located in the western province of Alberta. Extracting oil from the sands produces huge amounts of greenhouse gases.

Canada is the largest single supplier of energy to the United States, accounting for around 9 percent of U.S. oil consumption and 15 percent of U.S. natural gas consumption.

The two nations have worked together before on green issues, most notably in 1991, when they signed a landmark agreement to cut acid rain.

"We do want to explore the possibility of a Canada/U.S. agreement similar to what we did on acid rain in the early 1990s," said a spokesman for Environment Minister Jim Prentice. He would not give further details.

Obama's targets for emissions cuts are much tougher than those set by Canada's Conservatives, who -- like Bush -- walked away from the Kyoto Protocol on climate change.

The energy industry in Canada is immensely influential and Prime Minister Stephen Harper, who comes from oil-rich Alberta, has long stressed that any measures designed to clean up the environment should not overly harm the oil patch.

He said on Thursday that he believed the incoming Obama administration would adopt tougher green policies "but will do so in a way that balances the environmental concerns with economic and energy concerns".

The Canadian Association of Petroleum Producers welcomed the idea of harmonized climate change regulations but warned against singling out the oil sands.

"We want clear and consistent policy that should be across the board and no discriminatory measures saying only here (the oil sands) and not there (the United States)," said Greg Stringham, a vice-president at the association.

Greenpeace campaigner Mike Hudema welcomed Obama's victory, saying it said could spell big changes for the oil sands.

"There is a growing movement to curb dirty oil imports and start building a clean energy future and it's time our governments get on board," he said in a statement.

But Harper, speaking to reporters in Toronto, suggested that Washington would have to balance its desire for more environmental regulations with Canada's importance as a key energy supplier.

"The United States faces major challenges if you're talking about energy security and Canada remains the most important and most secure U.S. source of energy. It's a reality for any president of the United States," he said.