Canada’s oil (CL-FT87.79-0.58-0.66%)companies are bracing for sharply higher costs for carbon dioxide output, despite stumbling progress in the U.S. and Canada to impose regulations on large emitters.

On the sidelines of the UN summit on climate change in Cancun, Canadian oil company executives are battling environmental groups that have targeted the expansion of Alberta’s “dirty oil” production as a major threat to global efforts to reduce greenhouse gas emissions and combat global warming. Amid an increasing focus on the oil sands, Canadian energy companies aren’t waiting for global leaders to impose a new carbon-cost regime.

Calgary’s Nexen Inc. is already facing climate regulations that are driving up carbon-emission costs in Alberta, British Columbia and the British sector of the North Sea. By 2020, Nexen Inc. expects the average carbon price – or the cost of complying with new climate regulations – will rise to more than $40 (U.S.) per tonne, from $15 to $20 currently in some areas.

Companies are now baking the higher expected costs into future spending plans. For new investments, “the economics of a project will reflect the price of carbon that we think is representative of the price we are going to see in the marketplace,” said Wishart Robson, Nexen Inc.’s senior climate change strategist.

Nexen completed the planning of its Long Lake oil sands project nearly a decade ago, before it was routinely building in an expectation of higher carbon compliance costs. All new investments will include a forecast cost of carbon emissions in the planning stage, just as the companies assess capital costs, the price of natural gas and labour rates in judging the economics of a project.

Nexen’s practice has become an industry standard among Canadian oil players, with virtually all companies planning with the expectation of rising costs of compliance with future greenhouse gas emission regulations over the life of their projects, said David Collyer, president of the Canadian Association of Petroleum Producers.

Given current emissions from oil sands projects, a $40 carbon price would add roughly $2 to $3 per barrel to overall costs. Typical costs for oil sands companies mining bitumen are in the $30 to $40 range.

Hoping to offset some of the costs, industry executives expect greenhouse gas emissions from the oil sands to continue to fall on a per barrel basis as companies respond to higher carbon costs by adopting energy-saving technology and processes.

At a panel on the sidelines of the summit, Nexen’s Mr. Robson joined executives from Royal Dutch Shell PLC, BP PLC and Chevron Corp. in defending the global oil industry and insisting that it can make significant strides in reducing its carbon emissions, especially if governments provide the regulatory clarity needed for longer-term planning.

Meanwhile, protesters throughout North America are stepping up their efforts against the oil sands, linking their opposition to a TransCanada Corp. pipeline project to efforts in Cancun to reach a climate accord.

A coalition of groups – under the umbrella of The No Tar Sands Oil Coalition – has launched a $500,000 advertising campaign – will be airing ads on the CNN network, The Daily Show, The Colbert Report and political websites aimed at blocking TransCanada’s proposed Keystone XL pipeline, which would carry 500,000 barrels a day of oil sands bitumen to U.S. Gulf Coast markets.

“It is ironic that the United States would consider expansion of dirty and risky tar sands, while they are promoting clean energy at the international climate negotiations,” said Susan Casey-Lefkowitz of the Natural Resources Defense Council.

In a letter to U.S. Secretary of State Hillary Clinton, 28 leading Democrats from Congress warned the XL pipeline posed “major environmental and public health hazards” and urged additional reviews.

Graham Saul, executive director of the Climate Action Network Canada, said groups are not merely opposed to the oil sands expansion because of the added emissions it would produce. He said the Canadian government’s entire climate-change strategy has been dictated by the Harper government’s support for Alberta’s “dirty oil,” to the extent that Ottawa and the industry are actively lobbying the U.S. government to soften its climate regulations in order to lessen the impact on the oil sands.

Mr. Saul said the oil sands are also symbolic of a much larger problem – the decline of conventional oil reserves and increasing reliance on carbon-intensive sources, such the oil sands and massive oil shale reserves that companies are hoping to develop in the United States.

The Canadian industry says it is being unfairly targeted, arguing the oil sands emissions are not much worse than those of imported heavy oil from Saudi Arabia, Mexico and Venezuela, the sources of crude that it competes with in the United States. And those countries are not imposing the level of emissions regulation that Alberta has already adopted and Ottawa is contemplating once the United States moves to regulate its industry, Mr. Collyer said.

The oil sands producers have already slashed their emissions per barrel by 39 per cent since 1990, and are on the verge of major advances in energy and water efficiency that will drive emissions down much further, particularly in the in situ developments, where most of the production growth will occur.

Much of the impetus for that improvement comes from the constant effort to cut production costs, Mr. Collyer said. New carbon pricing would simply be an additional factor that would drive innovation.