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* European Commission not shifting on polluting label
* Alberta faces budget shortfall because of discounted oil
* Canada seeks new markets, shale supplies meet U.S. demand
By Barbara Lewis and Jeffrey Jones
BRUSSELS/CALGARY, Alberta, Jan 30 (Reuters) - Canada's urgent hunt for buyers for its oil is being thwarted as the European Commission sticks to a plan to label fuel from tar sands deposits as highly polluting, deterring refiners bound by environmental rules.
Intense pressure from Canada, seeking new markets to compensate for dwindling U.S. buying and discounted sales, has not convinced the EU executive to abandon its proposal to brand tar sands oil as more carbon-intensive than conventional crude.
"The Commission stands by its proposal," said an EU official, speaking on condition of anonymity. "There is an impact assessment ongoing now that is looking at the methodological aspect of the proposal."
Canada sits on the world's third-largest crude reserves after Saudi Arabia and Venezuela. But the vast majority is unconventional, including tar sands - clay-like deposits that require more energy than conventional oil to extract.
EU member states approved legislation in 2009, called the Fuel Quality Directive, with the aim of cutting greenhouse gases from transport fuel sold in Europe by 6 percent by 2020.
In October 2011, the Commission proposed detailed rules for implementing the law, including default values to rank fuels by their greenhouse gas output over their wells-to-wheels life cycle.
Another source said the Commission was maintaining its value for tar sands - of 107 grams per megajoule - making it clear to buyers that the fuel source had more greenhouse gas impact than average crude oil at 87.5 grams.
There could, however, be compromises over enforcement. For instance, fuel suppliers could report the average emissions of all crudes used in the European Union. Tar sands would be part of that average.
The decision to carry out a full assessment into the impact of the Fuel Quality Directive followed an inconclusive EU vote and years of lobbying by Canada.
Ahead of publication of the impact assessment, expected over the coming months, officials from the government of Alberta, Canada's largest oil-producing province, embarked on a new European tour, including meetings in Brussels in January.
They have argued the EU law discriminates against Canadian oil and they have taken every opportunity to press their case.
On the sidelines of the London Olympic Games, the Albertan Premier Alison Redford raised the issue of tar sands with the British transport minister, according to documents obtained under access to information requests by campaign group Friends of the Earth Europe.
Britain and the Netherlands, which both have stakes in Royal Dutch Shell, among the companies active in oil sands, have both shown support for the Canadian position.
Redford thanked the British for their "balanced perspective" on oil sands, said a British government "readout", dated Aug. 15 last year, on the meeting between the transport secretary and the visiting premier.
Historically, Canada has exported very little oil to Europe, but that could change as U.S. shale oil has reduced its dependence on Canadian oil, meaning there is Canadian oil to spare.
Delayed pipeline projects, such as TransCanada Corp's Keystone XL pipeline to Texas have added to the surplus, leaving Canada to sell at a deep discount and Alberta scrambling to tackle a budget crisis.
Canada is keen to diversify its trade outlets.
It has been locked in talks on a trade deal with the European Union, its second biggest market after the United States.
In the short term, the Canadian energy industry's prime concern is the precedent the EU tar sands label would set.
"Longer term, it remains a potential market for Canadian crude as we try to gain access to global petroleum pricing markets," Travis Davies, spokesman for the Canadian Association of Petroleum Producers, said.
A major part of the Fuel Quality Directive debate was making sure it was "science-based, fair and let us compete," he added.
Campaigners in Brussels say tar sands should be excluded.
"Low-carbon fuel standards are the road the world should be taking, and for Europe, tar sands never have been nor should be part of this journey," Nusa Urbancic, a manager at Transport & Environment, said.