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Petro-Canada’s refinery at Oakville, Ont., has been closed.NORM BETTS

Canada's oil industry is warning the federal government that an aggressive move to force reductions in greenhouse-gas emissions and other pollutants could force the closing of several Eastern Canadian refineries, with the loss of hundreds of well-paying jobs.

Ottawa plans to include the refining sector in the climate regulations it is preparing for the oil and gas industry, and is being encouraged to release them soon to show progress on climate policy as the United States decides whether to approve the controversial Keystone XL oil sands pipeline.

However, refineries in Eastern Canada are facing a competitive squeeze because of flat demand and overcapacity in the Atlantic market.

At the same time, refineries in Quebec and Atlantic Canada must process high-priced imported crude while their inland competitors have access to lower-cost North American supplies.

The Canadian Fuels Association, which represents the refining and marketing side of the business, says its members face a number of proposed new environmental regulations that, taken together, could jeopardize the future of the industry.

"As an industry, we are committed to continuous environmental improvement," association president Peter Boag said in an interview.

"But we need to manage that regulatory agenda such that we achieve real environmental benefits for Canada and Canadians, but do it in a way that we don't achieve those benefits by closing down parts of an industry."

Mr. Boag pointed to an international comparison of refineries' GHG performance in which Canadian plants already rank behind only those in California.

The association released a report on Wednesday that contained dire predictions about the cumulative impact of the environmental policies aimed at reducing Canadians' fuel consumption, cleaning up gasoline by lowering sulphur content, and cutting pollutants and greenhouse-gas emissions at the plants themselves.

The report warns that, even without such policies, one of nine refineries operating in Eastern Canada is likely to close and three others are economically vulnerable.

If Ottawa and provincial governments impose an onerous environmental burden, that would "significantly increase the likelihood that four or five of the nine refineries operating in Eastern Canada could shut down," the study concludes.

Mr. Boag said Ottawa should harmonize any regulatory effort with the United States to ensure that the industry does not suffer and that Canadians do not merely end up importing their gasoline from plants whose GHG profile is even worse than that of the domestic refineries.

While the federal government has announced plans to release draft regulations that would cover the oil and gas sector, including refineries, the U.S. Environmental Protection Agency is focused on introducing new emission rules for the coal-fired power sector, which is by far the largest American source of emissions.

In the past seven years, two refineries have been shuttered – a Petro-Canada plant in Oakville, Ont., and a Royal Dutch Shell facility in Montreal. Imperial Oil Ltd. is looking to sell its Dartmouth, N.S., operation, and the company could close it if no buyer can be found.

Mr. Boag said the plants east of Ontario would benefit from proposals by Enbridge Inc. and TransCanada Corp. to extend the pipeline network from western North America to give them access to cheaper oil that trades at a significant discount to the world price paid by those eastern refiners.

But the industry still suffers from overcapacity in the so-called Atlantic basin, which includes the eastern half of North America, Europe and the Caribbean. And Canadian refiners are facing increasing pressure from offshore competitors, including export-oriented mega-refineries in countries such as India and retooled plants on the U.S. Gulf Coast.

P.J. Partington, a policy analyst at the Calgary-based Pembina Institute, said industry typically complains about the economic impact of regulations, and often exaggerates the risks. Mr. Partington agreed that it would be best if there was international – or even bilateral – agreement on how to proceed.

But he noted that some provinces and California have already adopted climate regulations that affect refineries. "We can't let the absence of international agreement prevent us from making real progress," he said.