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Flame burns from a stack at the Syncrude Canada Ltd. refinery north of Fort McMurray. The oil sands company had argued that it was unconstitutional for Ottawa to require that at least 2 per cent of diesel fuel be from renewable sources such as ethanol.

Darryl Dyck/Bloomberg

Syncrude Canada Ltd. has lost its court battle against federal rules on renewable diesel in a case that some suggest could have handcuffed national efforts to fight climate change.

The oil sands company, of which Suncor Energy Inc. owns the majority, had argued that it was unconstitutional for Ottawa to require that at least 2 per cent of diesel fuel be from renewable sources such as ethanol.

That demand interfered with provincial jurisdiction over resources by changing markets for nonrenewables, Syncrude argued.

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The company also argued the government was wrong to use criminal law to enact the regulations. "The production and consumption of petroleum fuels is not inherently dangerous," it said.

A decision released last week from the Federal Court of Appeal found that fighting climate change is a legitimate federal goal.

"Protection of the environment is, unequivocally, a legitimate use of the criminal law purpose," Justice Donald Rennie wrote.

Federal Court documents say Syncrude uses about 351 million litres of diesel in its operations. It produces about 204 million litres itself for the company's own use.

The company argued the regulation, passed in 2011, will actually increase Syncrude's greenhouse gas emissions by forcing it to transport biodiesel to its northern Alberta operations.

Justice Rennie wrote that environmental protection is legitimate whether or not it affects markets under provincial jurisdiction.

"The environment and economy are intimately connected," he wrote. "Indeed, it is practically impossible to disassociate the two.

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"The existence of the economic incentives and government investments … do not detract from the dominant purpose of what the [rules] do and why they do it."

The court also noted Syncrude's admission that greenhouse gases contribute to climate change was inconsistent with its argument those gases couldn't be regulated through criminal law.

"Syncrude's position is problematic," Justice Rennie wrote.

Syncrude spokesman Will Gibson said the company is reviewing the decision.

"Syncrude has complied with the regulations since they were enacted and will continue to do so," he said.

Greenpeace spokesman Keith Stewart said environmentalists are relieved.

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"If [Syncrude] had won, it would have set back action on climate change for years," he said. "That would have had huge impacts on everything else the federal government does."

Mr. Stewart said the Syncrude decision should strengthen Ottawa's hand in negotiating with the provinces over climate change and clears the decks for action.

'"This would have been the last vestige of any argument as to why you would delay action," he said. "The court has clearly said, 'OK, government, you can do this.'

"The only thing left for the government to do is act on climate."

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