Irving_Oil_refinery_clean_fuel_regulations_Desmond_Simon_The_Narwhal_03

Inside Irving Oil’s repeated push to change federal pollution rules

The New Brunswick oil giant sends most of its refined fossil fuels to the U.S., meaning efforts to lighten the carbon load of those products won't be rewarded with federal clean fuel credits. The company desperately wants to change that

The first time Irving Oil asked the federal government to change pollution rules to favour its Atlantic Canada refinery, the response was a swift rejection.

Company president Ian Whitcomb remained undeterred, according to internal government documents obtained by The Narwhal.

Two weeks after Environment and Climate Change Minister Steven Guilbeault wrote Whitcomb a letter in January 2023, saying there were “no plans” to hand the oil and gas company the concession it was seeking from the Clean Fuel Regulations, the executive was scheduled to meet with a top public servant at Natural Resources Canada to plead his case again.

Federal officials anticipated Irving would press them to change the same pollution rules during at least two more meetings planned with high-ranking government representatives in 2023, according to lobbying records.

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The Narwhal’s reporters are telling environment stories you won’t read about anywhere else. Stay in the loop by signing up for a weekly dose of independent journalism.

The exemption Irving Oil was looking for would have classified the fuel produced at its Saint John refinery — the largest in Canada, and the only one of its kind left in the Atlantic region — as having similar environmental benefits for Canada as when lower-carbon fuels are used by Canadians, even though most of the fossil fuels it produces are exported.

Between 70 and 80 per cent of all fossil fuel products from the refinery are sent to the United States each year, according to government figures, things like gasoline, diesel, jet fuel, propane, heating oil and asphalt. Under the clean fuel policy, the carbon content of fossil fuel exports aren’t regulated — but they also don’t count towards compliance with the regulations.

That meant Irving Oil would have to invest more of its own money in emissions reductions at its refinery, or pay for other compliance measures like importing biodiesel or installing electric vehicle chargers or hydrogen stations. It would specifically have to eat a $150-million yearly expense at the Saint John refinery, the result of a deal it struck with a New York-based company in 2022 to buy a piece of technology called an electrolyzer to produce hydrogen through electricity.

Smokestacks and other oil and gas infrastructure set against a grey sky.
Most of the Irving Oil refinery’s products are sent to the United States each year, like gasoline, diesel, jet fuel, propane, heating oil and asphalt. The carbon content of those fuels aren’t regulated but they also don’t count towards compliance with the clean fuel rules. Photo: Desmond Simon / The Narwhal

The refinery emitted three million tonnes of carbon pollution in 2021, the most recent year data is available, representing a quarter of the province’s entire emissions profile. The electrolyzer would potentially reduce the carbon Irving Oil produces while making hydrogen to use at the refinery, a process currently done with fossil fuels.

Behind closed doors, lobbyists portrayed the company as having been blindsided by a single change the government made to the final version of the regulations, compared with the draft version. The change eliminated the ability of exported fuel to count towards compliance with the rules.

The government anticipated explaining it could not agree to Irving Oil’s proposed change to the rules, because to do so would compromise both its efforts to lower the carbon in fuels used in Canada, and the effectiveness of its tax credit for carbon capture technology.

“I understand that you feel strongly,” John Hannaford, then the deputy minister of natural resources, was briefed to tell Whitcomb in advance of a meeting planned for Jan. 26, 2023, “due to the high percentage of your Saint John refinery’s products being exported.”

His briefing notes suggested trying to assuage Whitcomb’s concerns by reminding him that exported fuel was exempt from the rules. Did that “not also result in some cost savings?” he was told he could ask.

The next month, Whitcomb was scheduled to meet with Michael Sabia, then the deputy minister of finance. Sabia was briefed about the same issue in advance, but his “assessment” of the situation is redacted in the government records.

Five months later in July 2023, Whitcomb was scheduled to meet with Energy and Natural Resources Minister Jonathan Wilkinson, with the government once again anticipating a request to change the rules. Wilkinson was briefed that the government had already “clarified” the reality for Irving Oil six months earlier. It was not budging.

“Appreciate the chance to meet today,” the minister’s briefing notes suggested responding. “As Minister Guilbeault and officials have indicated … the [Clean Fuel Regulations] applies to fuels consumed in Canada and thus CFR credit generation is also only for these fuels.”

After this story was published, Wilkinson’s office told The Narwhal that while this meeting had been anticipated, it never actually occurred. A spokesperson said it was likely due to logistical issues but could not provide further details.

Man in a blue suit stands at a podium in front of Canadian and New Brunswick flags.
New Brunswick’s Progressive Conservative government led by Premier Blaine Higgs, a former Irving Oil executive, enacted a law last summer meant to pass any costs of complying with the clean fuel policy from oil companies on to consumers. New Brunswick Green Party Leader David Coon says the benefits are flowing to refineries. Photo: Government of New Brunswick / Flickr

New Brunswick gives Irving Oil relief by passing clean fuel costs on to taxpayers

In the end, Irving Oil got a rebate of sorts anyway, according to New Brunswick Green Party Leader David Coon — thanks to legislation passed by New Brunswick’s Progressive Conservative government led by Premier Blaine Higgs, a former Irving Oil executive who worked for the company for over three decades.

Last summer, Higgs’ government enacted a new law meant to pass any costs borne by oil companies of complying with the clean fuel policy onto consumers. The premier has argued the law was meant for “small retailers” and “did not in any way enhance Irving Oil Limited’s ability to pass incurred costs to the consumer.”

But Coon told The Narwhal the benefits are flowing to refineries. The law passed by the Higgs government is “essentially another carbon tax,” and meant the provincial government “essentially would pay the polluter, instead of ensuring the polluter pays,” he argued.

The province’s energy and utilities board consulted with oil companies before calculating how much to add to the price of gasoline and diesel in order to reimburse companies, and has been criticized for overestimating the clean fuel policy’s burden on them. A federally commissioned report published in January found the impact of the clean fuel policy on gas prices was less than half a cent per litre. A provincial public intervenor has called for the fees to be slashed.

Irving Oil is now facing an uncertain future, after launching a strategic review that could result in the firm or its assets being sold off, including the refinery that employs 1,600 people. Whitcomb, who has been president for the past eight years, is stepping down.

Higgs has pointed the finger at the Clean Fuel Regulations as the reason the firm’s future is up in the air. Conservative Party of Canada Leader Pierre Poilievre, who has vowed to repeal multiple environmental laws if he wins power, described the clean fuel policy as a “tax on the Irving refinery” during a visit last year to Saint John.

Coon said he believed the federal government had already gone out of its way to accommodate industry and provincial government concerns. He said the federal government has provided plenty of time and options to help companies, and created multiple ways to comply with the emissions reduction limits.

And, he said, the company shouldn’t have been caught off guard by this latest policy change. Coon said he’s met in years past with senior Irving Oil management to discuss their anticipated response to the shifting global energy picture, including demand for gasoline likely plummeting in coming decades as countries decarbonize their economies and set electric vehicle sales targets.

“The federal government has moved a lot from their original plan to one that is more of a compromise in response to the industry and lobbying by provinces,” Coon said.

“None of this is new for [Irving] … I don’t have much sympathy for the efforts to continue to try and water this legislation down, to a point where it’s not going to really be meaningful.”

Irving Oil did not respond to requests for comment sent by The Narwhal on March 5, March 11 and March 19.

Asked about Higgs and Poilievre’s comments, Guilbeault’s spokesperson Kaitlin Power said the Clean Fuel Regulations were a “market-based instrument” that gives importers and producers of gasoline and diesel used in Canada “the flexibility to find the most cost-effective approaches that work best for them.”

“The regulations are not a tax, and do not set or prescribe a price, or dictate what actions a regulated party must take,” said Power.

The offices of Higgs and Poilievre did not respond to requests for comment from The Narwhal.

Oil and gas infrastructure on a small rural road.
Irving Oil said the change in the rules for exported fuel could negatively impact its business, the regional economy and “potential job creation” and threaten planned decarbonization projects. The federal government said the change provided an incentive for the oil and gas industry to invest in lowering emissions of fuels sold in Canada. Photo: Desmond Simon / The Narwhal

Irving Oil accused government of ‘last minute’ change after six years of consultations

Fossil fuels are a particularly emissions-intensive way of harnessing energy, because not only do they release carbon pollution when they’re burned as fuel, but the process of digging up and refining raw materials typically means burning other fossil fuels, too.

Think of all the excavators, heavy haulers and transport trucks used in oil extraction and shipping, for example — or the energy-intensive process of refining crude oil into gasoline.

The point of low-carbon fuel requirements is to cut the amount of carbon pollution that goes into making fossil fuels, or what’s known as a fuel’s carbon intensity. These kinds of rules are in effect in jurisdictions like British Columbia, California and Oregon.

In Canada, the Clean Fuel Regulations aim to achieve this by establishing a credit market, where companies whose products don’t meet emissions reduction standards must earn credits or buy them from companies that do.

Companies can earn credits by undertaking actions like installing technology to lower the carbon intensity of fuels. The rules gradually lower allowed carbon intensity limits each year to 2030. The government projects this will eliminate 26 million tonnes of emissions by that year.

Irving Oil told the federal government it was thrown off because the December 2020 draft policy awarded credits for carbon-reduced fuel meant for export, but the final policy published in June 2022 did not, according to a written submission included in a briefing note to Hannaford and obtained by The Narwhal.

The company said it had consulted Environment and Climate Change Canada about the Clean Fuel Regulations for six years but the change was made at the “last minute,” with “no appropriate stakeholder consultation.” The electrolyzer purchase was a sticking point, as the change happened “after this investment was confirmed and has undermined the viability of the project,” Irving Oil said.

“In the longer term, this could represent billions of dollars of future investments, negatively impacting our business, our regional economy and potential job creation as planned decarbonization projects are moved outside of Canada, delayed or cancelled altogether,” the company wrote.

Hannaford’s briefing note shows the government understood the draft clean fuel policy “allowed for credit generation from emissions reduction actions for exported fossil fuels made in Canada,” but “this flexibility was removed at publication in July 2022” when the final rules came out.

Whitcomb outlined Irving Oil’s concerns in a Nov. 9, 2022, letter to Guilbeault, according to the documents. Environment and Climate Change Canada then “clarified for Irving, including in a January 2023 letter, the rationale,” Wilkinson’s briefing notes indicate.

The Narwhal asked Guilbeault’s office what the minister’s response was to Irving Oil’s argument that the change to credits for exported fuel was made at the “last minute,” and whether the company was still asking for this change.

In response, Power said the decision not to provide credits for exported fuel “provides an incentive for the oil and gas industry to make investments to lower the emissions of the fuel they sell in Canada.”

It also ensures “equal treatment” of fossil fuels with other fuels that have lower carbon associated with producing them, and brings the program in line with those in B.C. and in some U.S. states, Power argued.

She said refineries in the Atlantic may be eligible for other tax breaks or federal funding.

“Irving Oil is well positioned to take advantage of the net-zero economy. Irving has opportunities to create valuable Clean Fuel Regulations credits at lower prices,” Power said.

“The oil and gas sector has time and again proven its ability to innovate, and the Government of Canada looks forward to continuing to work with it to keep the air clean and build a strong, thriving economy that works for everyone.”

Sabia is now president and chief executive officer of Hydro‑Québec. The Crown corporation did not respond to questions from The Narwhal.

Hannaford is now clerk of the Privy Council, the head of Canada’s public service. His office directed questions to Natural Resources Canada.

A spokesperson for Wilkinson, the natural resources minister, declined to comment on Irving’s arguments and its request for change, the New Brunswick fuel charges, or comments from Higgs, saying the regulations fell under the Environment Department.

Man in a rainjacket and red shirt stands in front of oil storage tanks spelling Irving.
Gordon Dalzell, head of the Saint John Citizens Coalition for Clean Air, pictured in 2020. Dalzell said he recognizes Irving Oil’s efforts to lower sulphur levels in gasoline and invest in upkeep at its refinery. But he said federal clean fuel rules might be the least of its worries, given coming competition with American clean fuel production tax credits, not to mention the transition to a low-carbon world. Photo: Desmond Simon / The Narwhal

Clean fuel policy may be least of refinery’s concerns: environmental advocate

It’s unclear what the future holds for the Saint John refinery — or refineries in general.

Refineries in Canada have been dying a slow death, dropping from 40 in the 1970s to 17 in 2023, a fact pointed out in a February report from the Atlantic Economic Council.

That report found that, while Irving Oil accounts for over 17 per cent of Canada’s refining capacity, the “transition to low-carbon fuels will reduce the economic impact of the refined oil industry.”

“There will be fewer global oil refineries in 2050. Global oil demand for road transport is forecast to decline 96 per cent by 2050 relative to 2022 levels under the net-zero scenario, according to the International Energy Agency,” the council wrote.

Gordon Dalzell, who lives in a neighbourhood next door to the refinery and is head of the Saint John Citizens Coalition for Clean Air, said he recognizes Irving Oil’s efforts trying to keep up with the times, like lowering sulphur levels in its gasoline and spending millions of dollars on maintenance and upkeep at the plant.

“Although there have been incidents over the years, we could have had it a lot worse if the place had not been maintained properly,” said Dalzell, who successfully pushed to lower the refinery’s emission limits for nitrogen oxide, sulphur dioxide and particulate matter.

But Dalzell said Irving Oil’s issue with regulatory credits might be the least of its worries. As of 2025, the refinery will be competing with American clean fuel production tax credits, he said, which will see the U.S. government reimburse low-emission fuel producers and retailers, making their products cheaper for transportation and aviation companies.

“This becomes a real threat to them, because the refineries in the U.S. that produce those kinds of products, under those new rules, will be favoured … this refinery could become obsolete faster than you think,” he said.

“Those U.S. rules I think are really the biggest threat.”

Dalzell also said refineries will have to compete in a low-carbon world, where society and government policy are moving away from fossil fuels. A former oil refinery in Newfoundland and Labrador has converted to renewable diesel, he pointed out, and that might be the Irving Oil refinery’s true future.

“If they can make that transition, that’s where they should be focusing, is to start to produce cleaner fuels,” he said.

Editor’s note: This story was updated on March 26, 2024 at 3:45 p.m. ET to issue a correction. The previous story recounted three meetings that Whitcomb was scheduled to hold with federal officials, according to briefing notes prepared for those meetings. After the story was published, Wilkinson’s office indicated that while the briefing note for his meeting in July 2023 had been prepared, the meeting never actually occurred, likely due to logistical issues. The story has been updated to reflect that, and to clarify that the information about the other meetings was similarly based on briefing notes prepared beforehand and does not guarantee the meetings actually took place.

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Seeking out climate solutions, big and small. Investigating the influence of oil and gas lobbyists. Holding leaders accountable for protecting the natural world.

The Narwhal’s reporting team is busy unearthing important environmental stories you won’t read about anywhere else in Canada. And we’ll publish it all without corporate backers, ads or a paywall.

How? Because of the support of a tiny fraction of readers like you who make our independent, investigative journalism free for all to read.

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