Ottawa tells regulators oil industry profits should pay for new clean fuel requirements

The clean fuel regulations and the carbon tax increase are scheduled to come into effect on July 1. (Robert Short/CBC - image credit)
The clean fuel regulations and the carbon tax increase are scheduled to come into effect on July 1. (Robert Short/CBC - image credit)

Federal Environment and Climate Change Minister Stephen Guilbeault is urging regulators in Atlantic Canada to consider oil industry profits before approving any fuel price increases to pay for the new clean fuel regulations coming into effect July 1.

In a May 25 letter to independent regulators in the region, Guilbeault also singled out the region's only refiner — Irving Oil — accusing the company of exaggerating its cost of compliance. He said costs can be absorbed into refinery margins instead of being passed onto consumers.

"I would respectfully encourage regulators to assess the full suite of compliance options available to refiners, including less expensive paths of compliance, and the elasticity of margins when reviewing any request by refiners to adjust fuel pricing in your province," Guilbeault wrote to chairman of the Nova Scotia Utility and Review Board.

In Nova Scotia, refinery margins — the difference between the selling price and the cost to make a product — increased from 10.7 cents per litre to 48.3 cents per litre between 2019 and 2022, Guilbeault wrote,

Margins per litre similarly increased in New Brunswick, Prince Edward Island and Newfoundland and Labrador, he said.

The letters were sent the same day Atlantic premiers asked the federal government to delay implementation of the regulations, arguing they will push up pump prices and hurt the region's economy.

Clean fuel regulations

Guilbeault met virtually with the premiers the day before to discuss the issue.

The clean fuel regulations require gasoline and diesel suppliers to reduce greenhouse gas pollution from the fuels they produce to 15 per cent below 2016 levels by 2030.

The regulations are part of a focus on paying for pollution throughout the life cycle of fuels.

The regulations allow suppliers to earn credits for reducing the "carbon intensity" of their operations through actions like carbon capture and storage, on-site renewable electricity, producing low carbon ethanol and biodiesel or supplying fuel or energy to advanced vehicle technology.

The regulations also allow suppliers to recover costs from consumers from six to 13 cents per litre.

"Given these elevated refinery margins and the compliance flexibilities built into the Clean Fuel Regulations, there is no reason the marginal costs of the Regulations should automatically be passed along to consumers," Guilbeault wrote.

Atlantic premiers ask for delay

The required reductions increase gradually and are not expected to result in large cost increases in initial years, Guilbeault said, adding credits cannot be claimed until July 2024, meaning there is no need to recover cost right away.

"Seeking immediate consumer price increases to account for estimated costs under a worst-case scenario projection could lead to a scenario where a company later chooses a lower-cost option, pockets the increased revenue from consumers, and adds it to already elevated refinery margins," Guilbeault wrote.

The Atlantic premiers are asking the federal government to delay implementations of the clean fuel regulations until a plan can be developed to address what they call "the disproportionate impact of regulations on Atlantic Canadians," where many goods needed by consumers and businesses have to be trucked in.

Andrew Vaughan/The Canadian Press
Andrew Vaughan/The Canadian Press

The clean fuel regulations and the carbon tax increase are scheduled to come into effect on July 1.

Earlier this month, the parliamentary budget officer said the clean fuel regulation will increase the cost of gasoline by 17 cents a litre and 16 cents for diesel by 2030.

Nationally, the parliamentary budget officer said the cost to households would range from $231 for lower-income households to $1,008 for higher-income households.

Environment Canada has challenged those numbers, saying they do not take into account the costs of climate change.

"I think we're unique here for a number of reasons. First of all, we don't have a whole lot of options in terms of [having] one major refinery that produces most of the fuel that we use for the region," P.E.I. Premier Dennis King told CBC's Power & Politics on Thursday.

In a statement to CBC News, Irving Oil said the cost of motor fuels is set independently of government and industry.

Guilbeault said he understands Irving will rely entirely on "one of the most costly of all compliance options under the new regulations."

"In short, it is the position of the Government of Canada that the Clean Fuel Regulations will not necessarily lead to significant cost increases to refiners, particularly in the short term, and certainly not as high as those claimed by Irving."