Lisa Stilborn
Vice President, Ontario, Canadian Fuels Association

Climate policy duplication and regulatory layering put Ontario refineries and jobs at risk

February, 2019

Earlier this month, Canadian Fuels unveiled the results of an independent study that looked at the impact of our four refineries located in Southwest Ontario on the regional, provincial, and national economies.

The results are compelling:

Southwest Ontario refiners sustain 12,000 direct, indirect and induced jobs across Ontario and generate $4.7 billion in GDP. They support 1,600 suppliers located in communities across the province and supply $550 million dollars in feedstocks to the chemical, plastic and rubber industries.

Executive Summary Executive Summary

Our Ontario facilities are the catalyst for an economic cluster that is unlike any other in this country with industrial sectors, suppliers, researchers, and educators working and innovating together.

Our members’ products fuel the economy – whether it is moving goods on the 402 or 401, getting people from point A to point B in the Greater Toronto and Hamilton and throughout the broad expanses of Northern Ontario, or fueling passenger and cargo planes at Pearson Airport. In fact, refined petroleum products represent 46% of Ontario’s energy use and will be a key part of the energy supply mix for years to come. According to the National Energy Board, demand of petroleum fuels will remain relatively constant through 2035.

Every sector of our economy depends on petroleum products made right here in Ontario. That’s why I am worried about the increasing competitiveness risks Ontario refineries face from an aggressive, fragmented and inequitable regulatory agenda. A 2017 report by independent consultants Baker & O’Brien found that Eastern Canadian facilities, including those in Ontario, are at significant risk of closure due to the growing regulatory burden. Topping this list is the increasing number of divergent and duplicative climate policies.

Consider inequitable carbon costs: petroleum fuels are freely traded commodities with Ontario refiners competing for market share directly with Quebec refiners where carbon costs are a quarter of those imposed on Ontario refiners under the new federal carbon pricing scheme. They also compete directly with US refineries along the Gulf Coast and in the mid-West, where there are no carbon costs, and with European Union refineries where carbon costs are a third of those in Ontario.

The basis of the problem is an infeasible federal emissions performance target that no refinery in Canada can achieve, and only very few in the world could achieve. Infeasible targets like the one imposed by the federal ‘backstop’ leave Ontario refiners with little option but to pay an increasing tax on excess emissions that ignores the energy intensive, trade exposed nature of the business, and makes them vulnerable to closure.

Duplicative, expensive and impractical renewable fuels policies: Ontario’s latest proposal to mandate 15 percent ethanol in gasoline by 2025 ‘checks the boxes’ on all three of these features! There are already fourteen federal and provincial biofuels mandates in Canada – including two in Ontario. Meanwhile the Federal Government is moving to implement a new national Clean Fuel Standard for transportation fuels by 2022. Dueling renewable fuel mandates don’t contribute to more emission reductions, they just add complexity, inefficiency and cost to producing and distributing fuels to consumers.

The cost effectiveness of renewable fuel mandates has been well documented. Most recently, a 2018 C.D. Howe Institute report found that GHG abatement costs for renewable fuels measures in British Columbia and California are $200 per tonne of CO2 avoided; this is far higher than that of any carbon pricing regime. The move from 5 to 15 percent ethanol would require major new investments by refiners and fuel retailers. These costs represent a ‘hidden’ carbon tax for businesses and consumers.

As to practicality, most vehicles on the road today could suffer engine and fuel system damage from using fuels containing ethanol levels higher than 10 percent (E10) - vehicle manufacturers are clear about this limitation. This is a major impediment to widespread adoption of 15 percent ethanol (E15). Even with increasing sales of E15 compatible vehicles, the slow vehicle fleet turnover rate means that by 2025, only about 50 percent of the fleet will be validated for E15 use.

Climate policy is complex, with both intended and unintended consequences. The cumulative cost impacts of climate policies as they impact Ontario’s refineries could threaten their continued viability, and put at risk the security of Ontario’s fuel supply and the jobs and broader economic benefits that accrue to the province from this component of Canada’s critical energy infrastructure. Both the Federal and Ontario Government need to carefully consider the implications of their policies and act accordingly.

The Federal Government has already reduced its GHG emission reduction targets for other sectors, in consideration of the competitiveness risks. It needs to do the same for refining. We are not asking for a free pass. We seek an ambitious but feasible target that promotes real emissions reductions and minimizes carbon cost inequities between competing refining jurisdictions.

The Ontario Government is committed to reducing the regulatory burden for business and has already taken some key steps to eliminate duplication with the Federal Government. We commend this action and ask that Ontario further demonstrate its leadership in this area by standing down its proposed ethanol regulation.

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