BP PLC (BP-N37.920.070.18%) on Wednesday said it will spend $400-million (U.S.) to install pollution controls at its giant Whiting, Indiana refinery to allow it to process heavy crude oil from Canada, in a deal with U.S. and state regulators.

The consent decree reached with the U.S. Justice Department and Environmental Protection Agency also requires London-based BP to pay $8-million to resolve prior alleged clean-air violations at its 405,000-barrels-per-day plant, the sixth-largest U.S. refinery.

The deal, announced by the government and confirmed by BP, brings to an end years of opposition that might have left BP unable to use $4-billion worth of new processing units being installed at Whiting that will allow it to run Canadian oil sands crude as early as 2013.

U.S. Midwest refiners have looked to boost their profits by refitting to process plentiful supplies of Canadian heavy oil, which is cheaper and has a higher content of pollutants that cause acid rain, smog and haze.

As part of a settlement, BP will install an estimated $400-million of pollution-control equipment at the refinery while finishing a crude slate expansion project.

“We look forward to completion of the modernization project, which will improve the refinery’s efficiency and competitiveness while continuing to reduce emissions,” said Whiting refinery manager Nick Spencer in a statement.

In a statement released on Wednesday afternoon, the Natural Resources Defense Council, which participated in opposition to BP’s crude slate expansion, said the new pollution equipment will cut emissions from the refinery’s flare system by 90 per cent.

The head of Global Community Monitor, which works with local environmental justice groups, said the agreement could set a precedent for refineries seeking to run Canadian oil sands crude.

“It sets a pretty high bar,” said Denny Larson, head of Global Community Monitor. “For a refiner contemplating a tar sands expansion, after seeing this, they may not want to go there.”

Canadian oil sands crude has become highly desired as a feedstock for refiners because it is cheaper than other crude oil grades. It is easier to obtain for U.S. refiners because of its source in Alberta.

Iain Conn, global head of BP’s refining and marketing, said in March that the company had decided to make the investment in the Whiting refinery and put refineries in California and Texas up for sale because of the appeal of Canadian crude.

“We are moving to a Northern Tier refining strategy,” Conn said.

Oil sands crude has drawn opposition from environmental groups because it has high levels of heavy metals, is caustic and said to produce higher levels of air pollutants. The mining of oil sands crude, which is cut from pits in Alberta, and then refined into a liquid, is also said to produce high levels of greenhouse gases.

Opposition to the use of oil sands crude has temporarily halted TransCanada’s Keystone XL pipeline project to bring the oil to refineries on the U.S. Gulf Coast.