Ottawa gave Imperial Oil Ltd. the go-ahead to start work on its Kearl oilsands mine Friday, meaning the controversial $8-billion project will remain on track.

After months of legal wrangling in Federal Court, the Department of Fisheries and Oceans reinstated a key water permit for the site that it had revoked in March.

'The federal government missed a real opportunity to show they're serious about dealing with climate change.'— Simon Dyer, Pembina Institute

The decision was based on an updated report from a joint federal-provincial panel handed down on May 6 that explained why it was not concerned about Kearl's environmental impact.

"DFO took into consideration not only the joint review panel's report, including mitigation measures and a followup program that need to be implemented, it also took into account a Fish Habitat Compensation Plan that had been completed by Imperial Oil to the satisfaction of DFO officials," department spokesman Phil Jenkins said in an e-mail statement.

The swift decision means the Kearl project, expected to get final approval from Imperial's board of directors this fall, will stay on schedule.

The Calgary-based company had been anxiously waiting for the permit as the ground around Fort McMurray, Alta., will be soon be too soft and muddy to work.

The area is estimated to contain 4.6 billion barrels of recoverable oil. The project is targeted to produce 100,000 barrels a day in 2010, eventually ramping up to more than 300,000 barrels a day.

Environmental groups took project to court

The Kearl saga dates back to February 2007, when the Fisheries Department first granted Imperial the fisheries authorization, based on the joint panel's positive environmental assessment.

But a complaint from the Sierra Club of Canada, Pembina Institute, Prairie Acid Rain Coalition and Toxics Watch Society brought the matter before the courts this spring.

The environmental groups claimed the project would destroy huge tracts of boreal forest and muskeg in the province's northern regions.

A federal judge ruled in early March that the federal-provincial assessment panel approved the Kearl development without adequately explaining its rationale.

The Fisheries Department then nullified Imperial's permit on March 20. Imperial launched a court challenge of Ottawa's decision to revoke its authorization, which it lost. While the case was underway, the federal-provincial assessment panel came back with more detailed rationale after it was asked to justify its conclusion that Kearl posed no serious environmental concern.

Imperial Oil must follow conditions to protect environment

Fisheries Department spokesman Brian Makowecki said the authorization under the federal Fisheries Act contains more than a dozen pages of conditions on Imperial.

Broadly speaking, he said Imperial would have to have provisions for sediment and erosion control, plans to avoid a net loss of wildlife and provisions to transfer fish affected by the dredging to other bodies of water.

Simon Dyer of the Pembina Institute said it would be "extremely disappointing" if greenhouse-gas conditions were not included.

"I think it would demonstrate that the oilsands environmental management system is fundamentally broken," he said.

"We'll be proceeding here with a project that does not have adequate greenhouse-gas mitigation, is going to be contributing to a growing problem over the next 50 years.

"The federal government missed a real opportunity to show they're serious about dealing with climate change."