The manager of North Atlantic Refining Limited (NARL) is warning that the federal government's mandate for a price on carbon could put it out of business.

Dan Harris says margins are already tight at the Come by Chance refinery, so adding extra costs would make operating it impossible.

"With the carbon tax the way it's written, if it's based on the total crude that we run, it will put us under," he told reporters Friday.

"Today we're really not putting much money in the bank at all," he said.

The federal government has told all provinces they must put a price on carbon, rising to $50 a tonne by 2022.

Harris estimates that would cost the refinery about $50 million a year – a cost it can't pass on to its customers.

Only 10 per cent of the fuel the refinery produces is used in Newfoundland and Labrador, as most of it is exported to the United States, where the refineries it competes against don't have to pay similar costs.

Dan Harris

Refinery Manager Dan Harris says taxing greenhouse gas emissions would put the refinery out of business (Sherry Vivian/CBC)

The refinery is facing other financial pressures as well, laying off more than 100 workers to tackle shrinking margins.

Harris said NARL is committed to reducing output of greenhouse gases.

In the last two years, the refinery has reduced emissions by 17 per cent, but unlike refineries elsewhere it doesn't have access to cleaner, cheaper natural gas to help in the refining process.

'Heck of a lot cheaper' option: minister

Minister of Environment and Climate Change Perry Trimper said he's aware of the refinery's unique situation, and the agreement signed with Ottawa allows a different option.

Perry Trimper

Newfoundland and Labrador Environment Minister Perry Trimper says the refinery has to reduce its emissions, but there is an option to pay into a provincial innovation fund if it can't. (CBC )

Trimper said the refinery will have caps on the emissions it puts out, if it doesn't meet those targets it will have to pay into a provincial innovation fund.

That money will be invested into other projects to reduce pollution and help the province meet its targets.

"It will be a heck of a lot cheaper than just having a tax applied to every tonne of greenhouse gas emissions that you have," he said.

Trimper said those targets and penalties are still being developed for the refinery and other big industrial polluters in the province.