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BP Products North America Inc. has agreed to install $400 million in new air pollution controls at its northwestern Indiana oil refinery and pay an $8 million fine under a deal announced Wednesday with the government and environmental groups.

The oil giant agreed to the fine to settle allegations of air quality permit violations since 2001, according to a consent decree filed in federal court in Hammond. The deal also resolves objections by the U.S. Environmental Protection Agency to an air permit issued by Indiana.

Under the agreement, environmental groups including the Natural Resources Defense Council and the Sierra Club agreed to drop their own challenges to the permit.

The agreement, subject to a 30-day public comment period and final court approval, is designed to reduce harmful air pollution by about 4,000 tons annually at BP's sprawling refinery in Whiting, about 20 miles southeast of Chicago.

The refinery is undergoing a $3.8 billion expansion that is due to open next year. BP has said the expanded refinery would be the nation's top processor of heavy high-sulfur Canadian crude oil, boosting its annual production of gasoline, diesel fuel and jet fuel by 15 percent to about 4.7 billion gallons annually.

The project is designed to deal with the higher level of impurities found in that crude, but environmentalists contend the refinery would worsen pollution in the area.

After the Indiana Department of Environmental Management issued an air permit for the expansion in 2008, the Natural Resources Defense Council sued to block it. Although the EPA initially approved the expansion, it later filed Clean Air Act violations against the oil giant. With the Justice Department, the EPA also alleged the expansion violated a 2001 consent decree.

"The permit that BP and the state of Indiana drafted did not reflect reality," said the NRDC's Ann Alexander, lead attorney for the environmental groups. "And as the country wakes up to the mess being made by tar sands all over the country, it will be harder and harder for them to keep trying to play these games."

Steve Cornell, president of BP Products North America, said the deal "protects jobs, consumers, and the environment."

"This multi-billion dollar modernization project is the largest private-sector investment in Indiana history and ensures the Whiting Refinery will continue to provide fuel and jobs for the region for decades to come," Cornell said in a statement.

Under the deal, BP agreed to a new system to reduce the flaring of refinery gas, new controls and practices to lower emissions throughout the refinery, and other environmental upgrades

The settlement imposes some of the lowest emission limits in refinery settlements to date, enhancing controls on wastewater containing benzene. It also requires the refinery to spend $9.5 million on projects to reduce greenhouse gas emissions, the EPA said.

BP also will install equipment to monitor emissions of benzene, sulfur dioxide and other pollutants and to post the data online.

Nicole Barker, executive director of the regional environmental group Save the Dunes, another partner to the agreement, said the pollution reductions will benefit residents of northwest Indiana and the Lake Michigan ecosystem.

"The refinery sits in the midst of one of the most unique ecosystems in the world and that needs to be protected too," Barker said.

The Indiana Department of Environmental Management issued a statement saying it was pleased with the outcome of the consent decree.

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