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Canada touts plan to cut fuel carbon intensity; refiners fret about costs

WINNIPEG/OTTAWA/TORONTO, Sept 11 (Reuters) - The Canadian government says its plan to require reductions in carbon intensity of fuels will boost the economy as it recovers from the coronavirus pandemic, but oil and chemical companies say they are worried it will boost their costs as they struggle to rebound.

Ottawa intends to release plans this autumn to reduce the carbon intensity of liquid fuel by 12% by 2030, including by requiring refiners to blend cleaner combustibles with fossil fuels under a Clean Fuel Standard, government and industry officials said.

The standard aims to reduce greenhouse gas emissions by 30 million tonnes by 2030, a critical part of Prime Minister Justin Trudeau’s green plan. Environment Minister Jonathan Wilkinson said it represents a lifeline to the economy as it struggles to regain momentum after lockdowns.

“This is actually a huge economic opportunity to diversify the economy and create a market for clean products,” Wilkinson told Reuters.

Ottawa is expected to begin enforcing the standard on liquids such as gasoline in 2022, followed a year later by gaseous and solid fuels.

“We think the costs will be substantial for energy, for manufacturing, agriculture, for the Canadian public,” said Tim McMillan, chief executive of Canadian Association of Petroleum Producers.

Chemical companies, who rely on exports, will face a competitive disadvantage if gas suppliers pass along costs to them, said Bob Masterson, chief executive of the Chemistry Industry Association of Canada.

Suppliers have several options to meet targets, such as making greater use of biofuels and burying carbon generated by producing fuel in exchange for credits.

The government has already eased requirements in the standard’s first years to accommodate industry, Wilkinson said. He added that it offers benefits for hydrogen and renewable natural gas suppliers.

Bora Plumptre, senior analyst at environmental group Pembina Institute, said the standard must be the “backbone” of Trudeau’s green plan. Unless it takes effect soon, Canada will be hard-pressed to meet longer-term environmental goals, he said.

Refiners support the concept, but are not sure how to practically adjust, said David Schick, vice-president of the Canadian Fuels Association, which represents refiners including Suncor Energy and Imperial Oil.

Terminals need to be reworked to incorporate more renewable feedstocks and gas stations need different equipment to sell cleaner fuel, he said.

Other industries see opportunity.

Natural gas suppliers are looking to bank credits through partnerships that would include cleaner alternatives to diesel fuel for trucking, said Paul Cheliak, vice-president of regulatory affairs at the Canadian Gas Association.

Ethanol producers will review the standard to determine if it warrants further investments in technology and production, said Andrea Kent, vice-president of government relations at Greenfield Global, the biggest Canadian ethanol producer.

Canada already imports 40% of the ethanol it uses. But Wilkinson said the standard gives the industry added certainty about demand, spurring construction of new biofuels plants.

The standard is a “key opportunity” for the canola industry, since Canada sells more of the crop for biodiesel to the European Union and United States than it uses for that purpose in Canada, said Brian Innes, vice-president of government relations at the Canola Council of Canada. (Reporting by Rod Nickel in Winnipeg, Manitoba, Steve Scherer and David Ljunggren in Ottawa and Jeff Lewis in Toronto; Editing by David Gregorio)

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