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The oil industry and the Alberta government say Ottawa’s removal of gaseous and solid fuels from Canada’s long-awaited federal Clean Fuel Standard will avoid an exodus of investment in the fossil fuel sector.

The federal Liberals’ climate change plan, released last Friday, proposed to triple the carbon tax and spend more than $15-billion to pass Canada’s 2030 greenhouse gas emissions reduction targets. But it also significantly dialled back its original plans for the Clean Fuel Standard – a complicated policy to provide emissions reduction incentives and create a credits-trading market – narrowing its scope to focus only on liquid fossil fuels such as gasoline, diesel and oil.

Ottawa is expected to release more details on the standard this week.

The goal of the CFS is to reduce the emissions content of fuels by targeting pollution associated with all stages of fuel production and use, from extraction through processing, distribution and end-use.

The change means alternative fuel, such as hydrogen, which Ottawa is eyeing as part of Canada’s transition to cleaner energy, will no longer be part of the standard. Officials said the change was possible because the overall carbon tax is increasing.

Tim McMillan, president and chief executive of the Canadian Association of Petroleum Producers, said in an e-mail that narrowing the CFS was a “positive decision” that reflected industry concerns about driving away investment.

Alberta Environment Minister Jason Nixon also applauded the move. He said the province, which has been battered by tumbling oil prices, has been pushing for this for years.

“From Alberta’s perspective – and certainly from industries in our province’s perspective – the Clean Fuel Standard that was originally being proposed would have had significant and long-term negative impacts on our industries,” he told media Friday.

While Mr. Nixon would prefer Ottawa scrap the CFS altogether, he said his department will continue to work with the office of federal Environment Minister Jonathan Wilkinson on Alberta’s concerns with the standard.

“Our suggestions are intended to address potential unintended consequences of the regulation, like losing investment and revenue to other jurisdictions and exposure for our trade-exposed industries,” he said. “At the very least, we need to continue to make sure that it will not negatively impact job creators in the province.”

In Mr. Nixon’s main beef with the CFS, he believes the standard amounts to layering one carbon tax on top of another, which will scare away investment by making it more expensive to do business in Canada. Alberta has joined other provinces to fight the federal carbon tax in court, and criticized the federal government last Friday over plans to increase pollution pricing to $170 a tonne by 2030.

Jennifer Winter, director of energy and environmental policy with the University of Calgary’s School of Public Policy, said there is “absolutely” overlap between the CFS and carbon pricing, in that it’s two policies with the same objective – reducing emissions.

“There is still overlap, and there is research out there – even specifically for Canada – that a Clean Fuel Standard is a more expensive way to have emissions reductions compared to a carbon tax,” she said.

A 2018 report from Canada’s Ecofiscal Commission, a group of policy-minded economists from across the country, said a CFS would likely be “considerably more expensive than a carbon price-based approach” for the transportation sector.

Although scant details on the CFS were available Friday when Ottawa released its new climate plan, the proposal said the federal government would provide incentives for technologies such as carbon capture and storage and renewable energy, and “create economic opportunities for lower-carbon fuel providers,” such as biofuel producers. The CFS will also promote the uptake of lower-emission vehicles.

The federal government is also planning several investments alongside the CFS, including a $1.5-billion fund to increase the production and use of low-carbon fuels including hydrogen, and renewable natural gas and diesel. It also cites the coming federal hydrogen strategy, which will set out a path for integrating low-emitting hydrogen across the Canadian economy before the end of the year.

Ian Cameron, press secretary to federal Natural Resources Minster Seamus O’Regan, confirmed the hydrogen strategy is coming soon.

Mr. McMillan from CAPP said new technologies – particularly ones developed by the natural gas and oil industry, such as carbon capture – “will play a major role in ensuring Canada can meet its domestic emissions reduction goals” while also providing lower-emission fossil fuels to world markets.

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