UPDATE 1-Canada to toughen, but delay new standard for fuel emissions

(Adds details, source comment)

By Steve Scherer and Rod Nickel

OTTAWA, June 28 (Reuters) - Canada will delay the start date of its regulation to reduce the carbon intensity of gasoline and diesel by seven months, but increase its stringency, according to a draft of the Clean Fuel Standard (CFS) seen by Reuters.

The CFS is one of the key pieces of Prime Minister Justin Trudeau's plan to cut national emissions by 40-45% by 2030, from 2005 levels. The CFS will be officially in place by next week, the source said.

The Trudeau government first proposed the CFS in 2016, and initially intended it to cover liquid, gaseous and solid fuels. It later focused on gasoline and diesel. Canada is aiming to reach net-zero emissions by 2050.

Under the CFS, fuel suppliers will need to cut the carbon intensity - the quantity of carbon per unit of energy - of gasoline and diesel by about 15% by 2030 from 2016 levels, up from 13% in previous drafts of the regulation.

Fuel providers need to begin complying with the fuel standard on July 1, 2023, seven months later than the government was planning.

The delay is because the government is allowing a full 12 months for early credit creation that will help refineries lower initial compliance costs, a government source said.

Furthermore, exported fossil fuels using technologies that reduce carbon intensity - like carbon capture and storage - will not qualify for CFS compliance credits. In a previous draft, both exported and imported fuels qualified, the source said.

The majority of crude oil and gas extracted in Canada, the world fourth-largest producer of crude, is exported.

Compliance credits for technologies like carbon capture were limited to fuels meant for the domestic market because "the intent of the clean fuel regulation is to reduce emissions associated with transportation fuels specifically used in Canada," the source said.

Canadian Environment Minister Steven Guilbeault's office had no immediate comment.

"Stringency could have been stronger, but the long-term view is that this sets the framework for more assertive future action," said Ian Thomson, president of Advanced Biofuels Canada, who has seen the final regulation. The industry group's members include grain handler Archer-Daniels-Midland Co and refiner BP Plc.

"This reg represents a transition, not a revolution," Thomson said. (Reporting by Steve Scherer in Ottawa and Rod Nickel in Winnipeg Editing by Matthew Lewis and Marguerita Choy)