Regulations Amending the Canadian Aviation Regulations (Parts I and X — Offsetting of CO2 Emissions — CORSIA) Amendments: SOR/2020-275

Canada Gazette, Part II, Volume 154, Number 26

Registration

SOR/2020-275 December 16, 2020

AERONAUTICS ACT

P.C. 2020-1055 December 14, 2020

Her Excellency the Governor General in Council, on the recommendation of the Minister of Transport, pursuant to section 4.9footnote a and paragraphs 7.6(1)(a)footnote b and (b)‍footnote c of the Aeronautics Actfootnote d, makes the annexed Regulations Amending the Canadian Aviation Regulations (Parts I and X — Offsetting of CO2 Emissions — CORSIA).

Regulations Amending the Canadian Aviation Regulations (Parts I and X — Offsetting of CO2 Emissions — CORSIA)

Amendments

1 Part X of Schedule II to Subpart 3 of Part I of the Canadian Aviation Regulationsfootnote 1 is replaced by the following:

Column I

Designated Provision

Column II

Maximum Amount of Penalty ($)

Individual

Corporation

PART X — GREENHOUSE GAS EMISSIONS FROM INTERNATIONAL AVIATION — CORSIA

Subsection 1000.10(1)

5,000

25,000

Subsection 1000.10(2)

5,000

25,000

Subsection 1000.10(3)

5,000

25,000

Subsection 1000.10(4)

5,000

25,000

Subsection 1000.12(1)

5,000

25,000

Subsection 1000.12(2)

5,000

25,000

Subsection 1000.12(4)

5,000

25,000

Subsection 1000.12(5)

5,000

25,000

Subsection 1000.13(1)

5,000

25,000

Subsection 1000.13(2)

5,000

25,000

Subsection 1000.13(3)

5,000

25,000

Subsection 1000.13(4)

5,000

25,000

Subsection 1000.13(5)

5,000

25,000

Section 1000.14

5,000

25,000

Subsection 1000.15(1)

5,000

25,000

Subsection 1000.15(2)

5,000

25,000

Subsection 1000.20(1)

5,000

25,000

Subsection 1000.20(3)

5,000

25,000

Section 1000.21

5,000

25,000

Paragraph 1000.30(1)(a)

5,000

25,000

Paragraph 1000.30(1)(b)

5,000

25,000

Subsection 1000.30(2)

5,000

25,000

Subsection 1000.30(3)

5,000

25,000

Paragraph 1000.31(1)(a)

5,000

25,000

Paragraph 1000.31(1)(b)

5,000

25,000

Subsection 1000.31(2)

5,000

25,000

Subsection 1000.31(3)

5,000

25,000

Subsection 1000.32(1)

5,000

25,000

Subsection 1000.35(1)

5,000

25,000

Subsection 1000.35(2)

5,000

25,000

2 Part X of the Regulations is replaced by the following:

Part X — Greenhouse Gas Emissions from International Aviation — CORSIA

Division I — General

Interpretation

1000.01 The following definitions apply in this Part.

CO2
means carbon dioxide. (CO2)
compliance period
means one of the three-year periods set out in subsection 1020.01(2) of the CORSIA Standard. (période de conformité)
CORSIA
means the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation set out in Volume IV of Annex 16 to the Convention. (CORSIA)
CORSIA eligible emissions unit
has the same meaning as in subsection 1020.01(1) of the CORSIA Standard. (unité d’émissions admissible du CORSIA)
CORSIA eligible fuel
has the same meaning as in subsection 1020.01(1) of the CORSIA Standard. (carburant admissible CORSIA)
CORSIA Standard
means Standard 1020 — CORSIA, published by the Department of Transport. (Norme du CORSIA)
new entrant
has the same meaning as in CORSIA and, for the purposes of interpreting this definition, “aeroplane operator” is to be read as “private operator” or “air operator”. (nouveau venu)

Application

1000.02 (1) This Part applies to Canadian private operators and Canadian air operators that produce — from the use of one or more large aeroplanes — more than 10 000 t of CO2 emissions from flights between contracting states during a calendar year.

(2) For the purposes of subsection (1), the emissions are calculated in accordance with section 1000.03.

(3) For the purposes of this Part, flights are attributed to a private operator or air operator in accordance with section 1020.02 of the CORSIA Standard and the flight departure time (UTC) determines the calendar year to which a flight belongs.

(4) The following flights are exempt from the application of subsection (1):

Calculation Method

1000.03 (1) CO2 emissions are to be determined using the following formula and expressed in tonnes:

∑Mf x FCFf
f
where
Mf
is the mass of fuel f used, expressed in tonnes and calculated according to
  • (a) a method described in subsection 1020.03(1) of the CORSIA Standard, subject to subsection (2); or
  • (b) a method described in subsection 1020.03(2) of the CORSIA Standard; and
FCFf
is the fuel conversion factor of given fuel f, expressed in kg CO2/kg fuel, and is equal to
  • (a) 3.16 for Jet-A and Jet-A1 fuels; or
  • (b) 3.10 for aviation gasoline (AvGas) and Jet-B fuel.

(2) For the purposes of the methods described in paragraphs 1020.03(1)(a) and (b) of the CORSIA Standard, if a flight is operated on behalf of a private operator or air operator, that operator must ensure that the fuel measurement values calculated according to the method described in paragraph 1020.03(1)(c) of the CORSIA Standard are provided to it and taken into account in its calculations.

[1000.04 to 1000.09 reserved]

Division II — Monitoring

Emissions Monitoring Plan

1000.10 (1) Within 90 days after the day on which a private operator or air operator becomes subject to this Part, the operator must submit to the Minister for approval an emissions monitoring plan for its flights between contracting states — other than flights referred to in subsection 1000.02(4) — that are conducted using one or more large aeroplanes.

(2) The plan must contain the information referred to in subsections 1020.10(1) to (3) of the CORSIA Standard.

(3) The private operator or air operator must choose one of the following monitoring methods:

(4) A private operator or air operator whose emissions monitoring plan was approved by the Minister before January 1, 2021 must submit to the Minister, no later than February 28, 2021,

Approval

1000.11 The Minister must approve the emissions monitoring plan if

Amendment

1000.12 (1) Subject to subsection (2), if any of the information referred to in subsection 1020.10(2) of the CORSIA Standard is amended, the private operator or air operator must submit an amended emissions monitoring plan to the Minister for approval before it is implemented.

(2) If the information referred to in paragraph 1020.10(2)(i), (j) or (k) of the CORSIA Standard is amended, the private operator or air operator must submit an amended emissions monitoring plan to the Minister for approval no later than September 30 of the year preceding the beginning of the next compliance period.

(3) If there is a change to the information referred to in subsection 1020.10(1) of the CORSIA Standard, the private operator or air operator must submit the updated information to the Minister without delay.

(4) If the annual CO2 emissions from a private operator’s or air operator’s flights between states referred to in subsection 1020.10(4) of the CORSIA Standard increase to an amount equal to or greater than 50 000 t for two consecutive years, the operator must choose a monitoring method in accordance with subparagraph 1000.10(3)(a)(ii) and submit an amended emissions monitoring plan to the Minister for approval before it is implemented and no later than September 30 of the year following the two consecutive years of increased emissions.

(5) If the annual CO2 emissions from a private operator’s or air operator’s flights between states referred to in subsection 1020.10(4) of the CORSIA Standard decrease to an amount less than 50 000 t for two consecutive years, the operator may choose a different monitoring method in accordance with subparagraph 1000.10(3)(a)(i) and, if a different monitoring method is chosen, must submit an amended emissions monitoring plan to the Minister for approval before it is implemented and no later than September 30 of the year following the two consecutive years of decreased emissions.

Implementation of Monitoring Plan

1000.13 (1) Subject to subsection (5), a private operator or air operator must implement its emissions monitoring plan as soon as it is approved.

(2) Subject to subsections (3) to (5), the private operator or air operator must use the monitoring method identified in its approved emissions monitoring plan for at least an entire compliance period.

(3) If a private operator or air operator changes its monitoring method in accordance with subsection 1000.12(4) or (5), the operator must use the new method beginning on January 1 of the year after the year in which the amended emissions monitoring plan is approved.

(4) If a private operator or air operator changes its monitoring method as a corrective measure taken under subparagraph 1000.15(1)(a)(ii), the operator must use the new method as soon as its amended emissions monitoring plan is approved.

(5) A new entrant must implement its approved emissions monitoring plan on January 1 of the year after the year during which the new entrant becomes subject to this Part.

Data Gaps — Threshold

1000.14 A private operator or air operator that uses a monitoring method described in subsection 1020.03(1) of the CORSIA Standard must not have data gaps related to fuel quantities in respect of more than 5% of its flights between states referred to in subsection 1020.10(4) of the CORSIA Standard.

Data Gaps — Requirements

1000.15 (1) If there are data gaps in respect of a private operator’s or air operator’s flights between states referred to in subsection 1020.10(4) of the CORSIA Standard, the operator must,

(2) If there are data gaps in respect of a private operator’s or air operator’s flights between contracting states other than the flights between states referred to in subsection 1020.10(4) of the CORSIA Standard, the operator must

[1000.16 to 1000.19 reserved]

Division III — Offsetting

Obligation to Offset

1000.20 (1) For each compliance period, a private operator or air operator must offset the final amount of CO2 emissions calculated in accordance with subsection 1000.24(1) and indicated in a notice provided by the Minister by cancelling, within a registry referred to in section 1020.20 of the CORSIA Standard, an amount of CORSIA eligible emissions units equal to the amount indicated in the notice, by the later of

(2) For the purposes of calculating offsetting obligations, the CO2 emissions to be taken into account are those from flights between states referred to in subsection 1020.10(4) of the CORSIA Standard — other than flights referred to in subsection 1000.02(4) — that are conducted using one or more large aeroplanes.

(3) A private operator or air operator must ensure that the information referred to in subsection 1020.30(4) of the CORSIA Standard in respect of each of its cancelled CORSIA eligible emissions units for a given compliance period is published on the website of the registry referred to in subsection (1).

Prohibition

1000.21 A private operator or air operator must not operate an aircraft for a flight between states referred to in subsection 1020.10(4) of the CORSIA Standard unless that operator has offset its CO2 emissions in accordance with subsection 1000.20(1) of these Regulations.

Calculation of Annual Offsetting Obligations

1000.22 (1) The Minister must calculate the amount of CO2 emissions, expressed in tonnes, required to be offset by a private operator or air operator for a given calendar year, without consideration of any reduction resulting from the use of CORSIA eligible fuels, using the following formula:

%Sy × (OEy × SGFy) + %Oy × (OEy × OGFy)
where
%Sy
is the per cent sectoral for the given calendar year y, as indicated in subsection 1020.22(2) of the CORSIA Standard;
OEy
is the CO2 emissions from the operator’s flights referred to in subsection 1000.20(2) for the given calendar year y;
SGFy
is the sector’s growth factor for the given calendar year y referred to in subsection 1020.22(3) of the CORSIA Standard;
%Oy
is the per cent individual for the given calendar year y, as indicated in subsection 1020.22(2) of the CORSIA Standard; and
OGFy
is the operator’s growth factor for the given calendar year y, calculated in accordance with the formula set out in subsection (2).

(2) The Minister must, taking into account the CO2 emissions set out in the verified emissions report submitted by the private operator or air operator, calculate the operator’s growth factor for a given calendar year using the following formula:

(OEy − OEB,y) ÷ OEy
where
OEy
is the CO2 emissions from the operator’s flights referred to in subsection 1000.20(2) for the given calendar year y; and
OEB,y
is the value set out in subsection 1020.22(4) of the CORSIA Standard.

(3) In the case of a new entrant, the Minister must not take into account the CO2 emissions produced by the new entrant during the shorter of the following periods:

Calculation of Reductions from Use of CORSIA Eligible Fuels

1000.23 (1) A private operator or air operator may claim an emissions reduction resulting from the use of CORSIA eligible fuels in a given calendar year and, if a claim is made, the reduction is to be calculated for each CORSIA eligible fuel using the following formula and be expressed in tonnes:

Calculation of Reductions from Use of CORSIA Eligible Fuels - Description below

where

FCF
is the fuel conversion factor, expressed in kg CO2/kg fuel, and is equal to
  • (a) 3.16 for Jet-A and Jet-A1 fuels; or
  • (b) 3.10 for aviation gasoline (AvGas) and Jet-B fuel;
MSf,y
is the total mass, expressed in tonnes, of a given CORSIA eligible fuel f claimed for the given calendar year y, as calculated in accordance with subsection 1020.23(3) of the CORSIA Standard and as reported in accordance with section 1000.30 of these Regulations;
LSf
is the life-cycle emissions value for a given CORSIA eligible fuel f, calculated in accordance with subsection (2) and expressed in gCO2e/MJ; and
LC
is the life-cycle emissions value for fuel, expressed in gCO2e/MJ and equal to
  • (a) 89 for jet fuels; and
  • (b) 95 for aviation gasoline (AvGas).

(2) For the purposes of calculating the life-cycle emissions value for a CORSIA eligible fuel,

(3) In order to claim an emissions reduction resulting from the use of CORSIA eligible fuels during a given compliance period, a private operator or air operator must submit the information required by subparagraph 1000.30(1)(a)(ii) no later than in its verified emissions report in respect of the final year of that compliance period.

Calculation of Final Offsetting Obligations

1000.24 (1) The Minister must calculate, for each private operator and air operator, the final amount of CO2 emissions that that operator is required to offset for a given compliance period, rounded up to the nearest tonne, using the following formula:

(OR1,c + OR2,c + OR3,c) – (ER1,c + ER2,c + ER3,c)
where
ORy,c
is the amount of CO2 emissions that the operator is required to offset for the given calendar year y (where y = 1, 2 or 3) of the compliance period c, calculated in accordance with section 1000.22; and
ERy,c
is the emissions reduction claimed resulting from the use of CORSIA eligible fuels in the given calendar year y (where y = 1, 2 or 3) of the compliance period c, calculated in accordance with section 1000.23.

(2) If the amount of CO2 emissions calculated in accordance with subsection (1) is a negative amount for a given compliance period, that amount cannot be used to reduce the private operator’s or air operator’s emissions-offsetting obligations for a subsequent compliance period.

[1000.25 to 1000.29 reserved]

Division IV — Reporting, Verification and Record Keeping

Verified Emissions Report

1000.30 (1) A private operator or air operator must submit to the Minister, no later than April 30 of the calendar year following the calendar year during which the monitoring of emissions was carried out,

(2) The private operator or air operator must ensure that the verification body submits to the Minister, with the operator’s prior authorization, the reports referred to in subsection (1) no later than April 30 of the calendar year following the calendar year during which the monitoring of emissions was carried out.

(3) Despite subsections (1) and (2), the verified emissions report and associated verification report for the year 2020 must contain the information referred to in, and be submitted in accordance with, section 1000.20, as it read before January 1, 2021.

Verified Emissions Unit Cancellation Report

1000.31 (1) A private operator or air operator must submit to the Minister, for a given compliance period,

(2) The private operator or air operator must submit to the Minister the reports referred to in subsection (1) by the later of

(3) The private operator or air operator must ensure that the verification body submits to the Minister, with the operator’s prior authorization, the reports referred to in subsection (1) by the later of the dates set out in subsection (2).

Verification Body

1000.32 (1) A private operator or air operator must select a verification body that is accredited as meeting the requirements set out in subsection 1020.32(2) of the CORSIA Standard by a national accreditation body that is a member of the International Accreditation Forum and that meets the requirements referred to in subsection 1020.32(1) of the CORSIA Standard.

(2) The private operator or air operator must ensure that the verification of the emissions report and the emissions unit cancellation report is conducted in accordance with the requirements set out in subsection 1020.32(3) of the CORSIA Standard.

Parent Company and Subsidiaries

1000.33 A private operator or air operator and one or more other private operators or air operators may consolidate their emissions monitoring plans, verified emissions reports, verified emissions unit cancellation reports and associated verification reports if

Publication

1000.34 (1) A private operator or air operator that uses a monitoring method described in subsection 1020.03(1) of the CORSIA Standard may make a request to the Minister that certain information be considered confidential, in the cases set out in section 1020.34 of the CORSIA Standard, and must indicate the reasons for the request.

(2) The Minister must determine that information is confidential if it is established that publication would harm the commercial interests of the private operator or air operator and such information must be designated as confidential when provided to ICAO.

Records

1000.35 (1) A private operator or air operator must retain a copy of the emissions monitoring plans, the verified emissions reports, the verified emissions unit cancellation reports, the authorizations referred to in subsections 1000.30(2) and 1000.31(3) and the associated verification reports, together with the supporting documents, for at least 10 years after the day on which they are made.

(2) The private operator or air operator must provide the Minister with a copy of the records referred to in subsection (1) on request.

Coming into Force

3 These Regulations come into force on January 1, 2021.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Aviation is responsible for approximately 2% of global carbon dioxide (CO2) emissions, with international aviation representing roughly two thirds of the total emissions from aviation.footnote 2 The International Civil Aviation Organization (ICAO) estimates that without corrective action, emissions from international aviation could grow by 60% to 80% between 2020 and 2035.footnote 3 Advances in aircraft technology, operational improvements, and a greater use of sustainable aviation fuels will not be enough to ensure carbon neutral growth of international aviation from 2020. In order to respond to the projected growth in greenhouse gas (GHG) emissions, Member States of ICAO have agreed to implement the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which requires amendments to the Canadian Aviation Regulations (CARs).

Description: The amendments to the CARs add the specific requirements for private operators or air operators (operators) who fly internationally to offset their assigned share of the increase in global GHG emissions from the international aviation sector beyond 2020 levels by using CORSIA Eligible Fuels (CEF)footnote 4 or acquiring and cancelling emissions units on the international carbon market. These amendments will come into force in Canada on January 1, 2021.

Rationale: Incorporating the requirements related to the offsetting obligations of CORSIA into Canadian domestic law will (1) fulfill Canada’s international climate change obligations for this ICAO initiative; and (2) contribute to efforts to reduce the global concentration of CO2 in the atmosphere. The amendments will require affected Canadian operators to acquire a total of between 54.4 million and 71.9 million tonnes (Mt) of CO2 emissions offset units between 2021 and 2035, resulting in a global benefit from avoided damage due to climate change that has a monetized present value range of $1.6 billion to $2.1 billion.footnote 5 The range for the present value total cost of acquiring offsetting emissions units and the associated monitoring, verification and reporting requirements will be between $1.2 billion and $1.6 billion. The net present value of these amendments will be between $362.9 million and $472.7 million from 2021 to 2035.

Issues

According to ICAO, aviation is responsible for approximately 2% of global CO2 emissions, with international aviation representing roughly two thirds of the total emissions from aviation. ICAO estimates that without corrective action, emissions from international aviation could grow by 60% to 80% between 2020 and 2035. Despite ongoing efforts to respond to growing emissions through advances in aircraft technology, operational improvements, and a greater use of sustainable aviation fuels, these efforts will not be enough to ensure carbon neutral growth of international aviation from 2020.

Background

Global context

GHG emissions are contributing to a global warming trend that is associated with climate change, which will lead to changes in average climate conditions and extreme weather events. Science confirms that the impacts of climate change will worsen as the global average surface temperature becomes increasingly warmer. Canada’s climate is warming at twice the global rate and, in the North, at three times that rate. If no action is taken on climate change, the severity of impacts already being felt in Canada (e.g. floods, fires, heat waves and droughts) will increase.

The Paris Agreement aims to address climate change by limiting global warming to well below 2 °C above pre-industrial era levels, and strives to hold the increase to 1.5 °C, by undertaking rapid emission reductions and reaching global carbon neutrality in the second half of this century. To that end, it requires each country to communicate national GHG targets every five years, representing an ambitious progression over time to meet the commitments in the Paris Agreement. Emissions from international transportation fuels are not addressed in the Agreement because it is difficult to attribute responsibility for these emissions to a single country’s national target. A consistent approach is necessary to ensure a fair playing field and avoid a patchwork of approaches. Targets and measures for the international aviation and marine sectors are negotiated at ICAO and the International Maritime Organization, respectively, which are better equipped to address their transboundary nature.

At the 37th ICAO Assembly in October 2010, Member States adopted a new resolution on climate change, which set aspirational reduction goals for international aviation emissions, including a global annual average fuel efficiency improvement of 2% until 2020, and a medium-term goal of keeping the annual global net carbon emissions from international aviation at 2020 levels. At the 39th Assembly in October 2016, Member States, including Canada, agreed to implement CORSIA to help achieve the aspirational goal of carbon-neutral growth from international aviation from 2020 onward, and ultimately developed it into a standard made pursuant to the Convention on International Civil Aviation and set out in Annex 16, Volume IV.

Carbon Offsetting and Reduction Scheme for International Aviation

CORSIA is a global market-based measure that requires operators to acquire and cancel emissions units to offset a portion of their CO2 emissions from 2021 to 2035, based on the growth of the sector from the baseline. Generally speaking, an emissions unit is a tradable certificate representing a GHG reduction, or removal by carbon sink in another sector (e.g. energy, waste, forestry), which can be acquired and cancelled by an operator to offset its own emissions. Cancelling an emission unit renders it unusable for any other purpose, such as application toward a domestic compliance obligation or a national GHG target under the Paris Agreement.

A number of offsetting programs have been established to issue and track emissions units for sale in domestic and international carbon markets. ICAO has agreed to eligibility criteria for emissions units and has set up a Technical Advisory Body (TAB) to assess offsetting programs against these criteria. Any existing program around the world can apply to provide the opportunity for their clients to sell units to operators to meet their CORSIA obligations. However, the transfer of units must be authorized by the relevant Member State under the Paris Agreement and accounted for against its national target, to ensure that no emission reduction or removal is double-counted. After a program applies, the TAB then conducts an assessment of program applications against emissions unit criteria, and makes recommendations to the ICAO Council. Six offsetting programs have been approved to date, and more are under review. Transport Canada will monitor the ongoing CORSIA processes and availability of emissions units; any issues are expected to be addressed at ICAO.

The amount of offsetting obligations is determined annually; however, units only have to be cancelled 13 months after the end of the compliance cycle. For example, after each of 2021, 2022 and 2023, operators will be advised of the offsetting obligations they have accrued for each of those years. In 2024, they will be advised of their final obligation for 2021–2023, after reductions from CEF have been taken into account. Subsequently, they must cancel the necessary amount of emissions units for 2021–2023 by January 31, 2025, and report on those cancellations by April 2025.

For the first nine years (2021 to 2029), each operator’s offsetting obligation is based on the emissions of the operator on routes subject to offsetting and the growth of the sector on these routes. For the last six years (2030 to 2035), the operators’ obligations would include a portion based on their individual growth since 2020 on routes subject to offsetting. Although the exact offsetting proportions between individual growth and global growth have not yet been agreed to at ICAO, operators will be responsible for at least 20% individual growth in emissions for 2030–2032 (no more than 80%, sectoral) and at least 70% for 2033–2035 (no more than 30%, sectoral). The ICAO assembly will decide on the exact proportions ahead of those compliance periods. Operators can reduce these obligations through the use of CEF that have a life cycle emissions factor of at least 10% less than conventional fossil fuels, as the reduction in life cycle value will be credited against their offsetting obligation.

The offsetting provisions will apply for all operators on a route where both ends are included in the offsetting,footnote 6 regardless of their State of registration.

The COVID-19 pandemic has resulted in a sharp decline in aviation activity. Measures put in place to limit the spread of COVID-19 have resulted in a significant reduction in the number of flights being operated and fewer passengers allowed on flights to ensure that passengers and crew are safe. Reduced operations are expected to substantially lower CO2 emissions for 2020 and following years.

The baseline for CORSIA was originally set to be the average of 2019 and 2020. However, due to the significant impact of COVID-19 on the activity and emissions of the sector in 2020, the use of the two-year average baseline would have resulted in significantly higher offsetting requirements than intended. As a result, the ICAO Council decided to use emissions from 2019 as a proxy for 2020 emissions during the pilot phase (2021 to 2023). Over the full Scheme, using 2019 instead of the average of 2019 and 2020 would result in offsetting obligations of a similar order of magnitude compared to those based on the expected pre-COVID baseline. A discussion will be held at the next ICAO Assembly in the fall of 2022 to determine if any other changes are needed, including to the baseline for years beyond the pilot.

Legislative underpinning

The Aeronautics Act provides that the Governor in Council may make regulations respecting aeronautics and regulations respecting the application of the Convention on International Civil Aviation. These amendments will require operators to offset their assigned share of the increase in global CO2 emissions beyond 2020 levels, by using CEF and acquiring and cancelling emissions units on the international carbon market.

Canada is implementing CORSIA through two sets of amendments to the CARs, made under section 4.9 and paragraphs 7.6(1)(a) and (b) of the Aeronautics Act.

(1) The first set of amendments was published in the Canada Gazette, Part II, in November 2018 and came into force on January 1, 2019. Those amendments required operators to monitor and verify their annual CO2 emissions, and to report them to Transport Canada. As a result, all operators that reach the CORSIA applicability threshold are required to (1) submit a detailed emissions monitoring plan (EMP); (2) undertake annual monitoring of emissions and complete an annual emissions report; (3) have that report verified by an eligible third-party verification body; and (4) submit the emissions report and associated verification report to Transport Canada.

(2) The second set of amendments, which are addressed in this Regulatory Impact Analysis Statement (RIAS), will implement carbon offsetting requirements for operators. In addition to continuing to require them to monitor, report and verify their annual CO2 emissions, the amendments will

Objective

The objective of these amendments is to incorporate the requirements related to the offsetting obligations of CORSIA into Canadian domestic law. Doing so would fulfill Canada’s international climate change obligations for this ICAO initiative, and require Canada’s operators to do their part to maintain the annual global net carbon emissions from international aviation at 2020 levels.

Description

These amendments, and the CORSIA Standard, will apply to operators that offer international flightsfootnote 7 and produce annually a total of more than 10 000 tonnes of CO2 emissions from those flights, through the use of one or more large aeroplanes.footnote 8 CORSIA does not apply to the following types of flights:

Operators that become subject to the Scheme after 2020 (e.g. operators who do not yet exist) will be exempted from offsetting obligations for the first three years, or until their emissions reach 0.1% of the sector’s emissions in 2020.footnote 9

In addition to meeting the monitoring, reporting, and verification (MRV) requirements that came into force in January 2019, operators with international flights covered under CORSIA will be required to do the following under the amendments:

1. Update their emissions monitoring plan

Operators, whose existing plans do not already voluntarily incorporate the new requirements in these amendments, will be required to update their existing EMP to establish monitoring methods to measure their use of CEF, to reflect changes to their eligibility to use the simplified reporting method, and to calculate emissions on their routes subject to offsetting. To stay in line with ICAO requirements, under the regulatory amendments, the threshold for access to the simplified procedures tool provided by ICAO (CO2 Estimation and Reporting Tool [CERT]) changes from 500 000 tonnes CO2 annually on all covered routes to 50 000 tonnes CO2 annually on all routes subject to offsetting. Any operator that used the CERT tool, but is no longer under the eligibility threshold, will have to update its monitoring method to one of the five methods of direct monitoring as described in the CORSIA Standard.

As a large proportion of Canadian operators did voluntarily include the necessary information, it is expected that only a small number will be affected.

2. Report their use of CORSIA Eligible Fuels

Operators using CEF will be able to reduce their offsetting requirements based on the life cycle value of the CEF.footnote 10 The amendments update reporting requirements for annual emissions reports and associated verification reports, to include the reporting of CEF. The information reported will include the following:

3. Cancel, report and verify emissions units cancellation

Operators will be required to acquire and cancel CORSIA eligible emissions unitsfootnote 11 to meet their offsetting requirements after the end of each three-year compliance period, and report these cancellations to Transport Canada. The emissions unit cancellation report (EUCR)footnote 12 will contain detailed information about each batch of cancelled emissions units. The list of eligible programs and project types is available on the ICAO CORSIA website and will be incorporated by reference into the CARs. Operators will be required to engage an accredited third-party verification body to confirm the completeness and accuracy of information in the report. Operators will be required to submit a copy of the EUCR and the corresponding verification report to Transport Canada, and to authorize the verification body also to submit copies of the EUCR and verification report to Transport Canada.

The amendments will come into force in Canada on January 1, 2021.

Regulatory development

Consultation

Throughout the development of CORSIA, Transport Canada consulted with affected Canadian operators directly and through their associations — namely the National Airlines Council of Canada, the Air Transport Association of Canada and the Canadian Business Aviation Association. Stakeholders have also been well briefed on CORSIA through their international organizations, namely the International Aviation Transport Association (IATA) and the International Business Aircraft Council (IBAC). IATA in particular has put forth significant effort to hold several series of international seminars to help operators understand CORSIA and their obligations. Furthermore, two of Canada’s airlines have participated in a CORSIA implementation pilot project sponsored by ICAO and the German Government. The results of this project have further informed Transport Canada about the real-life functionality of CORSIA and identified areas where stakeholders would require further clarification of the requirements, or additional guidance. This information was considered by ICAO for suggested improvements to CORSIA. In particular, the templates were updated and new guidance material was developed to add clarity to the requirements.

Early consultations covering the implementation of ICAO’s CORSIA in Canada were undertaken ahead of publication of the first amendments to the CARs, in November 2018. The consultations formed, in part, Canada’s negotiation positions.

Since November 2018, Transport Canada has continued to consult industry stakeholders through workshops, with a particular focus on helping operators understand CORSIA, the offsetting requirements and the respective obligations of operators.

Through the publication of a Notice of Proposed Amendment (NPA; NPA 2019-011) by the Canadian Aviation Regulatory Advisory Council (CARAC), Transport Canada shared information and sought input from stakeholders for 45 days (from June 24 to August 7, 2019) in preparation for the second stage of CORSIA implementation. Transport Canada has responded to the feedback gathered from this consultation, relating to what follows.

In the spring and summer of 2020, due to the impact of COVID-19 on the sector, Transport Canada undertook further consultations with industry stakeholders, to better understand the impact of the pandemic on their operators and their expected offsetting obligations under CORSIA. These consultations informed Canada’s negotiation positions for the summer 2020 ICAO consultations on whether the design of CORSIA had to be amended in the short term, due to COVID-19.

The prepublication of the amendments in the Canada Gazette, Part I, on August 29, 2020, initiated a 30-day public consultation period. Two comments were received. One comment expressed the stakeholder’s strong support for the amendments and made recommendations related to sustainable fuels requirements for domestic policies. Issues related to these domestic measures are being considered by Environment and Climate Change Canada and Finance Canada in the development of relevant policies. The other comment sought a clarification regarding how the regulations and the CORSIA Standard work together to determine overall compliance obligations. Transport Canada followed up directly with the submitter to clarify. This standard was published in NPA 2020-14 on the CARAC Activity Reporting System with a 50-day comment period which ended on October 20, 2020. An additional Let’s Talk Transportation consultation process with stakeholders was also made available concurrently with the publication of the RIAS in the Canada Gazette, Part I. No comments were received as a result of the posting on the CARAC Activity Reporting System or the Let’s Talk Transportation consultation.

Transport Canada also consulted other government departments throughout the development of CORSIA. These departments include Natural Resources Canada, Environment and Climate Change Canada and Agriculture and Agri-Food Canada. The consultations focused primarily on two areas of work:

Modern treaty obligations and Indigenous engagement and consultation

In accordance with the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, Transport Canada’s Regulatory Stewardship and Aboriginal Affairs group completed an Assessment of Modern Treaty Implications that examined the geographical scope and subject matter of the amendments in relation to modern treaties in effect. As a result of this examination, no implications or impacts on modern treaties have been identified.

Instrument choice

CORSIA is outlined in the ICAO Standards and Recommended Practices (SARPs) [in Annex 16, Volume IV] made under the authority of Article 37 of the Convention on International Civil Aviation (Chicago Convention). It is therefore binding on the high-seas pursuant to Article 12 of the Convention. Member States are required to keep domestic regulations uniform “to the greatest extent possible”footnote 13 with the SARPs, to ensure consistency in the regulation of international aviation.

As a result, regulatory amendments to the CARs are the appropriate instrument choice to implement the CORSIA SARPs (Annex 16, Volume IV) domestically in Canada, and to fulfill Canada’s obligations under the Chicago Convention. Other ICAO Member States are also required to incorporate the ICAO SARPs domestically within their regulatory structure.

Regulatory analysis

The amendments will require affected Canadian operators to acquire a total of between 54.4 million and 71.9 million tonnes (Mt) of CO2 emissions offset units from 2021 to 2035, resulting in a global benefit from avoided damage due to climate change that has a monetized present value range of $1.6 billion to $2.1 billion. The range for the present value total cost of acquiring offsetting emissions units and the associated monitoring, verification and reporting requirements will be between $1.2 billion and $1.6 billion. The net present value of the amendments will be between $362.9 million and $472.7 million from 2021 to 2035.

Impacts of COVID-19 pandemic

The COVID-19 pandemic has resulted in a sharp decline in aviation activity. Measures put in place to limit the spread of COVID-19 have resulted in a significant reduction in the number of flights being operated and fewer passengers allowed on flights to ensure that passengers and crew are safe. Reduced operations are expected to substantially lower CO2 emissions for 2020 and following years.

The full impact of COVID-19 on the sector remains unknown, and a future recovery path is speculative. Before the COVID-19 crisis, the assumption was that CO2 emissions from international aviation would continue to increase through 2020; however, this is no longer the case. The current circumstances were not anticipated when CORSIA was agreed upon in 2016.

Lower levels of CO2 emissions in 2020 will influence the magnitude of offsetting requirements (i.e. demand for emissions units) during the pilot phase (2021 to 2023) and perhaps through to 2035. As a result, the costs and benefits presented below are based on the best information available to date. Given that the costs and benefits rely heavily on the CO2 emissions forecast, and there is uncertainty regarding the recovery of the air sector, the forecast used to determine the costs and benefits remains uncertain; however, this is the best estimate given the available information. Transport Canada will continue to monitor the recovery of the aviation sector and will work with stakeholders to assess relevant information and ensure that CORSIA avoids inappropriate burden on the industry.

As stated in the “Background” section, the emissions baseline for CORSIA, to determine the emissions offsetting requirements, was originally set to be the average of 2019 and 2020. This baseline was projected before the COVID-19 pandemic. Emissions from 2019 will instead be used as a proxy for 2020 during the pilot phase (2021 to 2023). For the purposes of this analysis, the calculation of offsets and the subsequent offset requirement costs were based on growth compared to 2019 for all compliance years to ensure that the cost of CORSIA over the life of the Scheme remains within the same order of magnitude as originally intended. Further, to assess the costs and benefits of the amendments at a time of significant uncertainty for the future emissions trajectory for the aviation sector, three potential recovery paths have been identified.

1. V-shaped recovery: On this recovery path, there is a sharp decline in air passenger demand in 2020, and demand returns to pre-crisis levels on an annual basis in 2022. Beyond 2022, passenger demand continues to grow at faster trend rates and returns to the pre-crisis forecast trend line by 2024.

2. U-shaped recovery: On this recovery path, there is a sharp decline in demand in air passenger demand in 2020, and passenger demand returns to pre-crisis levels in 2025. Beyond 2025, passenger demand continues to grow at faster trend rates and returns to the pre-crisis forecast trend line by 2030.

3. U-shaped recovery + permanent loss: On this recovery path, air passenger demand is assumed to be the same as in the U-shaped recovery until 2025. After 2025, the forecast growth rates in this scenario are assumed to be lower than in the U-shaped recovery. The scenario assumes that a permanent change in travel behaviour of consumers and business takes place. By the end of the forecast, air passenger demand is lower than in the V-shaped or U-shaped recovery scenarios.

At this time, sources, such as the IATA,footnote 14 Air Canadafootnote 15 and industry analysts,footnote 16 have supported the hypothesis that a U-shaped recovery path will be followed, with the air sector recovering to pre-COVID-19 levels by 2025. As a result, the emissions forecasts used to calculate the offset requirements in the central scenario of this analysis are based on the U-shaped recovery path that assumes passenger demand returns to pre-crisis levels in 2025, a return to a pre-crisis forecast trend line by 2030, and 50% lower emissions in 2020 compared to 2019 emission levels. The other two recovery paths are presented in the sensitivity analysis.

Benefits and costs

Analysis conducted prior to the COVID-19 pandemic forecasted emissions from the international flights of Canadian operators by adopting two growth scenarios that were developed by ICAO. These scenarios were used to provide a range of forecasted emissions as upper and lower bounds, respectively. The lower-bound scenario was based on an optimistic case in which there are advanced technological and operational improvements, resulting in less growth in operator emissions. The upper-bound scenario was based on a case that incorporated business-as-usual technological improvements, resulting in higher growth in operator emissions. Given the impacts of the COVID-19 pandemic on aviation emissions in 2020 and the uncertain recovery paths identified above, the lower and upper bound growth scenarios are used in the analysis when emissions are assumed to return to the pre-COVID-19 trend lines (V-shaped and U-shaped recovery paths).

Unless otherwise noted, benefits and costs are present values using 2019 Canadian dollars and a 7% discount rate, the analytical time frame is from 2021 to 2035, and dollars are discounted to 2020.

The net present value of the amendments will be between $362.9 million and $472.7 million, from 2021 to 2035. The amendments will require affected Canadian operators to acquire a total of between 54.4 million and 71.9 million tonnes (Mt) of CO2 emissions offset units. Offsetting these emissions will provide a global benefit from avoided damage due to climate change, and this avoided damage has a monetized present value range of $1.6 billion to $2.1 billion. The range for the present value total cost of acquiring offsetting emissions units and the associated monitoring, verification and reporting requirements will be between $1.2 billion and $1.6 billion. A detailed cost-benefit analysis report is available upon request.

Analytical framework

This cost-benefit analysis considers the benefits and costs of the regulatory changes (the policy scenario) compared to a world in which these changes did not occur (the baseline scenario).

The incremental impacts considered in the analysis relate to the acquisition of CO2 emissions units and to the requirements to monitor, verify, and report emissions and emissions units. The costs of the amendments will be carried by operators that acquire and cancel emissions units. The benefits of the amendments relate to the positive environmental impacts of the amendments and will benefit the Canadian public, as well as individuals globally, who would experience reduced damage from climate change.

In this analysis, there are no expected reductions in total CO2 emissions to come directly from affected operators between the policy scenario and baseline scenario. The cost of the amendments may therefore be overstated, since operators may have the ability to reduce emissions using a method with a lower marginal cost than purchasing offset units, such as using CEF or investing in technologies that would reduce emissions. Any decrease in global CO2 emissions between the policy and baseline scenarios would be a result of the offset credits purchased by operators in the policy scenario that would reduce CO2 emissions in other sectors and countries.

As currently constituted, CORSIA will be in force internationally until 2035. For the Scheme to be extended beyond that year, Member States would have to reach a new agreement. Therefore, the analytical time frame only covers the period from 2021 to 2035.

Regulated community

The amendments will affect 16 Canadian operators, and will impact their flights between approximately 65 partner countries as of October 2020. These operators operated a total of approximately 327 159 CORSIA eligible flights in 2018, and are forecasted to operate approximately 253 439 flights when the offsetting portion of CORSIA comes into effect in 2021. The number of flights by Canadian operators is forecasted to increase to 630 142 by 2035. These numbers are based on the U-shaped recovery path.

Baseline scenario

In the baseline scenario, the amendments are not implemented in Canada. As a result, operators would not participate in emission-reducing procedures and would bear no additional costs.

In the absence of CORSIA, operators would still be expected to comply with all existing GHG emission mitigation schemes to which they may be subject. However, while emissions from domestic aviation are considered toward Canada’s national GHG target under the Paris Agreement, emissions from international aviation are not. At this time, the fuel used in inter-jurisdictional flights in Canada (i.e. flights crossing provincial and territorial borders) is not covered by the federal fuel charge under the Greenhouse Gas Pollution Pricing Act or provincial carbon pricing systems, and the Act and systems are not measures that are expected to affect emissions from international air travel.

When CORSIA was first developed, it was expected that international CO2 emissions from affected operators would continue to increase between 2021 and 2035. However, due to the COVID-19 pandemic, this is no longer the case. As a result, in the baseline scenario, international CO2 emissions from affected operators are expected to follow a U-shaped path, where there are 50% lower emissions in 2020 compared to the 2019 level, recovery to 2019 levels in 2025, and recovery to the pre-COVID trend line in 2030. It is estimated that CO2 emissions from international air travel from affected stakeholders would be 7.3 Mt in 2020 and increase to between 22.6 Mt and 25.7 Mt by 2035.

Policy scenario

In the policy scenario, operators are assumed to be fully compliant with the requirement to purchase offsets beginning in the compliance year (2021), and are assumed to be taking steps to offset or reduce CO2 emissions so that total global emissions attributable to international aviation from affected operators remain at 2019 levels. This goal would be accomplished through the acquisition and cancellation of offset units. Actual CO2 emissions from international aviation is expected to be the same as in the baseline scenario.

In addition, operators would have to comply with additional administrative requirements, including updating their EMPs, reporting the use of CORSIA Eligible Fuels, and providing the emissions unit cancellation report.footnote 17

Although including routes to and from a State in the carbon offsetting portion of CORSIA is voluntary for Member States until 2027, Canada is participating in CORSIA from the start; therefore, the calculation of offsetting obligations for Canadian operators will include routes between Canada and other participating States beginning in 2021.footnote 18 This analysis takes into account flights between two Member States that are also known to be participating based on information available as of July 2020.

Given the COVID-19 pandemic and the adverse impact it has had on the air sector, it is projected that emissions from Canadian operators would return to the 2019 level by 2025, and stay above the 2019 level from 2026 as a result of the sector’s growth. Therefore, even though the operators must comply with CORSIA from 2021, they are not expected to assume costs associated with offsetting obligations before 2026.footnote 19 However, if the actual emissions from the sector go above the 2019 level before 2026, then Canadian operators will have to comply with the offsetting requirements and assume costs that are not currently modelled in the cost-benefit analysis.

Benefits

Between 2021 and 2035, Canadian operators will be required to offset between 54.4 million to 71.9 million tonnes of CO2 emissions (Figure 1 and Figure 2). The buying and selling of eligible emissions units happens through the carbon market. The price of the emissions units in a given carbon market is determined by the law of supply (availability of emission credits) and demand (level of emission credits needed by participants). This offsetting will result in lower concentrations of CO2 in the atmosphere and will help mitigate climate change and its adverse global impacts on the environment and the economy. These values are monetized using Environment and Climate Change Canada’s (ECCC) social cost of greenhouse gases (GHGs) estimates.footnote 20

Figure 1: Aggregate offset emissions requirements summary (lower bound)

Figure 1: Aggregate offset emissions requirements summary (lower bound)

Figure 2: Aggregate offsets emissions requirements summary (upper bound)

Figure 2: Aggregate offsets emissions requirements summary (upper bound)

The total benefit from offsetting CO2 emissions is between $1.6 billion and $2.1 billion (using ECCC’s central social cost of greenhouse gases value in $CAN 2019).

Costs

Affected operators will assume costs to purchase emissions units and to fulfill monitoring, verification and reporting requirements. The estimated total cost of the amendments over the 15-year analytical time frame (i.e. 2021 to 2035) is between $1.2 billion and $1.6 billion.

Administrative cost

Many of the monitoring, verification and reporting requirements associated with the amendments were defined in Phase 1 of the CORSIA Regulations. Those costs were accounted for in the cost-benefit analysis that accompanied those Regulations. These amendments will alter those requirements and impose some minor administration costs on operators. These costs will arise from operators updating their emissions monitoring plan, reporting their use of CEF, and cancelling emissions units, as well as reporting and verifying emissions unit cancellations. The total costs for monitoring, verification and reporting are around $0.64 million, over 15 years, in both the upper and lower bound scenarios.

Cost of purchasing emission units

As stated above, Canadian operators will be required to purchase between 54.4 million and 71.9 million tonnes of CO2 offset units over the 2021 to 2035 time frame. This amount was multiplied by the prices of carbon offsets to determine the total cost of the amendments. In the central analysis, the price of emissions units is $24 per unit in 2021 and increases to $61 per unit by 2035. This unit price is the average of four separate estimates: International Energy Agency’s World Energy Outlook for 2013 and for 2015, Synapse Energy Economics, and ICF Consulting. Each of these sources estimated the price of permits in the international market; no estimates were calculated specifically for CORSIA. Further, these price estimates were determined before the COVID-19 pandemic and do not take into account the impact of the pandemic on the demand for carbon offsets. At this time, updated price estimates that take into account the pandemic are not available.

Offsetting is done through the acquisition and cancellation of emissions units that arise from programs or projects approved by ICAO. The price of the emissions units in a given carbon market is determined by the law of supply (availability of emission credits) and demand (level of emission credits needed by participants).

The impact of higher or lower offset costs is discussed in the “Sensitivity analysis” section. The total cost of purchasing offsets is estimated at between $1.2 billion and $1.6 billion. However, operators could be motivated to reduce emissions through clean technology and other means, such as using CEF or investing in technologies that would reduce emissions, to reduce emissions using a method with a lower marginal cost than purchasing offset units.

Cost to Government

The costs to the Government of Canada to implement CORSIA were introduced through the MRV phase, which was the subject of publication in the Canada Gazette in 2018.footnote 21 These costs were already assessed and identified in the supporting Regulatory Impact Assessment Statement. Costs to Government included Transport Canada officials reviewing EMPs, the annual CEF report, and the Emissions Units Cancellation Report. There are no incremental costs to Government for the implementation of the offsetting phase of CORSIA.

Cost-benefit statement
Table 1: Monetized costs

Impacted stakeholder

Description of cost

2021

2022–2034
(annual average)

2035

Total
(present value)

Annualized value

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Industry

Purchase of offset credits

$0.00

$0.00

$81.52M

$106.86M

$181.47M

$249.20M

$1.24B

$1.64B

$136.28M

$179.89M

Monitoring, verification and reporting

$0.03M

$0.03M

$0.04M

$0.04M

$0.07M

$0.07M

$0.64M

$0.64M

$0.07M

$0.07M

All stakeholders

Total costs

$0.03M

$0.03M

$81.56M

$106.91M

$181.55M

$249.27M

$1.24B

$1.64B

$136.35M

$179.96M

Table 2: Monetized benefits

Impacted stakeholder

Description of benefit

2021

2022–2034
(annual average)

2035

Total
(present value)

Annualized value

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Global population

Avoided climate change damage

$0.00

$0.00

$107.78M

$140.94M

$203.63M

$279.62M

$1.60B

$2.11B

$176.19M

$231.87M

All stakeholders

Total benefits

$0.00

$0.00

$107.78M

$140.94M

$203.63M

$279.62M

$1.60B

$2.11B

$176.19M

$231.87M

Table 3: Summary of monetized costs and benefits

Impacts

2021

2022–2034
(annual average)

2035

Total
(present value)

Annualized value

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Lower Bound

Upper Bound

Total costs

$0.03M

$0.03M

$81.56M

$106.91M

$181.55M

$249.27M

$1.24B

$1.64B

$136.35M

$179.96M

Total benefits

$0.00

$0.00

$107.78M

$140.94M

$203.63M

$279.62M

$1.60B

$2.11B

$176.19M

$231.87M

NET IMPACT

−$0.03M

−$0.03M

$26.22M

$34.03M

$22.08M

$30.35M

$362.88M

$472.73M

$39.84M

$51.90M

Sensitivity analysis

A sensitivity analysis is used to test the effect on the output of selected independent variables used in the analysis. Uncertainty about these independent variables can be better contextualized through the use of sensitivity analysis. The following independent variables were analyzed: ECCC’s social cost of greenhouse gases, carbon offset costs, discount rate, ICAO recovery scenarios, and emissions baseline.

Social cost of greenhouse gases

Environment and Climate Change Canada developed two estimates for the social cost of greenhouse gases: a central value, and the 95th percentile value. In the main analysis, the central value is used, while the sensitivity analysis presents the results with the 95th percentile value. The social cost of greenhouse gases is a measure of the incremental additional damages that are expected from a small increase in CO2 emissions (or conversely, the avoided damages from a decrease in CO2 emissions).

Carbon offset costs

Several sources were used to estimate carbon offset prices: International Energy Agency’s World Energy Outlook for 2013 and for 2015, Synapse Energy Economics, and ICF Consulting. The central analysis uses an average of these four estimates, while the sensitivity analysis presents the results if the values from these singular sources were used. While the International Energy Agency’s World Energy Outlook for 2013 and for 2015 and Synapse Energy Economics generate a positive net benefit, ICF Consulting has a higher carbon offset price than the other three and, therefore, results in a negative net benefit.

Discount rate

The central analysis used a 7% discount rate as recommended by the Treasury Board Secretariat. It should be noted that the social cost of carbon was estimated using a 3% discount rate as opposed to the 7% discount rate used in this analysis. Avoided impacts associated with the reduction of an additional tonne of carbon dioxide occur over a much longer timeframe than the 15 years which are examined in this Cost Benefit Analysis. Declining discount rates are often used when impacts occur over multiple generations, such is the case with climate change. For this reason, the discounting done is a blended rate of 3% for the social cost of carbon and 7% for any additional discounting required.

The sensitivity analysis presents results that would have been obtained if a non-blended discount rate of 3% had been used for the analysis, as well as if there were no discounting.

ICAO recovery scenarios

As previously discussed, three potential pandemic recovery paths have been identified: V-shaped recovery, U-shaped recovery and U-shaped recovery + permanent loss. The central analysis uses the U-shaped recovery scenario, while the sensitivity analysis presents the results for the V-shaped recovery (with a 50% and 60% reduction in international travel in 2020) and U-shaped recovery + permanent loss scenarios.

Emissions baseline for determining offsetting requirements

In the central analysis, the calculation of offsets, and the subsequent offset requirement costs, are based on emission growth compared to 2019 levels. In the sensitivity analysis, another baseline option is developed: the average of 2019 emissions levels and 2019 emission levels + 2.6%.footnote 22

Table 4: Sensitivity analysis results — Social cost of greenhouse gases

Parameter change

Lower bound NPV

Lower bound B/C ratio

Upper bound NPV

Upper bound B/C ratio

Central table b4 note *

$362.9M

1.29

$472.7M

1.29

95th percentile

$5,704.3M

5.59

$7,502.7M

5.58

Table b4 note(s)

Table b4 note *

Central scenario used in main analysis

Return to table b4 note * referrer

Table 5: Sensitivity analysis results — Carbon offset costs

Parameter change

Lower bound NPV

Lower bound B/C ratio

Upper bound NPV

Upper bound B/C ratio

Average of 4 sources table b5 note *

$362.9M

1.29

$472.7M

1.29

CORSIA (IEA WEO 2013)

$1,055M

2.92

$1,388M

2.92

IEA WEO 2015

$214.4M

1.15

$279.9M

1.15

Synapse Energy Economics

$484.4M

1.43

$631.8M

1.43

ICF Consulting

$-304.1M

0.84

$-409.4M

0.84

Table b5 note(s)

Table b5 note *

Central scenario used in main analysis

Return to table b5 note * referrer

Table 6: Sensitivity analysis results — Recovery paths

Parameter change

Lower bound NPV

Lower bound B/C Ratio

Upper bound NPV

Upper bound B/C ratio

U-shaped table b6 note *

$362.9M

1.29

$472.7M

1.29

V-shaped (50% lower emissions in 2020)

$607.7M

1.38

$758.2M

1.37

V-shaped (60% lower emissions in 2020)

$607.7M

1.38

$758.2M

1.37

U-shaped + permanent loss

$134.2M

1.27

$183.4M

1.27

Table b6 note(s)

Table b6 note *

Central scenario used in main analysis

Return to table b6 note * referrer

Table 7: Sensitivity analysis results — Emissions baseline for determining offset requirements

Parameter change

Lower bound NPV

Lower bound B/C Ratio

Upper bound NPV

Upper bound B/C Ratio

2019 Baseline table b7 note *

$362.9M

1.29

$472.7M

1.29

Average of 2019 and 2019 + 2.6%

$348.0M

1.26

$457.8M

1.29

Table b7 note(s)

Table b7 note *

Central scenario used in main analysis

Return to table b7 note * referrer

Table 8: Sensitivity analysis results — Discount rate

Parameter change

Lower bound NPV

Lower bound B/C Ratio

Upper bound NPV

Upper bound B/C Ratio

7% table b8 note *

$362.9M

1.29

$472.7M

1.29

3%

$541.7M

1.28

$707.6M

1.28

Undiscounted

$743.9M

1.27

$973.6M

1.27

Table b8 note(s)

Table b8 note *

Central scenario used in main analysis

Return to table b8 note * referrer

Distributional impact analysis

Costs will not be distributed evenly among Canadian operators. The three largest commercial air operators and their subsidiaries will assume between 90.8% ($1.13 billion) of the total cost to operators in the lower bound scenario and 90.7% ($1.49 billion) in the upper bound scenario. Based on publicly available financial information for these three companies, in 2018, the combined annualized cost of the Regulations will represent approximately between 0.47% and 0.60% of the annual revenues of the three companies combined.

The other 13 operators will assume the remaining 9.2% to 9.3% of the total cost to operators, which is approximately between $113.7 million in the lower bound scenario and $149.04 million in the upper bound scenario. The individual cost over the 15-year analytical time frame per company for these companies ranges between $470,726 and $34.7 million for the lower bound scenario and between $482,375 and $45.22 million for the upper bound scenario.

While it is acknowledged that these operators are heavily affected by the pandemic, given that their projected emissions would stay below the 2019 level until 2025 and that they are not expected to assume costs associated with offsetting obligations before 2026, these costs should not be imposed while they are recovering from the effects of the pandemic.

Small business lens

The small business lens does not apply as there are no associated impacts on small businesses. Since CORSIA only applies to operators above the threshold of 10 000 tonnes of annual CO2 emissions that operate international flights, it is unlikely that any small operators based in Canada would be subject to the Scheme.

One-for-one rule

The one-for-one rule applies since there is an incremental increase in administrative burden on business, and the proposal is considered an “IN” under the rule. The implementation of CORSIA in Canada will impose an incremental administrative burden of $242,703, for an average annualized cost of $20,112, or $1,183 per operator (present value, using a 7% discount rate, expressed in $CAN 2012, as required by the Treasury Board’s Policy on Limiting Regulatory Burden on Businessfootnote 23).

All operators are expected to be required to submit an updated emissions monitoring plan. This will result in a one-time cost of approximately $398.4 per operator in 2021 ($CAN 2012).

Operators will be required to calculate emission reductions from the use of CEF. The incremental time spent to include CEF information in annual reports will represent a cost of approximately $2,049, per operator ($CAN 2012).

Operators will also be required to submit an Emissions Units Cancellation Report at the end of every three-year compliance period between 2021 and 2035. The estimated average administrative cost associated with performing the necessary calculations, checking the calculated figures, and submitting the report, is approximately $4,101 ($CAN 2012) per operator.

Operators will be required to engage an accredited third-party verification body to confirm the completeness and accuracy of the information in the EUCR. The costs associated with hiring the third party and reviewing and submitting their report is estimated to be an additional $7,732 ($CAN 2012) per operator.

Regulatory cooperation and alignment

These regulatory amendments are not related to a work plan or commitment within a formal regulatory cooperation forum; however, they will align Canada’s domestic regulations with the ICAO CORSIA standards and recommended practices (SARPs) set out in Annex 16, Volume IV, allowing Canada to meet its international obligations of the Chicago Convention. CORSIA was created through an international negotiation and passed by consensus by ICAO’s 191 Member States in 2016. Under Article 37 of the Chicago Convention, each Member State has agreed to collaborate in securing the highest degree of uniformity in regulation through the adoption of the SARPs. By conforming to the SARPs, Canada is aligning its regulations with those of ICAO and of the jurisdictions of the other Member States.

These regulatory amendments also demonstrate Canada’s commitment to addressing climate change, in line with Canada’s goals under the Paris Agreement to the United Nations Framework Convention on Climate Change (UNFCCC), and other action to address climate change at the international level through multilateral agreements. CORSIA is the culmination of various Canadian and international efforts to reduce the impact of GHG emissions from international aviation in an effort to combat climate change. Including Canada, a total of 88 Member States have declared their intention to fully participate in the offsetting component of CORSIA from the start. Canada’s participation is consistent with Canada’s Action Plan to Reduce Greenhouse Gas Emissions from Aviation, which states that “Transport Canada would continue to actively participate, through ICAO, on the implementation of global approaches and standards to address climate change, including system efficiencies and market-based measures.”

In addition, the implementation of CORSIA is in line with the Government of Canada’s Federal Sustainable Development Strategy. One of the goals of this strategy is to undertake effective action on climate change, with a goal of reducing Canada’s total GHG emissions by 30% by 2030, relative to 2005 emission levels. The strategy states that Canada should also play a leading role in international efforts to address climate change through free trade agreements; interactions with key partners, including the United States, Mexico, China and the European Union; multilateral environmental agreements; and participation in international fora such as the United Nations. Efforts also include negotiations on GHG emissions in the maritime and aviation sectors and implementing Canada’s climate finance pledge.footnote 24

Implementing Phase 2 of CORSIA represents the culmination of these efforts and builds on Canada’s implementation of Phase 1 of the CORSIA Regulations (monitoring, reporting, and verification) in Canada that came into force in January 2019.

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a strategic environmental assessment was completed. The assessment concluded that the regulatory amendments will have a positive effect on the natural environment and human health, by leading to fewer global GHG emissions. The assessment also determined that the amendments would support achievement of the Federal Sustainable Development Strategy goal, “Effective Action on Climate Change,” by improving air quality and encouraging the offset of GHG emissions while maintaining competitiveness.

Gender-based analysis plus

No gender-based analysis plus (GBA+) impacts have been identified for these regulatory amendments.

Implementation, compliance and enforcement, and service standards

Implementation

Consistent with this global approach, offsetting requirements under CORSIA are determined through a systemic approach, where the growth of the international aviation sector as a whole affects each operator’s obligation. Therefore, each operator is required to monitor and report its emissions on an annual basis. The emissions data that operators submit annually to Transport Canada will be used to establish each operator’s offsetting obligation under CORSIA. Canada will also submit data to ICAO, as specified by ICAO, to support the calculation of the sectoral growth factor (compared to the baseline emissions) that will form the basis for the calculation of annual offsetting requirements for operators internationally.

At the outset of CORSIA, the allocation of offsetting obligations for operators will be based entirely on an operator’s share of total international aviation emissions on routes subject to offsetting and the sector’s growth, post-2020 (sectoral approach). Over time, the allocation of offsetting requirements for each operator will also be based partially on the operator’s individual growth in CO2 emissions (individual approach), post-2020. Every three years, starting in 2025, operators will be required to “true up” their emissions units — that is to acquire and cancel sufficient emissions units on the international carbon market to match their offsetting obligation under CORSIA.

CORSIA’s monitoring, reporting and verification requirements apply to all international routes, regardless of whether the Member States on either or both ends of the route are participating in the offsetting component. The CORSIA offsetting requirements, however, apply only on a route basis to routes between Member States that are both participating in the offsetting component.

From 2021 to 2026, Member States have the option to participate in the offsetting component. The CORSIA offsetting requirements for operators will only apply to routes between Member States that have both volunteered to participate in the offsetting component. Conversely, a route would not be covered by the offsetting requirements of CORSIA if one or both Member States connecting the route have not opted into the early phases. As of June 30, 2020, 88 States, representing 76.82% of international aviation activity, have indicated that they will join the offsetting component of CORSIA from the outset.

Beginning in 2027, participation in the offsetting component of CORSIA will be mandatory for all Member States, with some predetermined exemptions. The routes exempted from the Scheme after 2027 are those to and from Member States with low aviation activity, and those classified as Least Developed Countries, Small Island Developing States, or Landlocked Developing Countries. However, these countries do have the option to choose to participate in the offsetting component of CORSIA.

The routes subject to offsetting under CORSIA must be monitored annually, as Member States may voluntarily join the offsetting component of CORSIA from the beginning of any given year, provided that they notify ICAO of their decision to join by June 30 of the preceding year.

Compliance and enforcement

These Regulations can be enforced through the assessment of administrative monetary penalties which carry a maximum fine of $5,000 for individuals and $25,000 for corporations per infraction.

Operators shall not operate flights between two states subject to the offsetting obligations unless that operator has met their offsetting obligations for the previous compliance cycle. Each flight that is operated in violation of that requirement would constitute a separate infraction.

Monitoring of compliance with these Regulations, related to the offsetting component and CEF reporting, includes the ongoing monitoring of the carbon and aviation fuels markets using public and internal data sources to ensure that emissions units cancelled and CEF claimed are accurate; and the ongoing monitoring of the submission timelines relating to plans and reports included in the Regulations.

Members of the aviation community have a shared interest in, commitment to, and responsibility for the sustainability of aviation, and are expected to operate on the basis of common sense, personal responsibility and respect for others. Prior to assessing administrative monetary penalties, Transport Canada will be encouraging open communication with industry for violations where there is no risk to Canada meeting its obligations within the global implementation of CORSIA, especially in cases where there are mitigating circumstances. As per Transport Canada enforcement policy, administrative monetary penalties are generally assessed gradually.

Starting in 2020, Transport Canada will be required to undertake order of magnitude checks of emissions reports, and submit aggregated information on Canadian operators to ICAO by August 31 of each year, including information on CEF use. Every three years, starting in 2025, the order of magnitude check and information submission must also cover emissions unit cancellation reports.

Contact

Wendy Bailey
Chief
Environmental Protection and Standards
Civil Aviation
Transport Canada
330 Sparks Street, Place de Ville Tower C, 6th Floor
Ottawa, Ontario
K1A 0N5
Telephone: 613‑993‑7284 or 1‑800‑305‑2059
Email: tc.corsia.tc@tc.gc.ca