Canada Gazette, Part I, Volume 153, Number 24: ORDERS IN COUNCIL

June 15, 2019

DEPARTMENT OF THE ENVIRONMENT

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

Order Approving the Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards)

P.C. 2019-761 June 9, 2019

Her Excellency the Governor General in Council, on the recommendation of the Minister of the Environment, pursuant to subsection 163(3) of the Canadian Environmental Protection Act, 1999 ^{footnote a}, approves the Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards), made by the Minister of the Environment on May 27, 2019.

EXPLANATORY NOTE

(This note is not part of the Order.)

Proposal

The Order approves the Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards) [the Interim Order], made by the Minister of the Environment on May 27, 2019. Pursuant to subsection 163(1) of the Canadian Environmental Protection Act, 1999 (CEPA), the Interim Order delays the application of greenhouse gas (GHG) emission standards for trailers in Canada as a result of the decision of the Court of Appeals in the United States (U.S.). The ministerial power for an interim order under subsection 163(1) of CEPA can be invoked to maintain alignment.

In accordance with the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (the Regulations), companies are required to meet the trailer standards outlined in subsection 16.1(1) or 33.1(1) or (2), as the case may be. These Regulations apply to certain trailers, as defined by the Regulations, whose manufacture is completed on or after January 1, 2020.

The Interim Order will, in accordance with subsection 163(3) of CEPA, cease to have effect 14 days after it is made unless it is approved by the Governor in Council within that 14-day period. In accordance with subsection 163(5) of CEPA, the Interim Order will cease to have effect if it is repealed, if the Regulations are amended to give effect to the Order, or one year after the Interim Order is made, whichever is earlier.

CEPA provides the authority for an Interim Order to suspend the operation of regulations governing emissions from vehicles, engines, and equipment for a period of up to one year to respond to a decision of a foreign court where the regulations in Canada are aligned with those in the other country as per subsection 163(1) of CEPA.

Objective

The purpose of the Interim Order, made pursuant to subsection 163(1) of CEPA, is to delay the GHG emission standards for trailers in Canada by one year after the Interim Order is made to allow time for the U.S. situation to become more certain and to allow the Department of the Environment (the Department) to assess the economic impacts of implementing trailer standards in Canada without the standards of the U.S. Environmental Protection Agency (EPA) being in force.

Background

The Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (the Regulations), made under CEPA, were published in the Canada Gazette, Part II, on March 13, 2013. The GHG emission standards in the Regulations apply to vehicles and engines of the 2014 model year and subsequent model years, and reach full stringency with model year 2018. Given the integration of the North-American vehicle manufacturing sector, these standards were aligned with those of the United States.

On October 25, 2016, the U.S. EPA and the National Highway Traffic Safety Administration (NHTSA) agencies published the final rule concerning a second phase of GHG emission and fuel efficiency standards for heavy-duty vehicles, engines and trailers (referred to as Phase 2). The Phase 2 standards, which increase in stringency up to model year 2027, build upon the existing standards that were established for model years 2014 to 2018. In addition, new standards have been introduced for trailers hauled by on-road transport tractors, as trailer design has an impact on the GHG emissions and fuel consumption of the vehicles hauling them.

In December 2016, the Truck Trailer Manufacturers Association (TTMA), which represents the trailer industry in the United States, filed a petition for the review of the U.S. EPA’s trailer standards in the U.S. Court of Appeals for the D.C. Circuit on the grounds that the agency lacked the authority to regulate trailers. During the course of 2017, TTMA also sent Petitions for Reconsideration, made under the U.S. rule-making process, asking that the U.S. EPA reconsider and issue an administrative stay on the implementation of the GHG emission standards for trailers scheduled to come into force in the United States on January 1, 2018.

In response to legal challenges and petitions filed by the U.S. trailer industry, on August 17, 2017, the U.S. EPA announced it would begin a rule-making process to amend its Phase 2 trailer provisions. Further, on October 27, 2017, the U.S. Court of Appeals stayed the implementation of the U.S. EPA Phase 2 trailer provisions. As a result, U.S. EPA is not currently implementing their Phase 2 trailer provisions.

On May 30, 2018, the Regulations Amending the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999 (the Amendments, also referred to as Phase 2) were published in the Canada Gazette, Part II, and entered into force on November 16, 2018. The Amendments establish more stringent GHG emission standards that begin with the 2021 model year for on-road heavy-duty vehicles and engines. Further, the Amendments introduce new GHG emission standards that apply to trailers hauled by on-road transport tractors for which the manufacture is completed on or after January 1, 2020. The Amendments are aligned with the corresponding standards and test procedures of the U.S. EPA final rule that was published in October 2016. The Regulations apply to companies that manufacture or import new on-road heavy-duty vehicles, engines and trailers for sale in Canada.

In making the decision to include the GHG emission standards for trailers, despite the administrative stay in the United States, Canada’s intention was to monitor U.S. developments and to assess whether any future amendments were needed depending upon the outcome of the rule-making and legal processes in the United States. There is currently no further clarity on the outcome of these processes and stakeholders are concerned about potential economic impacts of Canada moving ahead of the U.S. EPA.

In the United States, a portion of the trailer fleets is equipped with technologies on a voluntary basis to benefit from fuel savings. The California Air Resources Board also has trailer standards aligned with the U.S. EPA’s and is moving ahead with trailer standards that come into effect in 2020 in the state of California. California’s approach will result in some market penetration in the United States of trailers compliant with Phase 2 standards. However, it is unclear whether the level of penetration from these initiatives will mitigate concerns expressed by the Canadian industry.

A more detailed analysis is required in order to assess the magnitude and range of all potential risks to industry. Conducting and consulting on a comprehensive Canadian stand-alone economic analysis on Canada-specific trailer standards is not feasible in the short term. Accordingly, the Department acknowledges that there is uncertainty and risk associated with proceeding with the implementation of trailer standards in January 2020 in Canada while the corresponding standards are suspended in the United States.

Implications

A one-year suspension, after the Interim Order is made, will minimize the risk of any unintended consequences and will provide time to assess the economic impacts of implementing trailer standards in Canada. The assessment will also inform a future decision on whether Canada should maintain or amend its trailer standards.

It is anticipated that the Interim Order will have a marginal impact on the environmental outcomes compared to the overall benefits of the Regulations. Delaying the trailer standards for one model year would decrease the estimated GHG reductions by only 0.4 megatonnes (Mt) of carbon dioxide equivalent (CO₂e) for trailers of model year 2020, relative to 73 Mt of CO₂e for the Phase 2 for model years 2020 to 2029 as a whole.

Consultation

When the Amendments were developed and finalized, the stakeholders in Canada were supportive of the Department’s standards that are aligned with the U.S. rule. However, based on the current situation, the Canadian standards would come into effect ahead of the corresponding U.S. federal standards.

Accordingly, the Department has been consulting with the Canadian trailer manufacturing and trucking industry since the summer of 2018 to monitor industry progress in preparing to comply with the upcoming Canadian trailer standards. In January 2019, the Department received submissions from the Canadian industry indicating that the Canadian industry would face adverse economic impacts if the Department moved forward with the implementation of the trailers standards while the corresponding U.S. federal standards continued to be stayed. Further, an environmental non-governmental organization has recommended that Canada maintain the GHG emission standards for trailers in their entirety and that the Department commission another economic analysis.

The trailer manufacturing industry in Canada, located predominantly in Quebec, Ontario, and the Prairies, is mainly composed of small businesses that manufacture speciality trailers and of several larger manufacturers that manufacture box van trailers. Primary concerns raised by the Canadian industry include increased compliance costs, more limited availability of emission-reducing technology for trailers than anticipated due to reduced production in the United States, and a significant competitive disadvantage for Canada’s trailer manufacturers relative to larger U.S. manufacturers. Canadian trailer manufacturers are concerned that even larger U.S. trailer manufacturers could more easily absorb the incremental costs of implementing new technologies for the small portion of the trailers that are intended for Canadian sales.

Therefore, the Canadian industry strongly recommended that the coming into force of the trailer provisions in Canada’s Regulations be delayed at least until a new comprehensive economic analysis has been conducted by the Department and it becomes clear how the U.S. EPA will proceed.

Contact

Stéphane Couroux
Director
Transportation Division
Environment and Climate Change Canada
351 Saint-Joseph Boulevard, 13th Floor
Gatineau, Quebec
K1A 0H3
Telephone: 819‑420‑8020
Email: Stephane.Couroux@canada.ca