Vol. 149, No. 15 — July 29, 2015

Registration

SOR/2015-186 July 16, 2015

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

Regulations Amending the On-Road Vehicle and Engine Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999

P.C. 2015-1076 July 16, 2015

Whereas, pursuant to subsection 332(1) (see footnote a) of the Canadian Environmental Protection Act, 1999 (see footnote b), the Minister of the Environment published in the Canada Gazette, Part I, on September 27, 2014, a copy of the proposed Regulations Amending the On-Road Vehicle and Engine Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999, substantially in the annexed form, and persons were given an opportunity to file comments with respect to the proposed Regulations or to file a notice of objection requesting that a board of review be established and stating the reasons for the objection;

Therefore, His Excellency the Governor General in Council, on the recommendation of the Minister of the Environment, pursuant to sections 160 (see footnote c) and 162 of the Canadian Environmental Protection Act, 1999 (see footnote d), makes the annexed Regulations Amending the On-Road Vehicle and Engine Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999.

REGULATIONS AMENDING THE ON-ROAD VEHICLE AND ENGINE EMISSION REGULATIONS AND OTHER REGULATIONS MADE UNDER THE CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

ON-ROAD VEHICLE AND ENGINE EMISSION REGULATIONS

1. (1) The definition “complete heavy-duty vehicle” in subsection 1(1) of the On-Road Vehicle and Engine Emission Regulations (see footnote 1) is repealed.

(2) The definitions “CFR”, “EPA certificate”, “Federal Test Procedure”, “full useful life emission bin”, “HC + NOX”, “heavy-duty engine”, “heavy-duty vehicle”, “heavy light-duty truck”, “light-duty truck”, “light light-duty truck”, “medium-duty passenger vehicle” and “motorcycle” in subsection 1(1) of the Regulations are replaced by the following:

“CFR” means the Code of Federal Regulations of the United States, as amended from time to time. (CFR)

“EPA certificate” means a certificate of conformity to U.S. federal standards issued by the EPA under Title 40, chapter I, subchapter C, part 86, of the CFR. (certificat de l’EPA)

“Federal Test Procedure” means the test procedure described in sections 130(a) to (d) and (f) of Title 40, chapter I, subchapter C, part 86, subpart B, of the CFR, which is designed to measure urban driving exhaust emissions and evaporative emissions over the EPA Light-duty Urban Dynamometer Driving Schedule set out in Appendix I to part 86 of Title 40, chapter I, subchapter C, subpart T, of the CFR. (Federal Test Procedure)

“full useful life emission bin” means the set of exhaust emission standards, measured using the Federal Test Procedure, that is set out in a horizontal row in the following tables and that is chosen by a company in respect of a test group, taking into account any compliance credits used by the company in accordance with section 1811 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR, if applicable:

“HC + NOX” means the sum of the hydrocarbon and NOX exhaust emissions. (HC + NOX)

“heavy-duty engine” means an engine designed to be used for motive power in a heavy-duty vehicle, other than a medium-duty passenger vehicle, Class 2B vehicle or Class 3 vehicle. (moteur de véhicule lourd)

“heavy-duty vehicle” means an on-road vehicle that has a GVWR of more than 3 856 kg (8,500 lb), a curb weight of more than 2 722 kg (6,000 lb) or a basic vehicle frontal area in excess of 4.2 m2 (45 sq. ft.). (véhicule lourd)

“heavy light-duty truck” means a light-duty truck 3 or a light-duty truck 4 that has a GVWR of more than 2 722 kg (6,000 lb). (camionnette lourde)

“light-duty truck” means an on-road vehicle that has a GVWR of 3 856 kg (8,500 lb) or less, a curb weight of 2 722 kg (6,000 lb) or less and a basic vehicle frontal area of 4.2 m2 (45 sq. ft.) or less and that

“light light-duty truck” means a light-duty truck 1 or a light-duty truck 2 that has a GVWR of 2 722 kg (6,000 lb) or less. (camionnette légère)

“medium-duty passenger vehicle” means a heavy-duty vehicle that has a GVWR of less than 4 536 kg (10,000 lb) and that is designed primarily for the transportation of persons but does not include any vehicle that

“motorcycle” means an on-road vehicle with a headlight, tail light and stoplight that has two or three wheels and a curb weight of 793 kg (1,749 lb) or less. (motocyclette)

(3) Paragraph (a) of the definition “on-road vehicle” in subsection 1(1) of the English version of the Regulations is replaced by the following:

(4) Subsection 1(1) of the Regulations is amended by adding the following in alphabetical order:

“adjusted loaded vehicle weight” means the numerical average of a vehicle’s curb weight and its GVWR. (poids ajusté du véhicule chargé)

“Class 2B vehicle” means a heavy-duty vehicle that has a GVWR of more than 3 856 kg (8,500 lb) but less than or equal to 4 536 kg (10,000 lb). (véhicule de classe 2B)

“Class 3 vehicle” means a heavy-duty vehicle that has a GVWR of more than 4 536 kg (10,000 lb) but less than or equal to 6 350 kg (14,000 lb). (véhicule de classe 3)

“engine family” means

“evaporative emission family” means, in respect of a company’s vehicles, for the application of evaporative emission standards, the grouping determined in accordance with section 1821 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR. (famille d’émissions de gaz d’évaporation)

“family emission limit” means the maximum emission level established by a company for a test group, engine family or evaporative emission family. (limite d’émissions de la famille)

“fire fighting vehicle” means a vehicle that is designed to be used under emergency conditions to transport personnel and equipment and to support the suppression of fires and the mitigation of other emergency situations. (véhicule d’incendie)

“light-duty truck 1” means a light light-duty truck that has a loaded vehicle weight of 1 701 kg (3,750 lb) or less. (camionnette de type 1)

“light-duty truck 2” means a light light-duty truck that has a loaded vehicle weight of more than 1 701 kg (3,750 lb). (camionnette de type 2)

“light-duty truck 3” means a heavy light-duty truck that has an adjusted loaded vehicle weight of 2 608 kg (5,750 lb) or less. (camionnette de type 3)

“light-duty truck 4” means a heavy light-duty truck that has an adjusted loaded vehicle weight of more than 2 608 kg (5,750 lb). (camionnette de type 4)

“loaded vehicle weight” means the sum of the vehicle’s curb weight and 136 kg (300 lb). (poids du véhicule chargé)

“NMHC” means non-methane hydrocarbon exhaust emissions. (HCNM)

“NMOG + NOX” means the sum of the non-methane organic gas exhaust emissions and the NOX exhaust emissions. (GONM + NOX)

“test group” means, in respect of a company’s vehicles other than its motorcycles,

2. The Regulations are amended by adding the following after section 1:

1.1 For the purposes of these Regulations, a vehicle or engine of a specific model year that is sold in Canada is considered to be sold concurrently in Canada and in the United States if a vehicle or engine of that model year that belongs to the same test group or engine family is offered for sale in the United States during the 365 days preceding

3. Section 2.1 of the Regulations is amended by striking out “and” at the end of paragraph (b), by adding “and” at the end of paragraph (c) and by adding the following after paragraph (c):

4. (1) Paragraph 6(1)(b) of the Regulations is replaced by the following:

(2) Paragraphs 6(1)(d) and (e) of the Regulations are replaced by the following:

(3) Paragraph 6(3)(b) of the Regulations is replaced by the following:

5. (1) Subsection 8(5) of the Regulations is replaced by the following:

(5) Subject to subsection (6), a company that has been authorized to apply the national emissions mark shall display the authorization number assigned by the Minister in figures that are at least 2 mm in height, immediately below or to the right of the national emissions mark.

(2) The portion of subsection 8(6) of the Regulations before paragraph (a) is replaced by the following:

(6) A company is not required to display its authorization number if

6. Section 11 of the Regulations is amended by adding the following after subsection (2):

(2.1) Despite subsection (2), an ambulance, police vehicle or fire fighting vehicle may be equipped with a defeat device if the device is one that is activated during emergency response operations to maintain speed, torque or power in either of the following circumstances:

7. The Regulations are amended by adding the following after section 11:

ADJUSTABLE PARAMETERS

11.1 (1) In this section, “adjustable parameter” means a device, system or element of design that is capable of being physically adjusted and as a result can affect emissions or the performance of a vehicle or an engine during emission testing or normal in-use operation, but does not include a device, system or element of design that is permanently sealed by the vehicle or engine manufacturer or that is inaccessible with the use of ordinary tools.

(2) A vehicle or engine that is equipped with adjustable parameters shall comply with the applicable standards under these Regulations for any specification within the physically adjustable range.

8. The heading before section 12 of the Regulations is replaced by the following:

LIGHT-DUTY VEHICLES, LIGHT LIGHT-DUTY TRUCKS, HEAVY LIGHT-DUTY TRUCKS AND MEDIUM-DUTY PASSENGER VEHICLES

9. The portion of section 12 of the Regulations before paragraph (c) is replaced by the following:

12. Subject to sections 17.2, 19 and 19.1, a light-duty vehicle, light light-duty truck, heavy light-duty truck or medium-duty passenger vehicle of a specific model year shall

10. The heading before section 13 of the Regulations is replaced by the following:

CLASS 2B VEHICLES AND CLASS 3 VEHICLES

11. The portion of section 13 of the Regulations before paragraph (c) is replaced by the following:

13. Subject to sections 17.2, 19 and 19.1, a Class 2B vehicle, other than a medium-duty passenger vehicle, and a Class 3 vehicle of a specific model year shall

12. (1) The portion of section 14 of the Regulations before paragraph (a) is replaced by the following:

14. Subject to sections 19 and 19.1, an Otto-cycle heavy-duty vehicle of a specific model year, other than a medium-duty passenger vehicle, Class 2B vehicle or Class 3 vehicle, shall

(2) Paragraph 14(b) of the Regulations is replaced by the following:

13. (1) Paragraph 15(1)(b) of the Regulations is replaced by the following:

(2) Subsection 15(2) of the Regulations is replaced by the following:

(2) A vehicle referred to in subsection (1) that has a GVWR of 6 350 kg (14,000 lb) or less may conform to the standards applicable to vehicles of the model year in question referred to in section 1863 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR instead of the standards described in subsection (1).

14. Section 16 of the Regulations is replaced by the following:

16. (1) Subject to sections 19 and 19.1, Otto-cycle heavy-duty engines of a specific model year shall conform to the exhaust emission and crankcase emission standards applicable to Otto-cycle heavy- duty engines of the model year in question set out in section 10 of Title 40, chapter I, subchapter C, part 86, subpart A, of the CFR.

(2) Subject to sections 19 and 19.1, diesel heavy- duty engines of a specific model year shall conform to the exhaust emission and crankcase emission standards applicable to diesel heavy-duty engines of the model year in question set out in section 11 of Title 40, chapter I, subchapter C, part 86, subpart A, of the CFR.

(3) Subject to sections 19 and 19.1, heavy-duty engines of a specific model year used or intended for use in heavy-duty vehicles that have a GVWR of 6 350 kg (14,000 lb) or less shall be equipped with an on-board diagnostic system that conforms to the standards applicable to engines of the model year in question set out in section 17 of Title 40, chapter I, subchapter C, part 86, subpart A, of the CFR.

(4) Subject to sections 19 and 19.1, heavy-duty engines of the 2014 and later model years used or intended for use in heavy-duty vehicles that have a GVWR of more than 6 350 kg (14,000 lb) shall be equipped with an on-board diagnostic system that conforms to the standards applicable to engines of the model year in question set out in section 18 of Title 40, chapter I, subchapter C, part 86, subpart A, of the CFR.

15. Paragraph 17(a) of the Regulations is replaced by the following:

16. The Regulations are amended by adding the following after section 17.1:

PHASE-IN STANDARDS — PARTICULATE MATTER

17.2 (1) Subject to subsection (3), for the purposes of subparagraphs 12(a.1)(i) and 13(a.1)(i), the particulate matter exhaust emission standards set out in section 1811 or 1816 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR, as the case may be, apply to a percentage of a company’s vehicles referred to in section 12 or 13 of a specific model year, in accordance with subsection (5) or (6).

(2) For the purposes of subsection (1), a company shall group its vehicles together as follows:

(3) For the 2017 to 2021 model years, a company shall calculate the percentage of its vehicles of a specific model year in a given group that conform to the standards referred to in subsection (1) unless each vehicle in the group

(4) In determining the number of vehicles of a given group that are to meet the particulate matter exhaust emission standards referred to in subsection (1), in accordance with the applicable percentage, a company may exclude from the group all of its vehicles that are covered by an EPA certificate and that are of a model that is sold in greater numbers in the United States than in Canada.

(5) Subject to subsection (6), the percentage of vehicles of a specific model year in a given group that conform to the applicable particulate matter exhaust emission standards shall be greater than or equal to the percentage set out in column 2 of the table to this subsection for the applicable model year set out in column 1.

TABLE

PHASE-IN PERCENTAGES — GENERAL APPROACH
Item Column 1

Model Year		 Column 2

Percentage
1. 2017 20
2. 2018 20
3. 2019 40
4. 2020 70
5. 2021 and later 100

(6) A company may elect not to comply with subsection (5) for the 2017 to 2020, 2018 to 2020 or 2019 to 2020 model years if

TABLE

PHASE-IN PERCENTAGES — ALTERNATE APPROACH
Item Column 1

Consecutive Model Years		 Column 2

Percentage
1. 2017 to 2020 38
2. 2018 to 2020 44
3. 2019 to 2020 55

(7) For greater certainty, all companies shall comply with subsection (5) for the 2021 and later model years.

17. Section 18 of the Regulations is replaced by the following:

18. The standards referred to in sections 11 to 17 are the certification and in-use standards set out in the CFR for the applicable useful life and include the test procedures, fuels, calculation methods, compliance credits and allowances set out in the CFR for those standards.

18. Subsection 19(1) of the Regulations is replaced by the following:

19. (1) Every vehicle or engine of a specific model year that is covered by an EPA certificate and bears the U.S. emission control information label referred to in paragraph 35(1)(d) may, if the company so chooses, conform to, instead of the standards set out in sections 11 to 17, the certification and in-use standards referred to in the EPA certificate.

19. Section 19.1 of the Regulations is replaced by the following:

19.1 (1) A vehicle of a specific model year that is not covered by an EPA certificate may be considered equivalent to a vehicle that is covered by an EPA certificate if a company submits the evidence of conformity referred to in section 35.1 in respect of that vehicle instead of the evidence of conformity referred to in section 36.

(2) The equivalency of a vehicle is determined by the Minister on the basis of the evidence of conformity referred to in section 35.1.

(3) Every vehicle of a specific model year that is determined to be equivalent to a vehicle covered by an EPA certificate and that is sold in Canada during the period for which that EPA certificate is valid in the United States shall conform to, instead of the standards set out in sections 11 to 17, the certification and in-use standards referred to in that EPA certificate.

20. The heading “FLEET AVERAGING REQUIREMENTS FOR LIGHT-DUTY VEHICLES, LIGHT-DUTY TRUCKS AND MEDIUM-DUTY PASSENGER VEHICLES” before section 20 of the Regulations is replaced by the following:

FLEET AVERAGE STANDARDS

21. Section 20 of the Regulations is replaced by the following:

20. In sections 21 to 32, “fleet” refers to the vehicles of a specific model year that a company manufactures in Canada, or imports into Canada, for the purpose of sale to the first retail purchaser and that are grouped for the purpose of conforming to sections 21 to 23, 24.1 to 24.4, 24.6, 24.7 and 24.10 or for the purpose of participation in the emission credit system set out in sections 26 to 31.1.

22. The heading before section 21 is replaced by the following:

FLEET AVERAGE NOX STANDARDS

23. The portion of section 21 of the Regulations before the table to that section is replaced by the following:

21. The average NOX value for a company’s fleet that is composed of all of its light-duty vehicles and light light-duty trucks of a model year set out in column 1 of the table to this section shall not exceed the applicable fleet average NOX standard set out in column 2.

24. The portion of section 22 of the Regulations before the table to that section is replaced by the following:

22. The average NOX value for a company’s fleet that is composed of all of its heavy light-duty trucks and medium-duty passenger vehicles of a model year set out in column 1 of the table to this section shall not exceed the applicable fleet average NOX standard set out in column 2.

25. Section 23 of the Regulations is replaced by the following:

23. (1) For the 2009 to 2016 model years, the average NOX value for a company’s fleet that is composed of all of its light-duty vehicles, light-duty trucks and medium-duty passenger vehicles of the model year in question shall not exceed 0.07 grams per mile.

(2) For the 2017 model year, the average NOX value for a company’s fleet that is composed of all of its heavy light-duty trucks and medium-duty passenger vehicles of that model year shall not exceed 0.07 grams per mile.

26. Subsection 24(4) of the Regulations is replaced by the following:

(4) Subject to subsection (5), in respect of any of its vehicles that conform to a NOX emission standard for an extended useful life of 150,000 miles, a company may, in the formula in subsection (1), replace that standard, for each of those vehicles, with that standard multiplied by 0.85, rounded to at least three decimal places.

27. The Regulations are amended by adding the following after section 24:

FLEET AVERAGE NMOG + NOX STANDARDS — 2017 AND LATER MODEL YEARS

Light-duty Vehicles, Light-duty Trucks and Medium-duty Passenger Vehicles

24.1 (1) Subject to subsection (2), for the 2017 to 2024 model years, the average NMOG + NOX value for each of the following fleets of a specific model year shall not exceed the applicable fleet average NMOG + NOX standard set out for the model year in question in Tables 3 and 4 of section 1811 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR:

(2) For the 2017 model year, the fleet referred to in paragraph (1)(c) is composed only of all of a company’s light-duty trucks 2.

24.2 For the 2025 and later model years, the average NMOG + NOX value for each of the following fleets of a specific model year shall not exceed the applicable fleet average NMOG + NOX standard set out in Table 1 of section 1811 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR:

Class 2B Vehicles and Class 3 Vehicles

24.3 For the 2018 to 2021 model years, the average NMOG + NOX value for each fleet that is composed of all of a company’s Class 2B vehicles or all of a company’s Class 3 vehicles of a specific model year shall not exceed the applicable fleet average NMOG + NOX standard set out for the model year in question in Table 4 of section 1816 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

24.4 For the 2022 and later model years, the average NMOG + NOX value for each fleet that is composed of all of a company’s Class 2B vehicles or all of a company’s Class 3 vehicles of a specific model year shall not exceed the applicable fleet average NMOG + NOX standard set out in Table 1 of section 1816 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

CALCULATION OF FLEET AVERAGE NMOG + NOX VALUES

24.5 (1) Subject to section 25.1, for each of a company’s fleets referred to in sections 24.1 to 24.4, the company shall calculate the average NMOG + NOX value in accordance with the following formula:

[Σ (A × B)]/C

where

A is the NMOG + NOX standard for each full useful life emission bin;

B is the number of vehicles in the fleet that conform to the NMOG + NOX standard for the full useful life emission bin in question; and

C is the total number of vehicles in the fleet.

(2) The average NMOG + NOX value for the fleet shall be rounded to the same number of significant figures that are contained in the total number of vehicles in the fleet in the denominator in subsection (1), but to at least three decimal places.

FLEET AVERAGE COLD NMHC STANDARDS

24.6 For the 2017 and later model years, the average cold NMHC value for a company’s fleet that is composed of all of its light-duty vehicles and light light-duty trucks of a specific model year that are operated by an Otto-cycle engine shall not exceed the applicable fleet average cold NMHC standard set out in Table 5 of section 1811 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

24.7 For the 2017 and later model years, the average cold NMHC value for a company’s fleet that is composed of all of its heavy light-duty trucks and medium-duty passenger vehicles of a specific model year that are operated by an Otto-cycle engine shall not exceed the fleet average cold NMHC standard set out for heavy light-duty trucks in Table 5 of section 1811 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

CALCULATION OF FLEET AVERAGE COLD NMHC VALUES

24.8 (1) Subject to section 25.2, for each of a company’s fleets referred to in sections 24.6 and 24.7, the company shall calculate the average cold NMHC value in accordance with the following formula:

[Σ (A × B)]/C

where

A is the family emission limit for cold NMHC for each test group;

B is the number of vehicles in the fleet that conform to the family emission limit for the test group in question; and

C is the total number of vehicles in the fleet.

(2) The average cold NMHC value for the fleet shall be rounded to one decimal place.

FLEET AVERAGE EVAPORATIVE EMISSION STANDARDS

24.9 For the purposes of sections 24.10, 24.11, 25.3, 26.3, 27 and 28, for vehicles of a specific model year, the following groupings are considered to constitute separate fleets for the purpose of evaporative emission averaging:

24.10 (1) The average evaporative emission value for the following fleets of a specific model year shall not exceed the applicable fleet average evaporative emission standards set out in Table 1 of section 1813 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR for the percentage of vehicles of the model year in question referred to in subsection (5) or (6):

(2) For the 2017 to 2022 model years, a company shall calculate the percentage of its vehicles of the model year in question in a given fleet that conform to the applicable standards referred to in subsection (1) unless each vehicle in the fleet

(3) For the 2017 to 2022 model years, a company may, in calculating the percentage of its vehicles of the model year in question in a given fleet that conform to the applicable standards referred to in subsection (1), take into account the allowances set out in section 1813(g)(1) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

(4) In determining the number of vehicles in a given fleet that are to meet the evaporative emission standards referred to in subsection (1), in accordance with the applicable percentage, a company may exclude from the fleet all of its vehicles that are covered by an EPA certificate and that are of a model that is sold in greater numbers in the United States than in Canada.

(5) Subject to subsection (6), the percentage of vehicles of a specific model year in a given fleet that meet the evaporative emission standards referred to in subsection (1) shall be greater than or equal to the percentage set out in Table 3 of section 1813 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR for the model year in question and, for the 2023 and later model years, 100 percent of the vehicles of the model year in question in a fleet shall meet the applicable evaporative emission standards.

(6) A company may elect not to comply with subsection (5) for the 2017 to 2021, 2018 to 2021, 2019 to 2021 or 2020 to 2021 model years if

TABLE

PHASE-IN PERCENTAGES — ALTERNATE APPROACH
Item Column 1

Consecutive Model Years		 Column 2

Percentage
1. 2017 to 2021 65
2. 2018 to 2021 70
3. 2019 to 2021 74
4. 2020 to 2021 80

(7) For greater certainty, all companies shall comply with subsection (5) for the 2022 and later model years.

CALCULATION OF FLEET AVERAGE EVAPORATIVE EMISSION VALUES

24.11 (1) Subject to section 25.3, for each of a company’s fleets referred to in section 24.10, the company shall calculate the average evaporative emission value in accordance with the following formula:

[Σ (A × B)]/C

where

A is the family emission limit for each evaporative emission family;

B is the number of vehicles in the fleet that conform to the family emission limit for the evaporative emission family in question; and

C is the total number of vehicles in the fleet.

(2) The average evaporative emission value for the fleet shall be rounded to one decimal place.

28. The Regulations are amended by adding the following before section 25:

ELECTION NOT TO CALCULATE FLEET AVERAGE

29. Subsection 25(2) of the Regulations is replaced by the following:

(2) For the purposes of section 26, subparagraph 32(2)(a)(ii) and paragraph 37(1)(c), the average NOX value in respect of a fleet of a model year for which a company makes an election under subsection (1) shall be the fleet average NOX standard applicable to the fleet for which the election was made.

30. The Regulations are amended by adding the following after section 25:

25.1 (1) A company may elect not to calculate an average NMOG + NOX value for a fleet of a specific model year if every vehicle in that fleet conforms to a full useful life emission bin that has a NMOG + NOX standard equal to or less than the applicable fleet average NMOG + NOX standard for the model year in question that is referred to in section 24.1 or 24.2.

(2) For the purposes of section 26.1, subparagraph 32(2)(b)(ii) and paragraph 37(1)(c), the average NMOG + NOX value in respect of a fleet of a model year for which a company makes an election under subsection (1) shall be the fleet average NMOG + NOX standard applicable to the fleet for which the election was made.

25.2 (1) A company may elect not to calculate an average cold NMHC value for a fleet of a specific model year if every vehicle in that fleet conforms to a cold NMHC family emission limit that is equal to or less than the applicable fleet average cold NMHC standard for the model year in question that is referred to in section 24.6 or 24.7.

(2) For the purposes of section 26.2, subparagraph 32(2)(c)(ii) and paragraph 37(1)(c), the average cold NMHC value in respect of a fleet of a model year for which a company makes an election under subsection (1) shall be the fleet average cold NMHC standard applicable to the fleet for which the election was made.

25.3 (1) A company may elect not to calculate an average evaporative emission value for a fleet of a specific model year if every vehicle in that fleet conforms to a family emission limit for an evaporative emission family and that family emission limit is equal to or less than the applicable fleet average evaporative emission standard for the model year in question referred to in section 24.10.

(2) For the purposes of section 26.3, subparagraph 32(2)(d)(ii) and paragraph 37(1)(c), the average evaporative emission value in respect of a fleet of a model year for which a company makes an election under subsection (1) shall be the fleet average evaporative emission standard applicable to the fleet for which the election was made.

31. The heading before section 26 of the Regulations is replaced by the following:

EMISSION CREDITS

NOX Emission Credits

32. Subsection 26(1) of the Regulations is replaced by the following:

26. (1) For the purposes of subparagraph 162(1)(b)(i) of the Act, a company shall obtain NOX emission credits for its fleets of the 2017 and earlier model years if the average NOX value in respect of a fleet of a specific model year is lower than the fleet average NOX standard for the model year in question and the company reports the credits in its end of model year report.

33. Sections 27 and 28 of the Regulations are replaced by the following:

NMOG + NOX Emission Credits

26.1 (1) For the purposes of subparagraph 162(1)(b)(i) of the Act, a company shall obtain NMOG + NOX emission credits for its fleets of the 2017 and later model years if the average NMOG + NOX value in respect of a fleet of a specific model year is lower than the fleet average NMOG + NOX standard for the model year in question and the company reports the credits in its end of model year report.

(2) NMOG + NOX emission credits, expressed in units of vehicle-grams per mile, shall be calculated using the following formula, rounding the result to the nearest whole number:

(A – B) × C

where

A is the fleet average NMOG + NOX standard;

B is the average NMOG + NOX value in respect of the fleet; and

C is the total number of vehicles in the fleet.

(3) The NMOG + NOX emission credits for a specific model year are credited on the last day of the model year in question.

Cold NMHC Emission Credits

26.2 (1) For the purposes of subparagraph 162(1)(b)(i) of the Act, a company shall obtain cold NMHC emission credits for its fleets of the 2017 and later model years if the average cold NMHC value in respect of a fleet of a specific model year is lower than the fleet average cold NMHC standard for the model year in question and the company reports the credits in its end of model year report.

(2) Cold NMHC emission credits, expressed in units of vehicle-grams per mile, shall be calculated using the following formula, rounding the result to the nearest whole number:

(A – B) × C

where

A is the fleet average cold NMHC standard;

B is the average cold NMHC value in respect of the fleet; and

C is the total number of vehicles in the fleet.

(3) The cold NMHC emission credits for a specific model year are credited on the last day of the model year in question.

Evaporative Emission Credits

26.3 (1) For the purposes of subparagraph 162(1)(b)(i) of the Act, a company shall obtain evaporative emission credits for its fleets of the 2017 and later model years if the average evaporative emission value in respect of a fleet of a specific model year is lower than the fleet average evaporative emission standard for the model year in question and the company reports the credits in its end of model year report.

(2) Evaporative emission credits, expressed in units of vehicle-grams per mile, shall be calculated using the following formula, rounding the result to the nearest whole number:

(A – B) × C

where

A is the fleet average evaporative emission standard;

B is the average evaporative emission value in respect of the fleet; and

C is the total number of vehicles in the fleet.

(3) The evaporative emission credits for a specific model year are credited on the last day of the model year in question.

Early Action NMOG + NOX Emission Credits

26.4 (1) A company may obtain early action credits in respect of its fleet that is composed of all of its light-duty vehicles and light-duty trucks 1 of the 2015 or 2016 model year if the average NMOG + NOX value in respect of the fleet of the model year in question is lower than 0.16 grams per mile and the company reports the credits in its 2017 end of model year report.

(2) Early action credits obtained in respect of the fleet are calculated in accordance with subsection 26.1(2), except that the fleet average NMOG + NOX standard in the description of A is 0.16 grams per mile.

(3) Early action credits obtained for the 2015 and 2016 model years are credited on the day on which the company’s 2017 end of model year report is submitted.

(4) Early action credits obtained for the 2015 and 2016 model years may be used as of the 2017 model year but only in respect of a fleet that is composed of all of the company’s light-duty vehicles and light-duty trucks 1 of any of the five model years after the model year in respect of which the credits were credited, after which the credits are no longer valid.

26.5 (1) A company may obtain early action credits in respect of its fleet that is composed of all of its light-duty trucks 2, heavy light-duty trucks and medium-duty passenger vehicles of the 2016 or 2017 model year if the average NMOG + NOX value in respect of the fleet of the model year in question is lower than 0.16 grams per mile and the company reports the credits in its 2018 end of model year report.

(2) Early action credits obtained in respect of the fleet are calculated in accordance with subsection 26.1(2), except that the fleet average NMOG + NOX standard in the description of A is 0.16 grams per mile.

(3) Early action credits obtained for the 2016 and 2017 model years are credited on the day on which the company’s 2018 end of model year report is submitted.

(4) Early action credits obtained for the 2016 and 2017 model years may be used as of the 2018 model year but only in respect of a fleet that is composed of all of the company’s light-duty trucks 2, heavy light-duty trucks and medium-duty passenger vehicles of any of the five model years after the model year in respect of which the credits were credited, after which the credits are no longer valid.

26.6 (1) A company may obtain early action credits in respect of its fleet that is composed of all of its Class 2B vehicles or all of its Class 3 vehicles of the 2016 or 2017 model year if the average NMOG + NOX value in respect of a fleet of the model year in question is lower than the applicable fleet average NMOG + NOX standard for the model year in question set out in Table 4 of section 1816 of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR and the company reports the credits in its 2018 end of model year report.

(2) Early action credits obtained in respect of the fleet are calculated in accordance with subsection 26.1(2).

(3) Early action credits obtained for the 2016 and 2017 model years are credited on the day on which the company’s 2018 end of model year report is submitted.

(4) Early action credits obtained for the 2016 and 2017 model years may be used as of the 2018 model year but only in respect of a fleet that is composed of all of the company’s Class 2B vehicles or all of its Class 3 vehicles of any of the five model years after the model year in respect of which the credits were credited, after which the credits are no longer valid.

EMISSION DEFICIT

27. (1) Subject to subsection (2), NOX, NMOG + NOX, cold NMHC or evaporative emission credits, as the case may be, obtained in respect of a fleet of a specific model year shall be used by the company to offset any NOX, NMOG + NOX, cold NMHC or evaporative emission deficit, as the case may be, referred to in section 28, and any remaining credits may be used to offset a future deficit or, except in the case of early action credits, may be transferred to another company.

(2) NOX emission credits obtained in respect of a fleet of a specific model year may only be used to offset a NOX emission deficit for the 2017 model year or an earlier model year.

28. Subject to section 31 or 31.1, if a company’s average NOX, NMOG + NOX, cold NMHC or evaporative emission value, as the case may be, in respect of a fleet of a specific model year is higher than the fleet average NOX, NMOG + NOX, cold NMHC or evaporative emission standard for the model year in question, the company shall calculate the value of the NOX, NMOG + NOX, cold NMHC or evaporative emission deficit incurred in that model year using the formula set out in subsection 26(2), 26.1(2), 26.2(2) or 26.3(2), as the case may be.

34. Subsection 29(1) of the Regulations is replaced by the following:

29. (1) Subject to subsection 27(2), a company shall offset a NOX emission deficit no later than the date on which the company submits the end of model year report for the third model year after the model year in which the deficit was incurred.

35. Section 30 of the Regulations is replaced by the following:

29.1 (1) A company shall offset a NMOG + NOX, cold NMHC or evaporative emission deficit no later than the date on which the company submits the end of model year report for the third model year after the model year in which the deficit was incurred.

(2) A company may offset a NMOG + NOX, cold NMHC or evaporative emission deficit with an equivalent number of NMOG + NOX, cold NMHC or evaporative emission credits, as the case may be, obtained in accordance with section 26.1, 26.2 or 26.3 or obtained from another company.

30. (1) A company that acquires another company or that results from a merger of companies is responsible for offsetting, in accordance with section 29 or 29.1, any emission deficits of the acquired company or merged companies.

(2) In the case of a company that ceases to manufacture, import or sell light-duty vehicles, light-duty trucks, medium-duty passenger vehicles, Class 2B vehicles or Class 3 vehicles, the company shall, no later than three calendar years after submitting its last end of model year report, offset all emission deficits that are outstanding at the time that it ceases those activities.

36. (1) Subsections 31(1) and (2) of the Regulations are replaced by the following:

31. (1) Subject to subsection (8), a company may elect to exclude the group of vehicles in a fleet that are covered by an EPA certificate and that are sold concurrently in Canada and the United States from the requirement to meet the standards set out in section 21, 22 or 23, as the case may be, and from the NOX emission deficit calculations in respect of a fleet under section 28.

(2) Subject to subsection (3), a company shall include in the group referred to in subsection (1) all of the vehicles of the fleet that are covered by an EPA certificate and that are sold concurrently in Canada and the United States.

(2) Subsection 31(8) of the English version of the Regulations is replaced by the following:

(8) A company shall not make the election referred to in subsection (1) in respect of a model year in which it has transferred NOX emission credits to another company if the average NOX value calculated under paragraph (4)(a) for the group that is subject to the election exceeds the fleet average NOX standard that would otherwise apply under section 21, 22 or 23, as the case may be.

37. The heading before section 32 of the Regulations is replaced by the following:

31.1 (1) Subject to subsection (8), a company may elect to exclude the group of vehicles in a fleet that are covered by an EPA certificate and that are sold concurrently in Canada and the United States from the requirement to meet the standards set out in sections 24.1 to 24.4, 24.6, 24.7 and 24.10, as applicable, and from the NMOG + NOX, cold NMHC or evaporative emission deficit calculations, as the case may be, in respect of a fleet under section 28.

(2) Subject to subsection (3), a company shall include in the group referred to in subsection (1) all of the vehicles of a fleet that are covered by an EPA certificate and that are sold concurrently in Canada and the United States.

(3) A company shall not include in the group referred to in subsection (1) any vehicle that is covered by an EPA certificate and

(4) Subject to subsection (5), if a company makes an election under subsection (1), it shall calculate an average NMOG + NOX, cold NMHC or evaporative emission value in accordance with section 24.5, 24.8 or 24.11, as the case may be, with the necessary modifications, in respect of

(5) A company may elect not to make the calculations referred to in subsection (4) for a group of vehicles described in paragraph (4)(a) or (b) if every vehicle in the group conforms to

(6) If a company makes an election under subsection (5), the average NMOG + NOX, cold NMHC or evaporative emission value, as the case may be, for the group of vehicles of a fleet for which the election was made shall be the applicable fleet average NMOG + NOX, cold NMHC or evaporative emission standard.

(7) If a company makes the election referred to in subsection (1) and the average NMOG + NOX, cold NMHC or evaporative emission value, as the case may be, for the group that is subject to the election, calculated under paragraph (4)(a), exceeds the fleet average NMOG + NOX, cold NMHC or evaporative emission standard that would otherwise apply under section 24.1, 24.2, 24.3, 24.4, 24.6, 24.7 or 24.10, the company shall

(8) A company shall not make an election referred to in subsection (1) in respect of any of the following emission standards for a model year in respect of which it has transferred emission credits to another company if

END OF MODEL YEAR REPORTS

38. (1) Subsection 32(2) of the Regulations is replaced by the following:

(2) The end of model year report shall contain the following information:

(2.1) The end of model year report for the 2017 to 2021 model years shall also contain either the percentage of vehicles in a company’s groups of vehicles that conform to the applicable particulate matter exhaust emission standards referred to in subsection 17.2(1) or a statement that every vehicle in the group meets the requirements of paragraph 17.2(3)(a) or (b), as applicable.

(2) The portion of subsection 32(3) of the French version of the Regulations before paragraph (a) is replaced by the following:

(3) Le rapport de fin d’année de modèle contient, pour tout transfert, par l’entreprise ou à celle-ci, de points relatifs aux émissions effectué depuis le rapport de fin d’année de modèle précédent, les renseignements suivants :

(3) Subsections 32(4) and (5) of the Regulations are replaced by the following:

(4) The company shall include in the end of model year report, if applicable,

(5) A company that makes an election under subsection 31(1) or 31.1(1) in respect of a group of vehicles in a fleet shall include in the end of model year report

39. The definitions “engine family” and “family emission limit” in section 32.1 of the Regulations are repealed.

40. Subsection 32.2(2) of the Regulations is replaced by the following:

(2) In any model year, the HC + NOX family emission limit applicable to an engine family shall not exceed the applicable family emission limit cap set out in section 449 of Title 40, chapter I, subchapter C, part 86, subpart E, of the CFR.

41. The Regulations are amended by adding the following after section 32.7:

FORMAT OF REPORTS

32.8 Any report that is required under these Regulations shall be submitted electronically in the format provided by the Minister, but the report shall be submitted in writing if

42. Paragraphs 33(1)(a) to (c) of the Regulations are replaced by the following:

43. (1) The portion of subsection 35(1) of the Regulations before paragraph (a) is replaced by the following:

35. (1) In the case of a vehicle or engine that is covered by an EPA certificate and that, as authorized by subsection 19(1), conforms to the certification and in-use standards referred to in the EPA certificate instead of the standards set out in sections 11 to 17, evidence of conformity for the purpose of paragraph 153(1)(b) of the Act in respect of a company shall consist of

(2) Paragraphs 35(1)(b) and (c) of the Regulations are replaced by the following:

(3) Subparagraphs 35(1)(d)(i) to (iv) of the Regulations are replaced by the following:

(4) Section 35 of the Regulations is amended by adding the following after subsection (1):

(1.1) In the case of a vehicle or engine referred to in subsection (1) that is not sold in the United States or that does not have a national emission mark applied to it, a company shall submit the evidence of conformity to the Minister before importing the vehicle or the engine or applying a national emissions mark to it.

44. Paragraphs 35.1(1)(c) and (d) of the Regulations are replaced by the following:

45. The heading before section 37 of the Regulations is replaced by the following:

FLEET AVERAGE RECORDS

46. Subsection 37(1) of the Regulations is replaced by the following:

37. (1) A company shall maintain records containing the following information for each of its fleets described in sections 21 to 23, 24.1 to 24.4, 24.6, 24.7 and 24.10:

47. (1) Paragraphs 37(2)(b) and (c) of the Regulations are replaced by the following:

(2) Paragraph 37(2)(f) of the Regulations is replaced by the following:

48. The Regulations are amended by adding the following after section 38:

INFORMATION REGARDING SUSPENSION OR REVOCATION OF EPA CERTIFICATE

38.1 If an EPA certificate referred to in section 19 or 19.1 is suspended or revoked, the company shall submit the following information to the Minister within 60 days after the day on which the certificate is suspended or revoked:

49. (1) Subsection 44(2) of the Regulations is amended by striking out “and” at the end of paragraph (c), by adding “and” at the end of paragraph (d) and by adding the following after paragraph (d):

(2) The portion of paragraph 44(4)(a) of the French version of the Regulations before subparagraph (i) is replaced by the following:

50. (1) The portion of subsection 45(1) of the Regulations before paragraph (c) is replaced by the following:

45. (1) The notice of defect referred to in subsections 157(1) and (4) of the Act shall contain the following information:

(2) Subsection 45(1) of the Regulations is amended by striking out “and” at the end of paragraph (e), by adding “and” at the end of paragraph (f) and by adding the following after paragraph (f):

(3) Section 45 of the Regulations is amended by adding the following after subsection (1):

(1.1) The notice of defect shall be given in writing and, when given to a person other than the Minister, shall be

(4) Paragraphs 45(2)(a) to (c) of the Regulations are replaced by the following:

(5) Paragraphs 45(3)(b) and (c) of the Regulations are replaced by the following:

51. The French version of the Regulations is amended by replacing “limite d’émissions de la famille de moteurs” with “limite d’émissions de la famille” in the following provisions:

52. Schedule 1 to the Regulations is amended by replacing “identification” with “authorization”.

PASSENGER AUTOMOBILE AND LIGHT TRUCK GREENHOUSE GAS EMISSION REGULATIONS

53. The definitions “mild hybrid electric technology” and “strong hybrid electric technology” in subsection 1(1) of the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (see footnote 2) are amended by replacing “116(c)” with “116(d)”.

54. The Regulations are amended by adding the following after section 1:

Concurrent sale

1.1 For the purposes of these Regulations, a vehicle of a specific model year that is sold in Canada is considered to be sold concurrently in Canada and in the United States if a vehicle of that model year that belongs to the same test group is offered for sale in the United States during the 365 days preceding

55. The portion of subsection 9(4) of the Regulations before paragraph (a) is replaced by the following:

Exception — emergency vehicle or fire fighting vehicle

(4) Despite subsection (2), an emergency vehicle or fire fighting vehicle may be equipped with a defeat device if the device is one that is activated during emergency response operations to maintain speed, torque or power in either of the following circumstances:

56. Subsection 12(1) of the Regulations is replaced by the following:

EPA certificate

12. (1) Every vehicle of a specific model year that is covered by an EPA certificate and that bears the label referred to in paragraph 36(1)(d) must conform to, instead of the standards set out in sections 9 and 10, the certification and in-use standards referred to in the EPA certificate.

57. The description of A in subsection 18.2(2) of the Regulations is replaced by the following:

A is the air conditioning efficiency allowance for each air conditioning system in the fleet that incorporates those technologies, determined in accordance with the provisions relating to credits in section 1868 of Title 40, chapter I, subchapter C, part 86, of the CFR and expressed in grams of CO2 per mile;

58. (1) The portion of subsection 36(1) of the Regulations before paragraph (a) is replaced by the following:

Evidence of conformity

36. (1) In the case of a vehicle that is covered by an EPA certificate and that is either sold concurrently in Canada and the United States or has a national emissions mark applied to it, evidence of conformity for the purpose of paragraph 153(1)(b) of the Act in respect of a company must consist of

(2) Paragraphs 36(1)(b) and (c) of the Regulations are replaced by the following:

59. The Regulations are amended by adding the following after section 40:

INFORMATION REGARDING SUSPENSION OR REVOCATION OF EPA CERTIFICATE

Information to be submitted

40.1 If an EPA certificate referred to in section 12 is suspended or revoked, the company must submit the following information to the Minister within 60 days after the day on which the certificate is suspended or revoked:

60. Subsection 44(2) of the Regulations is replaced by the following:

Reports

(2) In respect of a notice of defect issued under these Regulations, a company must comply with subsections 45(1.1) to (3) of the On-Road Vehicle and Engine Emission Regulations.

HEAVY-DUTY VEHICLE AND ENGINE GREENHOUSE GAS EMISSION REGULATIONS

61. The Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (see footnote 3) are amended by adding the following after section 1:

Concurrent sale

1.1 For the purposes of these Regulations, a vehicle or engine of a specific model year that is sold in Canada is considered to be sold concurrently in Canada and in the United States if a vehicle or engine of that model year that belongs to the same test group or engine family is offered for sale in the United States during the 365 days preceding

62. The portion of subsection 8(1) of the Regulations before paragraph (a) is replaced by the following:

Non EPA-certified engines

8. (1) Heavy-duty engines and the engines referred to in section 25 that are imported or manufactured in Canada — other than EPA-certified engines that bear the label referred to in subparagraph 53(d)(ii) — must bear a compliance label that sets out the following information:

63. The portion of subsection 9(1) of the Regulations before paragraph (a) is replaced by the following:

Non EPA-certified vehicles

9. (1) Heavy-duty vehicles that are imported or manufactured in Canada — other than EPA-certified heavy-duty vehicles that bear the label referred to in subparagraph 53(d)(i) — must bear a compliance label that sets out the following information:

64. The portion of subsection 13(1) of the Regulations before paragraph (a) is replaced by the following:

Conforming to EPA certificate

13. (1) Subject to subsections (4) and (8), a heavy-duty vehicle or heavy-duty engine of a given model year that is covered by an EPA certificate and bears the label referred to in paragraph 53(d) must conform to the certification and in-use standards referred to in the EPA certificate instead of to the following standards, whichever apply:

65. (1) Clause 48(2)(a)(ii)(B) of the Regulations is replaced by the following:

(2) Subparagraphs 48(2)(b)(ii) and (iii) of the Regulations are replaced by the following:

(3) Clauses 48(2)(c)(i)(B) and (C) of the Regulations are replaced by the following:

(4) Clause 48(2)(c)(ii)(B) of the Regulations is replaced by the following:

(5) The marginal note to subsection 48(4) of the Regulations is replaced by “Statement when covered by EPA certificate”.

66. (1) The portion of section 53 of the Regulations before paragraph (a) is replaced by the following:

Vehicle or engine covered by EPA certificate

53. For a heavy-duty vehicle or heavy-duty engine that is covered by an EPA certificate and that is sold concurrently in Canada and the United States or has a national emissions mark applied to it, evidence of conformity in respect of a company for the purposes of paragraph 153(1)(b) of the Act consists of

(2) Paragraphs 53(b) and (c) of the Regulations are replaced by the following:

67. The Regulations are amended by adding the following after section 59:

INFORMATION REGARDING SUSPENSION OR REVOCATION OF EPA CERTIFICATE

Information to be submitted

59.1 If an EPA certificate referred to in section 13 is suspended or revoked, the company must submit the following information to the Minister within 60 days after the day on which the certificate is suspended or revoked:

68. Subsection 63(2) of the Regulations is replaced by the following:

Reports

(2) In respect of a notice of defect issued under these Regulations, a company must comply with subsections 45(1.1) to (3) of the On-Road Vehicle and Engine Emission Regulations.

COMING INTO FORCE

69. These Regulations come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the regulations.)

Executive summary

Issues: The operation of vehicles is a major source of smog-forming air pollutants, which are linked to premature deaths as well as other important adverse health and environmental effects. The Government of Canada is taking further steps to address the sulphur content of gasoline and air pollutant emissions from cars and trucks to help ensure cleaner air for Canadians.

Description: The Regulations Amending the Sulphur in Gasoline Regulations (the SiGR Amendments) and the Regulations Amending the On-Road Vehicle and Engine Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999 (the ORVEER Amendments) will align with the United States (U.S.) Environmental Protection Agency (EPA) Tier 3 standards, which include lower limits on the sulphur content of gasoline and stricter limits on air pollutant emissions from new passenger cars, light-duty trucks and certain heavy-duty vehicles, beginning with the 2017 model year. Consequential amendments will also be made to two other vehicle and engine emission regulations made under the Canadian Environmental Protection Act, 1999 (CEPA 1999) to simplify the requirements regarding information to be submitted for vehicle importation into Canada in order to ensure consistency with the ORVEER Amendments.

Cost-benefit statement: From 2015 to 2030, the SiGR and ORVEER Amendments (collectively referred to as the Amendments) are expected to result in cumulative health and environmental benefits of $7.5 billion, and aggregate fuel, vehicle and other costs of $2.7 billion, expressed in present value terms. The net present value of the Amendments for Canadians is thus estimated to be $4.8 billion, representing a benefit-to-cost ratio of almost 3:1. The Amendments will add production costs to the Canadian gasoline refining and vehicle manufacturing and importing sectors. In present value terms, the average gasoline production costs are expected to increase by about 0.2 cents per litre, while the average vehicle production costs are expected to increase by about $74 per new vehicle when the emission standards reach full stringency with the 2025 model year. Some of these costs are expected to be passed on to consumers. Between 2017 and 2030, air quality improvements resulting from the Amendments are expected to prevent about 1 400 premature deaths, nearly 200 000 days of asthma symptoms and 2.8 million days of acute respiratory problems related to air pollution.

“One-for-One” Rule and small business lens: The SiGR Amendments will introduce annualized average administrative costs to the gasoline producing and importing sector of about $5,534, or $346 per business, while the ORVEER Amendments will introduce annualized average administrative costs to the vehicle manufacturing and importing sector of about $67,698, or $1,504 per business. The small business lens does not apply to the Amendments, as the impacted communities consist of medium and large businesses only.

Domestic and international coordination and cooperation: Maintaining alignment with U.S. fuel quality standards and air pollutant emission standards for vehicles and engines is consistent with the objectives of the Canada–United States Air Quality Agreement, the Government of Canada’s Clean Air Regulatory Agenda and the Canada–United States Regulatory Cooperation Council.

Background

Under the Canada–United States Air Quality Agreement (AQA), there is a history of aligning air pollutant emission standards for vehicles and fuels as a means of reducing transboundary air pollution. The 2000 Ozone Annex to the AQA included specific obligations for the Government of Canada to align with U.S. emission standards for on-road vehicles and engines. (see footnote 4) Since 2003, Environment Canada has introduced a range of vehicle, engine and fuel regulations in alignment with the corresponding standards of the U.S. Environmental Protection Agency (EPA). In addition, in 2011, Prime Minister Harper and President Obama announced the establishment of the Canada–United States Regulatory Cooperation Council (RCC) to work towards better alignment of regulatory approaches between the two countries in a broad range of areas, including vehicle emissions.

The Sulphur in Gasoline Regulations (see footnote 5) (SiGR), published in the Canada Gazette, Part II, on June 23, 1999, limited sulphur in gasoline to an annual average level of 30 milligrams per kilogram (mg/kg), or 30 parts per million (ppm), with a never-to-be-exceeded limit of 80 ppm, beginning in 2005. The SiGR also included a simpler default option of a 40 ppm batch limit, with minimal administrative requirements. The On-Road Vehicle and Engine Emission Regulations (see footnote 6) (ORVEER), published in the Canada Gazette, Part II, on January 1, 2003, established more stringent national emission standards for on-road vehicles and engines, beginning with the 2004 model year. The emission standards applicable to light-duty vehicles and trucks are commonly known as the “Tier 2” standards. The sulphur levels and emission standards established under these two regulations are aligned with those in effect in the United States until 2017.

In March 2013, the U.S. EPA announced the proposed Tier 3 rule that would reduce air pollution from passenger cars and trucks by lowering the level of sulphur in gasoline and setting stricter emission standards for new vehicles. Subsequently, on March 3, 2014, the Government of the United States released its Tier 3 Final Rule. (see footnote 7) Once fully phased in, the Tier 3 exhaust emission standards for non-methane organic gases (NMOG) and nitrogen oxides (NOx), and for particulate matter (PM), will be about 80% and 70% lower, respectively, than the current Tier 2 emission standards for light-duty vehicles. Similarly, the new sulphur content standard for gasoline will be about 65% lower than the current maximum allowable limit.

Maintaining alignment with U.S. air pollutant emission standards for vehicles, engines and fuels is consistent with the objectives of the AQA, the Government of Canada’s Clean Air Regulatory Agenda and the RCC. In keeping with this approach, the Government of Canada is amending both the SiGR and ORVEER to align with the final U.S. Tier 3 standards for stricter limits on air pollutant emissions from new passenger cars, light-duty trucks and certain heavy-duty vehicles of the 2017 and later model years, and standards to reduce the amount of sulphur in gasoline beginning in the 2017 calendar year. (see footnote 8)

Issues

Smog caused by air pollutants has a significant adverse impact on the health of Canadians, the Canadian economy, and the environment. Smog is a noxious mixture of gases and particles, primarily ground-level ozone and PM. It has been identified as a contributing factor in thousands of premature deaths across the country each year, as well as in increased hospital and doctor visits and hundreds of thousands of lost days at work and school. Environmental problems attributed to smog include effects on vegetation, buildings and visibility.

The operation of motor vehicles is a major source of smog-forming air pollutants. In 2013, on-road vehicle emissions accounted for about 20%, 10% and 5% of national emissions of NOx, volatile organic compounds (VOCs) and fine particulate matter (PM2.5), respectively, excluding open sources. (see footnote 9) The Canadian vehicle manufacturing and fuel refining industries have made significant investments in new technologies and upgrades for new vehicles and refineries in order to comply with existing regulations. These efforts have resulted in important reductions in smog-forming emissions from the fleet of vehicles operating in Canada. Nonetheless, continued advances in vehicle engine and emission control technologies provide the opportunity to build on past successes and introduce a new generation of vehicles with even better emission performance.

Sulphur in gasoline impairs the performance of catalytic converters, the primary emission control devices used in vehicles to reduce exhaust emissions of air pollutants. Accordingly, continuing to take an integrated systems approach with respect to fuels and vehicles is critical to maximizing future reductions in air pollutant emissions resulting from the use of vehicles.

Objectives

The objective of the Regulations Amending the Sulphur in Gasoline Regulations (the SiGR Amendments) and the Regulations Amending the On-Road Vehicle and Engine Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999 (the ORVEER Amendments), collectively referred to as the Amendments, is to reduce smog caused by air pollutants, which has a significant adverse impact on the health and environment of Canadians and, as a result, on the Canadian economy. In addition to providing important benefits to the health and environment of Canadians, the Amendments aim to maintain common Canada–U.S. standards for vehicles and fuels and contribute to minimizing the overall compliance burden for companies operating in the North American market.

The Amendments will align with the U.S. EPA Tier 3 standards, which include lower limits on the sulphur content of gasoline and stricter limits on air pollutant emissions from new passenger cars, light-duty trucks and certain heavy-duty vehicles. Consequential amendments will also be made to certain requirements regarding the information to be submitted for vehicle importation into Canada in two other vehicle and engine emission regulations made under the Canadian Environmental Protection Act, 1999 (CEPA 1999) in order to ensure consistency with the ORVEER Amendments.

Lowering the allowable sulphur content in gasoline will enhance the performance of emission control systems from the in-use vehicle fleet and will enable the effective operation of advanced emission control technologies required to comply with the more stringent vehicle emission standards for the 2017 and later model years. This measure will deliver increased health benefits to Canadians through reductions in air pollutant emissions. Lower sulphur content in gasoline is also expected to enable new technologies or strategies to improve the greenhouse gas (GHG) emission performance of new vehicles.

Description

SiGR Amendments

The SiGR Amendments update the current SiGR and require primary suppliers (refiners and importers) to provide lower sulphur gasoline to the Canadian market.

In order to facilitate compliance with the lower sulphur limits, the SiGR Amendments continue to provide two exclusive regulatory compliance options that exist within the SiGR: a default batch flat limit with minimal administrative requirements, or an annual gasoline pool average. Additional flexibility is also available on an interim basis to refiners and importers that, for the years 2012 to 2019, elect for the annual pool average.

Under the SiGR Amendments, the default batch flat limit remains at the current sulphur level of 40 ppm (or mg/kg) until the end of 2016, and will be reduced to 14 ppm during the 2017 to 2019 period. For 2020 and beyond, the default batch flat limit will be 12 ppm.

The elective annual gasoline pool average compliance option remains at 30 ppm until the end of 2016, and will then be reduced to 10 ppm for 2017 and beyond. This option retains the current reporting, record-keeping, sample-retention, and audit requirements.

The SiGR Amendments retain the current never-to-be-exceeded batch limit of 80 ppm sulphur concentration in gasoline, applicable to gasoline imports and production using the annual pool average compliance option. This limit also applies to all gasoline sales.

The SiGR Amendments also include a temporary sulphur compliance unit (SCU) trading system, for the years 2012 to 2019, which is available to primary suppliers that elect to participate in the annual pool average compliance option. For these years, volume-based SCUs can be generated from the production and importation of gasoline for which the annual average sulphur concentration is under 30 ppm during the years 2012 to 2016 and under 10 ppm during the years 2017 to 2019. (see footnote 10) These SCUs can be applied towards meeting regulatory compliance with the 10 ppm standard during the 2017–2019 period, and can be traded once between companies and multiple times within a company.

Other SiGR Amendments

The SiGR Amendments eliminate reporting requirements for primary suppliers importing or producing volumes of gasoline less than 400 cubic meters (m3) or 400 000 litres, annually. Additionally, in order to account for increased blending of ethanol at gasoline terminals, provisions will be added to the SiGR to allow a primary supplier to account for reductions in the overall sulphur concentration of its gasoline as a result of downstream blending of oxygenates and butane at terminals that are sourced by multiple primary suppliers. Under the current SiGR, this allowance can only be applied to the addition of oxygenates (including ethanol) and butane into gasoline occurring at terminals that have a single facility source of gasoline. Other changes include requiring that the sulphur content of imported gasoline be averaged on a national basis, rather than on a provincial basis as required under the current SiGR, for a primary supplier that elects for the annual pool average compliance option; updating references to standards; making adjustments to provide clarity; and removing elements of the SiGR that are no longer applicable.

ORVEER Amendments
Tier 3 exhaust and evaporative emission standards

The ORVEER Amendments update the current ORVEER and set new emission standards for passenger cars, light-duty trucks and certain heavy-duty vehicles of the 2017 and later model years that are imported or manufactured in Canada. As with the ORVEER, the ORVEER Amendments apply to companies that manufacture or import on-road vehicles in Canada.

The ORVEER Amendments establish progressively more stringent vehicle and fleet average standards over the model years 2017 to 2025 for combined emissions of NMOG and NOx and establish a phase-in schedule for more stringent PM and evaporative emission standards, in alignment with the U.S. Tier 3 program. (see footnote 11) (see footnote 12) As a result, the ORVEER Amendments are expected to lead to reductions in emissions from on-road vehicles of NOx, NMOG, carbon monoxide (CO), PM2.5 and other toxic substances listed on the List of Toxic Substances in Schedule 1 to CEPA 1999, including benzene, acetaldehyde, formaldehyde, acrolein and 1,3-butadiene. (see footnote 13)

Increasingly stringent combined NMOG and NOx (NMOG + NOx) fleet average standards will be adopted in Canada by means of the ORVEER Amendments over the model years 2017 to 2025. A company’s fleet of light-duty vehicles, light-duty trucks and medium-duty passenger vehicles will have to comply with progressively more stringent exhaust emission standards, reaching a fleet average standard for emissions of NMOG + NOx of 30 milligrams per mile (mg/mi) as of model year 2025. Similarly, heavy-duty vehicle weight classes 2B and 3 (e.g. delivery vans and heavy-duty pick-up trucks) will be required to comply with progressively more stringent fleet average standards for emissions of NMOG + NOx, reaching fleet average standards of 178 mg/mi and 247 mg/mi, respectively, as of model year 2022.

Also, as of model year 2017, new PM exhaust emission standards will be introduced by means of a phase-in approach through which an increasing percentage of vehicles in a company’s fleet for each successive model year will be required to comply with the standards, with full implementation starting with model year 2021. An alternative phase-in compliance approach for these standards will allow companies to conform to the standards by demonstrating that an equivalent number of vehicles conform to the new standards, when averaged over more than one model year included in the phase-in period. For vehicles with a gross vehicle weight rating (GVWR) up to 6 000 pounds (lb), the PM standard will be 3 mg/mi. For vehicles with a GVWR above 6 000 lb and up to 14 000 lb, this standard will be 3 mg/mi for the applicable light-duty trucks and medium-duty passenger vehicles, and 8 mg/mi and 10 mg/mi for heavy-duty vehicle weight classes 2B and 3, respectively.

As of model year 2017, new evaporative emission standards will be introduced by means of a phase-in approach through which an increasing percentage of a company’s fleet of vehicles for each successive model year will be required to comply with the standards, with full implementation starting with model year 2022. An alternative phase-in compliance approach for these standards will allow companies to conform to the standards by demonstrating that an equivalent number of vehicles conform to the new standards, when averaged over more than one model year included in the phase-in period.

Finally, flexibility for vehicles sold concurrently in Canada and the United States is included for compliance with the fleet average emission standards as well as the phase-in emission standards. This flexibility is consistent with the flexibility in the current Tier 2 fleet average emission standards and recognizes that the emission performance of a company’s fleet of vehicle models that are sold concurrently in the United States is effectively anchored by the U.S. regulatory program.

Other ORVEER Amendments

The ORVEER Amendments introduce new fleet average standards in Canada for cold temperature exhaust emissions of non-methane hydrocarbons (NMHCs). (see footnote 14) For fleets consisting of vehicles with a GVWR up to 6 000 lb, the cold temperature NMHC fleet average standard will be fixed at 0.3 grams per mile (g/mi), starting with model year 2017. For fleets consisting of vehicles with a GVWR above 6 000 lb and up to 14 000 lb, the cold temperature NMHC fleet average standard will be fixed at 0.5 g/mi, starting with model year 2017.

The ORVEER Amendments incorporate new on-board diagnostic (OBD) requirements in alignment with those of the U.S. EPA. The EPA has incorporated into its own regulations, starting with model year 2017, the OBD requirements of the California Air Resources Board (CARB), plus provisions to enable OBD-based leak detection to be used in emissions testing.

Further, the ORVEER Amendments include an exemption to allow ambulances, police vehicles and fire fighting vehicles to have a defeat device that will temporarily override the “limp-home” function if it becomes activated during emergency situations. This exemption ensures that these vehicles will have full engine power when required in emergency situations.

Compliance flexibilities, in the form of credits for emissions of NMOG + NOx, are in line with the U.S. Tier 3 regulatory program and will be available for early adoption of the program standards, vehicles that provide extended warranties for emission control systems, and installing ozone-reducing technologies in vehicles. In addition, the ORVEER Amendments facilitate conformity by modifying the requirements to vehicle importation, notices of defect and reporting. The ORVEER Amendments simplify the requirements regarding the information to be submitted for vehicle importation into Canada. The ORVEER Amendments also specify that existing notice-of-defect information has to be available to owners of affected vehicles in both official languages, or in the official language of choice of the owner. Lastly, regulated parties will be required to submit reports electronically once Environment Canada’s reporting database is updated to include the data reporting requirements of the Tier 3 vehicle program.

Finally, consequential amendments are being made to ensure consistency with Environment Canada’s suite of on-road vehicle and engine emission regulations with respect to vehicle importation. These consequential amendments modify the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations and the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations to simplify the requirements regarding information to be submitted for vehicle importation into Canada to be consistent with the ORVEER Amendments.

Regulatory and non-regulatory options considered

The Government of Canada currently regulates vehicle air pollutant emissions and sulphur in gasoline under CEPA 1999. Other major industrialized countries have also enacted regulations to establish mandatory limits for sulphur in gasoline and vehicle air pollutant emissions to improve air quality. Therefore, the Government of Canada considered two options: maintaining the regulatory status quo or updating the regulatory requirements to achieve stringent aligned Canada–U.S. standards.

Status quo approach

Two current regulations are in force under CEPA 1999 to limit smog-forming emissions from on-road vehicles powered by gasoline engines. The SiGR establish a limit for the sulphur content in gasoline, and the ORVEER establish national emission standards for on-road vehicles and engines. Without the Amendments, Canadians will not fully realize the health and environmental benefits associated with maintaining alignment with the stringent U.S. vehicle emission and fuel standards. Also, the vehicle manufacturing and fuel refining sectors in Canada and the U.S. are highly integrated. Regulatory misalignment could negatively impact investment decisions and increase regulatory costs for companies that need to meet different standards in each country. This option was therefore rejected.

Regulatory approach — Maintaining Canada–U.S. alignment

The Government of Canada is committed to providing cleaner air for Canadians. Maintaining regulatory alignment with the U.S. vehicle emission and fuel standards is the approach that has been decided upon, as it will deliver important health and environmental benefits to Canadians while preserving the competitiveness of the Canadian vehicle manufacturing and fuel refining sectors. A parallel path of implementation for the Amendments is necessary to fully achieve the benefits of regulatory alignment and to implement an integrated systems approach with respect to fuels and vehicles to effectively reduce smog-forming emissions resulting from the use of on-road vehicles. The approach of establishing common Canada–U.S. standards is consistent with the policy objectives of the RCC of aligning regulatory approaches between the two countries, where possible.

Benefits and costs

The impacts of the Amendments have been assessed in accordance with the Treasury Board Secretariat Canadian Cost-Benefit Analysis Guide (www.tbs-sct.gc.ca/rtrap-parfa/analys/analystb-eng.asp).

The analysis compares the incremental impacts of two scenarios: a base-case scenario that assumes both the SiGR and ORVEER are not amended, and a policy-case scenario that assumes both the SiGR and ORVEER Amendments are implemented concurrently. An analysis of the impacts if either the SiGR or ORVEER Amendments were implemented alone was not considered, because the current regulatory approach introduces the SiGR and ORVEER Amendments together in order to achieve the full benefits of regulatory alignment and to implement an integrated systems approach with respect to fuels and vehicles to reduce smog-forming emissions resulting from the use of on-road vehicles.

The expected impacts of the Amendments are illustrated below: compliance with stricter limits for sulphur content in gasoline and with stricter limits for new vehicle exhaust and evaporative emissions are expected to work together to reduce emissions and improve overall air quality, resulting in both health and environmental benefits for Canadians.

Figure 1: Logic model for the analysis of the Amendments

This figure shows the Logic model for the analysis of the Amendments.

The SiGR Amendments have new gasoline sulphur limits beginning in 2017 and, by 2020, all primary suppliers (refineries and importers) must meet the lower sulphur limits for gasoline (10 ppm annual average or 12 ppm per batch), which will generate reductions in emissions from new and existing vehicles powered by gasoline engines. For new vehicles, the ORVEER Amendments have new emission standards (Tier 3 emission standards) that begin with the 2017 model year, increase in stringency to the 2025 model year and maintain full stringency thereafter. Overall emission reductions are expected to increase over time as these newer vehicles become a larger percentage of the in-use fleet. It is projected that by 2030, most on-road light-duty vehicles and trucks in Canada will be compliant with the ORVEER Amendments.

The time frame for assessing impacts in this analysis is the 2015–2030 period, which is sufficient to demonstrate whether or not the benefits of the Amendments are likely to exceed the associated costs. Costs and benefits have been quantified and monetized (denominated in 2013 Canadian dollars), wherever possible, and discounted at 3% per year according to Treasury Board Secretariat guidance for environmental and health regulatory analyses. Other identified impacts have been described qualitatively. Key data sources used to inform the analysis are outlined in Table 1.

Table 1: Key data sources used in this analysis

Data Key sources
Vehicle technology costs U.S. EPA — Regulatory Impact Analysis for Tier 3 Motor Vehicle Emission and Fuel Standards: www.epa.gov/otaq/tier3.htm
Vehicle sales Environment Canada — vehicle projections as reported under the following regulations:
  • Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (2014): http://gazette.gc.ca/rp-pr/p2/2014/2014-10-08/html/sor-dors207-eng.php
  • Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (2013): www.gazette.gc.ca/rp-pr/p2/2013/2013-03-13/html/sor-dors24-eng.html
Environment Canada — purchased Canadian vehicle datasets:
  • DesRosiers Automotive Consultants: light-duty fleet (1998 to 2011)
  • R.L. Polk & Co.: heavy-duty fleet (2005 to 2013)
Fuel costs Environment Canada — costing data compiled in 2013 by Baker & O’Brien

Environment Canada — one-on-one refinery surveys conducted in 2013 and 2014 U.S. EPA — Regulatory Impact Analysis for Tier 3 Motor Vehicle Emission and Fuel Standards: www.epa.gov/otaq/tier3.htm
Gasoline data Environment Canada — fuel quality data as reported by regulated parties under the following regulations:
  • Fuels Information Regulations, No. 1
  • Sulphur in Gasoline Regulations
  • Benzene in Gasoline Regulations
  • Renewable Fuels Regulations
Environment Canada’s Energy-Emissions-Economy Model for Canada (E3MC) — provincial gasoline production forecasts

Statistics Canada — Supply and disposition of refined petroleum products: www5.statcan.gc.ca/cansim/a26?id=1340004

Statistics Canada — Report on Energy Supply and Demand in Canada: www5.statcan.gc.ca/olc-cel/olc.action?ObjId=57-003-X&ObjType=2&lang=en&limit=0
Updates to the analysis following the publication of the proposed Amendments in the Canada Gazette, Part I (CG-I)

Various updates were made to the analysis following the publication of the proposed Amendments in CG-I. Consequently, the estimated results of this analysis have changed slightly. The modifications to the analysis include updating price levels, exchange rate forecasts, energy prices and projections of gasoline production to align with those used in the development of the Canada’s Emissions Trends 2014 report; (see footnote 15) modifying the time frame of the analysis to start in 2015 (the present value base year); and incorporating the latest vehicle technology package costs that were used in the U.S. EPA’s analysis of the Tier 3 Final Rule.

Further, based on the comments received following the publication of the proposed Amendments in CG-I and on the final U.S. Tier 3 standards, minor modifications have been made to the Amendments. Three of these minor changes concern modifications to the compliance requirements of the SiGR Amendments. These three changes are (1) the addition of 2012 and 2013 to the applicable years for which primary suppliers can generate SCUs within the temporary SCU trading system; (2) the addition of provisions to allow for primary suppliers to account for changes in overall sulphur concentration in their gasoline as a result of downstream blending of oxygenates (including ethanol) and butane at gasoline terminals sourced by multiple primary suppliers; and (3) requiring that the sulphur content of imported gasoline be averaged on a national basis, rather than on a provincial basis, for primary suppliers that elect for the annual pool average compliance option. None of these changes has resulted in any modifications to the key assumptions of this analysis.

Environment Canada’s original analysis assumed that refineries would produce 10 ppm sulphur gasoline by 2020 and take advantage of the temporary SCU trading system by aligning the necessary investments with their periodic upgrade and maintenance schedules. The addition of 2012 and 2013 within the temporary SCU trading system is expected to further enable refineries to use this regulatory flexibility to better align future investments resulting from the compliance requirements of the SiGR Amendments. Additionally, the inclusion of downstream blending of oxygenates and butane at gasoline terminals that are sourced by multiple primary suppliers is not expected to result in any noticeable changes to the average sulphur levels in gasoline available in Canada. Finally, no environmental impacts should be expected from the adoption of the national averaging of the sulphur content of imported gasoline, considering that the annual average of 10 ppm is maintained. Hence, the analysis and modelling of the costs and benefits have not been modified following the publication of the proposed Amendments in CG-I.

Costs

There will be fuel refining costs, vehicle technology costs, and various administrative costs for Canadian businesses and the federal government expected to be incurred as a result of the Amendments. These costs were estimated for this analysis.

Fuel costs

Currently, there are 14 refineries in Canada that produce gasoline, as shown in the figure below.

Figure 2: Locations of Canadian gasoline producing refineries

This figure shows the locations of the Canadian gasoline producing refineries.

Source: Environment Canada (2014)

In 2012, Canadian refineries produced roughly 40 billion litres of gasoline. In the same year, Canada exported roughly 8 billion litres and imported roughly 4 billion litres of gasoline, primarily to and from the U.S. (see footnote 16) The national volume-weighted sulphur concentration in gasoline in Canada for 2009 was 17 ppm (i.e. including domestically produced and imported gasoline), and the volume-weighted average sulphur concentration by currently operating Canadian refineries ranged from 3 ppm to 23 ppm. (see footnote 17) Preliminary data for 2012 show that the national volume-weighted sulphur concentration of Canadian gasoline produced and imported was 21 ppm, and the volume-weighted average sulphur concentration by currently operating refineries ranged from 3 ppm to 30 ppm. Two refineries currently produce gasoline below the 10 ppm sulphur standard and are not expected to bear any costs. For the other 12 refineries, the SiGR Amendments are expected to require additional gasoline desulphurization, which may be achieved by capital investments, operational changes, or both.

Environment Canada commissioned the collection of costing data to estimate the cost impacts on the Canadian refining industry of the SiGR Amendments. Based on this data, it is expected that 10 refineries will make capital investments and 2 refineries will make only operational changes in order to comply with the SiGR Amendments. Capital investment and related costs are expected to include one new gasoline hydrotreater ($169 million), eight gasoline hydrotreater revamps (average cost of $80 million), and one other new desulphurization unit ($4 million), totalling $812 million, or $742 million in present value terms. For the operational changes, one refinery is expected to increase the intensity of its current desulphurization technology, and one refinery is expected to sell some high-sulphur gasoline as a diluent for bitumen blending; (see footnote 18) this is not expected to affect total Canadian gasoline supply since there is excess refining capacity in Canada.

Operation of the new hydrotreating unit is expected to require additional hydrogen, natural gas, and electricity. As well, some refineries are expected to require additional liquid fuel and electricity to further desulphurize their gasoline. Additional hydrogen, natural gas, liquid fuel, and energy demands were extracted from the costing study and adjusted to provincial gasoline production forecasts. (see footnote 19) The present value of costs associated with incremental fuel and energy demand was estimated by Environment Canada to total $80 million from 2017 to 2030, averaging $6 million per year. As well, it is anticipated that some ongoing capital costs for the replacement of catalysts will occur over time. The present value of these catalyst replacement costs was similarly estimated to total $11 million from 2017 to 2030, averaging less than $1 million per year.

Variable operating costs, including additional water and chemical demand, were also scaled with gasoline production. Other incremental costs, such as labour, maintenance and operating materials and supplies, and waste and environmental costs, were fixed annual costs. The present value of these operating costs was estimated to total $81 million from 2017 to 2030, averaging $6 million per year. (see footnote 20)

Reducing gasoline sulphur levels can also result in gasoline octane loss. Some refiners may face additional costs if they add more high-octane gasoline to their gasoline pool to compensate. Potential octane costs were estimated by applying the octane loss and recovery cost estimates in the U.S. EPA Regulatory Impact Analysis of its Tier 3 Final Rule, scaled based on feed sulphur level estimates and expected production for Canadian gasoline-producing refiners. The present value of costs to recover octane losses was estimated to be $177 million from 2017 to 2030, averaging $13 million per year. Refiners may choose not to compensate for octane losses, as there is evidence that the current Canadian gasoline pool is octane-rich, likely due to required renewable fuel blending under renewable fuel mandates. (see footnote 21) This estimate can therefore be considered an upper-bound cost estimate for octane losses.

Total operating costs were calculated as the sum of the additional estimated energy and fuel requirements, other fixed and variable operating costs, and estimated octane loss recovery costs, as detailed above. The present value of total operating costs was estimated at $338 million from 2017 to 2030, averaging $24 million per year.

Estimates of the total incremental capital and operating costs are shown in Table 2.

Table 2: Total capital and operating costs (millions of 2013 dollars; discounted to present value using a 3% discount rate in the specified column and row only)

2017–2020 2021–2025 2026–2030 2017–2030 2017–2030 (Discounted)
Capital costs 815 5 7 827 753
Operating costs 98 169 174 440 338
Total (undiscounted) 913 174 181 1,267 (not applicable)
Total (discounted) 831 137 123 1,091 1,091

Note: Totals may not sum due to rounding.

It is expected that the compliance costs will initially be experienced from 2017 to 2020, as each refinery makes the necessary production changes and investments to reduce the concentration of sulphur in gasoline. The present value of total costs was estimated at $831 million over the 2017–2020 period and $260 million over the 2021–2030 period. Over the 2017–2030 period, the present value of total costs resulting from the SiGR Amendments is estimated to be about $1.09 billion. As shown in Table 3, the average present value of incremental production costs per litre of gasoline produced over the 2017–2030 period was estimated to be roughly 0.2 cents per litre. This estimate of cost per litre is based on a ratio of the present value of costs and litres of gasoline production over the 2017–2030 period and may differ from other estimates of cost per litre that are based on different assumptions and methodologies.

Table 3: Average fuel costs per litre of gasoline

Fuel costs (billions of 2013 dollars discounted to present value using a 3% discount rate) 1.09
Forecast of domestic gasoline production for the 2017–2030 period (billions of litres) 538.58

Average cost (cents per litre)

0.20

Canada imported roughly 4 billion litres of gasoline in 2012, primarily from U.S. suppliers. Fuel importers may pay an increased price for gasoline that meets the more stringent sulphur standards due to increased production costs, some of which are expected to be passed on to consumers. This analysis focused on costs to Canadian refiners, and it therefore did not assess costs to importers. Since Canada is a net exporter of gasoline, this approach is considered sufficient to estimate the expected costs of supplying lower sulphur gasoline in Canada.

Additional compliance costs could include necessary transaction costs related to legal and accounting fees that could be assumed by those primary suppliers who choose to opt into the temporary SCU trading system applicable over the 2012–2019 period. These costs were estimated to be roughly $152,000 in present value terms. Refiners that opt into the temporary trading system will be able to delay operating costs and better align capital upgrades with regular maintenance shutdown cycles.

Vehicle technology costs

The ORVEER Amendments will apply to all new manufactured or imported on-road vehicles categorized as “Tier 3 vehicles,” which consist of light-duty passenger vehicles and trucks (LDVs and LDTs), medium-duty passenger vehicles (MDPVs), and heavy-duty vehicle (HDV) weight classes 2B and 3 (e.g. delivery vans and heavy-duty pick-up trucks), of model years 2017 and beyond. (see footnote 22) Tier 3 vehicles can be powered by gasoline, diesel, electricity, compressed natural gas, liquefied petroleum gas, or a combination of energy sources. Nevertheless, it is anticipated that Tier 3 vehicles will be predominantly powered by gasoline and diesel engines. Consequently, this analysis assumes that all Tier 3 vehicles are powered by gasoline or diesel engines (including hybrid electric engine types).

Multiple sources of information on historical vehicle sales and registration, and vehicle sales forecasts, were used as inputs into the Motor Vehicle Emission Simulator (MOVES) and processed for further forecasting, generating projected Canadian sales for LDVs, LDTs and HDVs for each required vehicle class and model year. These projections are summarized in Table 4 in the form of average sales for three periods covering model years 2017 to 2030.

Table 4: Average sales of new vehicles per year by engine fuel type and vehicle class

Period (model years) Gasoline Engines Diesel Engines
LDVs LDTs HDVs LDVs, LDTs and HDVs
2017 to 2020 959 143 636 296 72 211 51 607
2021 to 2025 1 014 494 608 412 69 238 51 290
2026 to 2030 1 082 003 628 783 71 720 53 690

Tier 3 vehicles will be required to comply with exhaust and evaporative emission standards that increase in stringency from model years 2017 to 2025. Vehicle manufacturers and importers will be able to choose how to comply with the standards, but the primary method of compliance involves installing more efficient exhaust catalytic systems, which are anticipated to exhibit increased performance due to the lower sulphur content in gasoline. The new exhaust emission standards for cold temperature emissions of NMHCs are not expected to result in any notable costs to manufacturers and importers, as Tier 3 vehicles will already be equipped with very sophisticated emission control systems, which are calibrated to minimize emissions at cold temperatures. Thus, the U.S. EPA’s estimates of technology package costs, which are summarized in the EPA’s Regulatory Impact Analysis of the Tier 3 Final Rule, for each vehicle class, model year, and engine fuel type and size (i.e. the number of cylinders in the engine), have been converted to 2013 Canadian dollars and adopted in this analysis.

There may be some minor fuel savings associated with the new evaporative emission standards, as fuel that would have evaporated in the absence of these standards will instead be used to power vehicles. The evaporative emission standards will come into full effect for all Tier 3 vehicles as of model year 2022; starting with this model year, the lifetime fuel savings for each vehicle powered by a gasoline engine is projected to be around three litres. Consumer fuel savings have not been taken into account in this analysis since they will be negligible.

Overall, the total costs of the new exhaust and evaporative emission standards were calculated by multiplying the projected sales for each vehicle class and model year by the technology package (compliance) costs per vehicle for the corresponding vehicle class, model year, and engine fuel type and size. (see footnote 23) The main results of the total cost calculations are presented in Table 5 for three periods covering model years 2017 to 2030.

Table 5: Costs of the Tier 3 emission standards in Canada by engine fuel type and vehicle class (millions of 2013 dollars; discounted to present value using a 3% discount rate in the specified column and row only)

Period (Model Years) Gasoline Engines Diesel Engines Total Costs (Gasoline and Diesel Engines)
LDVs LDTs HDVs LDVs, LDTs and HDVs Undiscounted Discounted
2017 to 2020 238 205 11 8 461 412
2021 to 2025 390 379 25 16 810 638
2026 to 2030 437 406 25 16 884 603
2017 to 2030 1 064 990 61 40 2,155 1,653
2017 to 2030 (discounted) 819 758 47 30 (not applicable) 1,653

Note: Totals may not sum due to rounding.

Discounting the above-mentioned technology costs at 3% per year yields present value costs to vehicle manufacturers and importers of about $412 million for model years 2017 to 2020 and about $1,241 million for model years 2021 to 2030. These results yield a total present value of approximately $1,653 million in vehicle program costs for model years 2017 to 2030. (see footnote 24)

Estimates of the average compliance costs per vehicle for the combined exhaust and evaporative emission standards were produced by weighting the present value costs by sales for each combination of engine fuel type and vehicle class. As shown in Table 6, the average costs per Tier 3 vehicle in present value terms were estimated to be about $60 for model years 2017 to 2020, $73 for model years 2021 to 2025, and $66 for model years 2026 to 2030.

Table 6: Average costs per vehicle by engine fuel type and vehicle class (2013 dollars discounted to present value using a 3% discount rate)

Period (Model Years) Gasoline Engines Diesel Engines Gasoline and Diesel Engines
LDVs LDTs HDVs LDVs, LDTs and HDVs LDVs, LDTs and HDVs
2017 to 2020 56 73 35 34 60
2021 to 2025 61 98 57 48 73
2026 to 2030 55 88 47 42 66

For model year 2025 in particular, when the emission standards will come into full effect across all Tier 3 vehicle classes, the average present value cost per vehicle was projected to be around $74. The estimated aggregate sales and costs used to calculate the average cost per model year 2025 vehicle due to the ORVEER Amendments are presented in Table 7.

Table 7: Average cost per model year 2025 vehicle

Estimated vehicle technology costs: model year 2025 Tier 3 vehicles (millions of 2013 dollars discounted to present value using a 3% discount rate) 131.96
Estimated sales of model year 2025 Tier 3 vehicles (millions of vehicles) 1.79
Average cost (per vehicle) 73.72
Business administrative costs and government costs

The Amendments will introduce incremental administrative costs for each regulated community. Business administrative costs are discussed in further detail in the “‘One-for-One’ Rule” section of this Regulatory Impact Analysis Statement. The total present value of administrative costs to business was estimated to be $0.05 million for the SiGR Amendments and $1.04 million for the ORVEER Amendments.

In support of the SiGR Amendments, there will be federal government costs for incremental regulatory compliance promotion and administration from 2015 to 2020. These costs were estimated at $20,000 per year. Additional federal government costs incurred for incremental enforcement from 2015 to 2023 were estimated at $10,000 per year. The present value of these government costs for the 2015–2030 period is thus estimated at $0.19 million.

There are not expected to be any incremental government costs related to ongoing administration, enforcement or emission verification operations for the ORVEER Amendments. The existing implementation strategy for executing the air pollutant regulatory program for vehicles of model years 2004 to 2016 will be extended to vehicles of the 2017 and later model years. Additional upfront costs of approximately $1.81 million will be required to expand the Vehicle and Engine Emissions Reporting Registry (VEERR) database in order to render it compatible with the Tier 3 vehicle program. Also, an amount of up to $180,000 will be needed from 2017 to 2019 to prepare and deliver compliance promotion, and $110,000 will be required to support new emission verification activities. The present value of these government costs is estimated to be around $1.97 million.

Table 8: Summary of business administrative costs and government costs (millions of 2013 dollars discounted to present value using a 3% discount rate)

Monetized impacts 2015 to 2020 2021 to 2025 2026 to 2030 Total
Business costs 0.41 0.36 0.31 1.09
Government costs 2.14 0.02 0 2.17
Note: Totals may not add up due to rounding.
Benefits

The fuels and vehicles subject to the Amendments are significant sources of air pollutants, such as PM2.5, NOx, sulphur oxides (SOx), VOCs and other toxic substances. These pollutants can affect ambient levels of secondarily formed PM2.5 and ozone. Exposure to ozone and PM2.5 (two principal components of smog) is linked to adverse health impacts, such as premature deaths, as well as other important health and environmental effects.

The Amendments are expected to affect emissions of NOx (a precursor to ozone formation and secondarily formed PM2.5), SOx (a precursor to secondarily formed PM2.5), VOCs (a precursor to ozone formation and, to a lesser degree, secondarily formed PM2.5) and directly emitted PM2.5, which contribute to ambient concentrations of PM2.5 and ozone. Estimating the impacts of the Amendments on air pollutant emissions from vehicles and on air quality, and the subsequent impacts of air quality changes on health and the environment, required four models which are described below.

Table 9: Models for estimating emissions and their impacts on air quality, health and the environment

Key impacts Models used to estimate and value key impacts
Vehicle emissions Motor Vehicle Emission Simulator (MOVES): the U.S. EPA’s vehicle emissions model used for its Tier 3 analysis.
Air quality A Unified Regional Air-Quality Modelling System (AURAMS): an Environment Canada model that estimates how emission changes impact local air quality.
Health benefits Air Quality Benefits Assessment Tool (AQBAT): a Health Canada model that estimates the health impacts of changes in local air quality.
Environmental benefits Air Quality Valuation Model 2 (AQVM2): an Environment Canada model that estimates the environmental impacts of changes in local air quality.

Given the resource-intensive and time-consuming nature of this detailed modelling, Environment Canada chose two representative years to conduct full emissions, air quality, and benefits modelling: 2020 and 2030. To estimate cumulative benefits, annual vehicle emission trends were also modelled and used to project linear trends for health and environmental benefits for the 2017–2030 period. Qualitative health, environmental, and economic benefits were also identified. A sensitivity analysis was done to assess the impact of uncertainty on the monetized net benefit estimates.

Vehicle emissions modelling

Environment Canada adapted the U.S. EPA’s MOVES model to estimate the expected primary emission reductions attributable to the Amendments. Key data for Canadian vehicle operating conditions, fuel properties and vehicle characteristics were incorporated into the MOVES model. Emission estimates were modelled for the base and policy cases in MOVES for 2020 and 2030 at the provincial/territorial level and annually from 2017 to 2030 at the national level.

For the base case, vehicle emission rates were assumed to continue to meet the existing ORVEER (Tier 2) standards or previous applicable standards, and gasoline in Canada was assumed to have the same sulphur concentrations as over the three most recent years of available data (2010 to 2012). Gasoline fuel quality parameters were estimated from reporting data collected annually from refiners and importers under several Environment Canada regulations (see Table 1). Historical vehicle sales and registration data and vehicle sales forecasts used for recent regulatory analyses were complemented by two key datasets purchased in 2013 by Environment Canada from DesRosiers Automotive Consultants and R.L. Polk & Co. covering the Canadian light-duty and heavy-duty vehicle fleets, respectively.

For the policy case, the sulphur levels in gasoline and emission rates for vehicles of the 2017 and later model years were assumed to comply with the Amendments. Refiners and importers of gasoline were assumed to produce and import 10 ppm sulphur gasoline by 2020; those that have historically produced or imported gasoline with a sulphur content of 10 ppm or less were assumed to continue to maintain these levels. Vehicle emission rates were assumed to meet the Tier 3 emission standards for model years 2017 and beyond, with increasing stringency over model years 2017 to 2025. Vehicle fleet composition, size, and activity were assumed to be the same in the base and policy cases.

Detailed primary emissions at the provincial/territorial level were estimated for the base and policy cases using MOVES for 2020 and 2030. The estimated incremental emission reductions resulting from the Amendments are presented in Table 10 for key air pollutants and other toxic substances. Reductions in NOx, VOC, PM2.5 and CO emissions will increase from 2020 to 2030, as vehicle emission standards become increasingly stringent over the model years 2017 to 2025. As a result of fleet turnover, vehicles meeting the Tier 2 or previous emission standards (pre-Tier 3 vehicles) will gradually be replaced by vehicles meeting the Tier 3 emission standards.

It is estimated that NOx emissions will be reduced by over 27 000 tonnes in 2030, which represents a 13% reduction in total NOx emissions from all on-road vehicles under the base case. Similarly, it is estimated that VOC emissions will be reduced by over 15 000 tonnes in 2030, which represents a 15% reduction in total VOC emissions from all on-road vehicles under the base case. Estimated reductions in sulphur dioxide (SO2) emissions are based on the regulatory change in the sulphur content in gasoline, which should be fully implemented by 2020, and total gasoline consumption. The estimated SO2 reduction decreases slightly from 2020 to 2030, as total gasoline consumed in 2030 is projected to be slightly lower than in 2020 due to increasingly stringent vehicle fuel efficiency regulations. (see footnote 25)

Table 10: Total reductions in primary emissions of key air pollutants and other toxic substances from all on-road vehicles in Canada due to the Amendments relative to the base case

  2020 2030
Air pollutant/ toxic substance Reduction (tonnes) Reduction (percentage) Reduction (tonnes) Reduction (percentage)
NOx 10 234 4 27 743 13
VOCs 3 450 3 15 800 15
PM2.5 99 1 721 8
SO2 448 41 404 43
CO 58 328 3 398 751 22
1,3-butadiene 17 3 94 21
Acetaldehyde 45 2 224 14
Acrolein 3 2 16 9
Benzene 146 4 704 23
Formaldehyde 42 2 169 6
Note: These results include estimated emission reductions from the entire Canadian fleet of on-road vehicles, including motorcycles and all heavy-duty vehicles.

The results in Table 10 can also be disaggregated to show the impacts on new vehicles, which are subject to the ORVEER Amendments (Tier 3 vehicles), and on older vehicles, which are not subject to the ORVEER Amendments (pre-Tier 3 vehicles). The disaggregated emission reduction results are shown in Table 11 for two key pollutants: NOx and VOCs.

Table 11: Total reductions in primary NOx and VOC emissions from all on-road vehicles in Canada due to the Amendments relative to the base case, disaggregated by fleet (tonnes)

  NOx VOCs
2020 2030 2020 2030
Emission reductions from pre-Tier 3 vehicles due to new gasoline sulphur standards 7 590 2 958 1 977 952
Emission reductions from Tier 3 vehicles due to new gasoline sulphur and vehicle emission standards 2 644 24 785 1 473 14 848
Total emission reductions (pre-Tier 3 and Tier 3 vehicles) 10 234 27 743 3 450 15 800

Given the temporary SCU trading system in the SiGR Amendments over the 2017 to 2019 period, the gasoline producing and importing sector is expected to ramp up towards full compliance with lower sulphur limits for gasoline by 2020. Given that the reduced sulphur content of gasoline will yield emission reductions from all on-road gasoline-powered vehicles and engines, and that the Tier 3 emission standards will apply to all vehicles of the affected classes irrespective of the type of fuel they use, emissions from the entire Canadian fleet of on-road vehicles were modelled in MOVES, including emissions from motorcycles and all heavy-duty vehicles.

The projected NOx and VOC emission reductions from pre-Tier 3 vehicles are the result of the lower sulphur content in gasoline. Emission reductions resulting from the combination of the new SiGR and ORVEER standards will increase over time as Tier 3 vehicles become a larger percentage of the on-road vehicle fleet. By 2030, it is projected that Tier 3 light-duty vehicles will represent over 70% of the total Canadian in-use light-duty fleet of on-road vehicles. As a result of turnover of the on-road vehicle fleet, the NOx and VOC emission reductions from Tier 3 vehicles were estimated to be considerably larger in 2030 than in 2020, since a larger portion of the fleet will meet the Tier 3 emission standards in this later year. Similarly, estimated emission reductions from pre-Tier 3 vehicles as a result of the lower sulphur content in gasoline are expected to be lower in 2030 as pre-Tier 3 vehicles come to represent a smaller portion of the on-road vehicle fleet.

National-level emissions were estimated using MOVES for the 2017 to 2030 period to show trends in primary annual emission reductions from on-road vehicles in Canada due to the Amendments relative to the base case. The annual trends in NOx, VOC, PM2.5 and SO2 emission reductions are shown in Figure 3. Emission reductions of NOx, VOCs and PM2.5 are expected to increase beyond 2030 until Tier 3 vehicles make up roughly 100% of the applicable on-road vehicle fleet, after which point emission reductions are expected to stabilize.

Figure 3: National-level reductions in primary annual emissions of key air pollutants from on-road vehicles in Canada due to the Amendments relative to the base case

This figure presents the national-level reductions in primary annual emissions of key air pollutants from on-road vehicles in Canada due to the Amendments relative to the base case.

Note: The emission reduction estimates illustrated in this figure are based on national-level modelling and thus do not correspond exactly to the estimates presented in Table 10, which are based on more detailed modelling at the provincial/territorial level.

In the figure above, the effect of reducing sulphur in gasoline can be most clearly seen in the reductions in SO2 emissions from 2017 to 2020. Vehicle fleet turnover from 2017 to 2030 is expected to result in increasing reductions in NOx, VOC and PM2.5 emissions over this period, as an increasing portion of the fleet will meet more stringent emission standards. Reductions in SO2 emissions are not expected to follow the same trend since they are directly related to the amount of fuel combusted and the level of sulphur in the fuel.

From 2017 to 2020 and from 2021 to 2030, there are relatively linear trends in emission reduction estimates for NOx, VOCs and PM2.5. These trends support the assumption of linearity employed to estimate cumulative health and environmental benefits over the 2017 to 2030 period using the provincial/territorial-level modelling results for 2020 and 2030.

Air quality modelling

The detailed emission results from MOVES for 2020 and 2030 were used as inputs for ambient air quality modelling within A Unified Regional Air-Quality Modelling System (AURAMS). To reflect the expected location of vehicles, Canadian population densities and road class type information were used to geographically allocate the MOVES results. AURAMS was then used to estimate the impacts on ambient air quality resulting from the interaction of vehicle emission reductions with existing ambient air quality, daily weather and wind patterns. The relationship between air pollutant emissions and ambient air quality is complex and non-linear. This is particularly true for the formation of ground-level ozone through the interaction of NOx and VOCs. Key outputs from AURAMS used in the benefits analysis include different metrics, such as hourly and daily ambient concentrations of PM2.5, nitrogen dioxide (NO2) and ground-level ozone, reported by census division and statistically aggregated annually for 2020 and 2030.

Health benefits modelling and valuation

Health Canada applied the Air Quality Benefits Assessment Tool (AQBAT) to estimate the health impacts of the Amendments. Using the air quality projections generated by AURAMS, changes in ambient air quality levels were allocated to each Canadian census division and used as inputs for AQBAT. Based on changes in local ambient air quality, AQBAT estimated the likely reductions in average per capita risks for a range of health impacts known to be associated with air pollution exposure. These changes in per capita risks were then multiplied by the affected populations in order to estimate the reduction in the number of health problems experienced by Canadians. AQBAT also applied economic values drawn from the available literature to estimate the average per capita economic benefits of lowered health risks. AQBAT estimated the health and associated economic benefits from the Amendments for 2020 and 2030. Benefits for the entire 2017 to 2030 period were estimated assuming that benefits will follow a linear trend from 2017 to 2020 and from 2021 to 2030, based on the estimated emissions of key pollutants.

It was estimated that, from 2017 to 2030, air quality improvements resulting from the Amendments will prevent about 1 400 premature deaths related to air pollution. The Amendments were also estimated to prevent nearly 200 000 days of asthma symptoms, 910 000 days of limited activity due to breathing problems, and 2.8 million days of acute respiratory problems.

Table 12: Health impacts attributable to the Amendments

Heath impacts as avoided adverse events In 2020 In 2030 Cumulative Health Impacts: 2017 to 2030 Cumulative Discounted Health Benefits (in millions of dollars)
Short-term respiratory problems        
Episodes of acute childhood bronchitis 115 500 3 500 $1
Days of asthma symptoms experienced 6 600 28 000 200 000 $10
Days of limited activity due to breathing problems 30 000 86 000 910 000 $36
Days of acute respiratory problems 91 000 380 000 2 800 000 $25
Adult chronic respiratory problems (chronic bronchitis) 18 80 560 $175
Premature deaths associated with air pollution 40 200 1 400 $7,200
All health end points $7,400
Note: Cumulative health benefits are expressed in millions of 2013 dollars, discounted to present value using a 3% discount rate, and do not add up due to rounding.

It was estimated that, from 2017 to 2030, air quality improvements resulting from the Amendments will generate cumulative health benefits valued at $7.4 billion, in present value terms. These benefits were calculated by multiplying the health impacts in Table 12 by the corresponding economic values linked with the health risk decreases. The majority of the projected economic benefits ($7.2 billion) are a result of estimated reductions in the risk of premature death multiplied by an estimate of the average willingness-to-pay for small reductions in the risk of premature death. These health benefits are associated primarily with reductions in ambient levels of PM2.5, ground-level ozone and NO2. Nationally, reductions in PM2.5 accounted for the largest share of the benefits, but there is considerable regional variability, with ozone and NO2 reductions contributing significant benefits in many parts of the country.

Table 13: Health benefits attributable to the Amendments (millions of 2013 dollars; discounted to present value using a 3% discount rate only in the specified column)

Years PM2.5 Ozone (O3) NO2 Total Undiscounted Health Benefits Total Discounted Health Benefits
2020 140 70 80 300 260
2030 720 410 300 1,500 950
2017 to 2030 4,900 2,800 2,200 10,200 7,400
Environmental benefits modelling and valuation

Similarly, air quality modelling results for 2020 and 2030 from AURAMS were used as an input for the Air Quality Valuation Model 2 (AQVM2) to model environmental impacts, and these results were assumed to extend in linear trends from 2017 to 2020 and from 2021 to 2030. The present value of the cumulative benefits over the 2017–2030 period is estimated to be about $93 million, which accounts for the increase in sales revenue associated with enhanced crop productivity due to lower ozone levels, avoided cleaning costs for residential households due to reduced soiling from PM deposition, and households’ willingness-to-pay for visibility improvement associated with lower PM levels, as shown in Table 14.

Table 14: Environmental benefits related to air quality improvements (millions of 2013 dollars; discounted to present value using a 3% discount rate only in the specified column)

Years Agriculture Soiling Visibility Total Undiscounted Environmental Benefits Total Discounted Environmental Benefits
2020 1.9 0.6 1.9 4.5 3.9
2030 6.4 2.8 8.1 17.3 11.1
2017 to 2030 48.8 19.8 58.3 126.9 92.8
Non-monetized benefits

Other reductions: This analysis has not taken into consideration the reductions in air pollutant emissions from off-road gasoline-powered engines, equipment and vessels that will occur as a result of the SiGR Amendments. Although the impacts of reducing air pollutant emissions from off-road sources powered by gasoline engines have not been quantified or monetized, these impacts are expected to increase the overall health and environmental benefits estimated above.

Health: In addition to the impact that reductions in air pollutant emissions will have on the formation of smog, the Amendments are also expected to reduce exposure to a number of other toxic substances, such as benzene, acetaldehyde, formaldehyde, acrolein and 1,3-butadiene. These substances are known to pose a wide range of health risks, from respiratory tract infections to increased cancer risk. Although the impacts of reducing emissions of these substances have not been quantified or monetized in this analysis, these impacts are expected to increase the overall health benefits estimated above.

Environment: The Amendments may also lead to some changes in GHG emissions. It is expected that more energy will be required by refineries to reduce the amount of sulphur in gasoline. This increased energy consumption is expected to lead to minor increases in GHGs over the 2017–2030 period. Due to improved vehicle emission control technologies and reduced sulphur in gasoline, vehicles will emit fewer GHGs in the form of methane (CH4) and nitrous oxide (N2O). There is some uncertainty regarding the exact relationship between the vehicle emission standards and reductions in CH4 and N2O emissions, which makes it difficult to quantify these GHG impacts with a high level of precision. Nevertheless, as of 2020, increases in GHG emissions from refineries are estimated to be offset by reductions in GHG emissions from vehicles. Net GHG emission reductions were estimated to be at least 0.05 megatonnes per year, expressed in carbon dioxide (CO2) equivalent terms. The net impact of these GHG emission reductions was not monetized due to the uncertainty associated with the estimates, but the impact of the GHG emission changes is expected to be small relative to the other impacts of the Amendments.

Business: The vehicle manufacturing sectors in Canada and the United States are highly integrated, and there is a long history of collaboration in working towards the alignment of emission standards. The implementation of common Canada–United States standards for gasoline refiners and importers and vehicle manufacturers and importers will provide regulatory certainty to facilitate investment decisions and minimize reporting burden by allowing the use of common information, data and emission testing results to demonstrate compliance.

Summary of benefits and costs

From 2015 to 2030, the Amendments are expected to result in cumulative health and environmental benefits of $7.5 billion, and aggregate fuel, vehicle and other costs of $2.7 billion, expressed in present value terms. The net present value of the Amendments for Canadians is thus estimated to be $4.8 billion, representing a benefit-to-cost ratio of almost 3:1.

Table 15: Statement of benefits and costs (millions of 2013 dollars discounted to present value using a 3% discount rate)

Monetized impacts 2015 to 2020 2021 to 2025 2026 to 2030 Total
Health benefits 660 2,550 4,219 7,429
Environmental benefits 10 33 50 93
Total benefits 670 2,583 4,269 7,522
Fuel costs 831 137 123 1,091
Vehicle technology costs 413 639 603 1,655
Government costs 2 0 0 2
Total costs 1,246 776 726 2,748
Net benefits (costs) (576) 1,807 3,543 4,774
Non-monetized impacts:
  • additional reductions in air pollutant emissions from off-road gasoline-powered engines;
  • anticipated health improvements due to reductions in exposure to other toxic substances;
  • environmental benefits due to expected net reductions in GHG emissions; and
  • benefits to businesses due to regulatory alignment with the U.S. Tier 3 standards.

Note: The fuel and vehicle technology costs include the respective business administrative costs. Totals may not add up due to rounding.

This summary presents the discounted benefits and costs to show the estimated present value to Canadian society of monetized impacts expected to occur from 2015 to 2030. Using a 3% discount rate over this period, the estimated annualized average benefits are $599 million, annualized average costs are $219 million, and annualized average net benefits are $380 million. There are other anticipated health, environmental and business benefits that were not monetized for this analysis, as shown in Table 15.

The time frame for this analysis was 2015 to 2030. After 2030, there will be some ongoing additional gasoline desulphurization costs, as well as additional vehicle technology costs as Tier 3 vehicles continue to replace pre-Tier 3 vehicles. Additional health and environmental benefits that outweigh the associated costs are expected over the lifetime of these Tier 3 vehicles. In addition, the emission reductions and related health and environmental benefits resulting from 2017 to 2030 Tier 3 vehicles operating on 10 ppm sulphur gasoline during the portion of their lifetime operation that occurs after 2030 are not accounted for in the analysis.

Lastly, the base case assumes that there will be no reductions in gasoline sulphur concentrations and no improvement in on-road vehicle emission control technologies. There could, however, be some sulphur reductions or technology improvements in the base case, particularly if Canadian refineries and vehicle manufacturers respond directly to the U.S. EPA Tier 3 Final Rule. Under such circumstances, the incremental costs and benefits attributable to the Amendments would be proportionately reduced, but net benefits for Canadians would still be expected.

Sensitivity analysis

The results of this analysis are based on key parameter estimates, which could be higher or lower than indicated by available evidence. Given this uncertainty, alternate estimates of the benefits, costs, and discount rate have been considered to assess their impacts on expected net benefit results. A wider range of uncertainty was considered for alternate benefit estimates, since there is a higher degree of uncertainty around the benefit modelling and cumulative valuation estimates than there is about the cost estimates. A worst-case scenario of both higher costs and lower benefits was also considered. An alternate discount rate of 7% was also considered, as per Treasury Board Secretariat guidance. As shown in Table 16, there are expected net benefits over a range of alternate impact estimates and under an alternate discount rate, which is evidence that the net benefit results are likely robust.

Table 16: Sensitivity analysis for alternate estimates of costs, benefits and discount rate (millions of 2013 dollars discounted to present value using a 3% discount rate, except in the case in which a 7% rate is used)

Alternate impact analysis estimates Alternate net benefits
Central case 4,774
Costs 25% higher than estimated 4,087
Benefits 50% lower than estimated 1,013
Costs 25% higher and benefits 50% lower 326
Costs and benefits discounted at 7% per year 2,940
Distributional impacts

Gasoline producing and importing sector impacts: The SiGR Amendments will ensure the supply of lower sulphur gasoline across Canada. The major export market for Canadian gasoline-producing refineries is the United States market, and the United States has published its Final Rule to reduce the sulphur levels in gasoline. Canadian refineries are well positioned to supply the North American gasoline market with lower sulphur gasoline, since Canadian gasoline is currently well below the existing SiGR sulphur standard of 30 ppm. The incremental costs resulting from the new sulphur standards in the SiGR Amendments are small relative to the high initial capital costs of building and commissioning a new refinery and typical operational costs incurred by a refinery. The SiGR Amendments are thus not expected to impact the pre-existing competitiveness of refineries or introduce new barriers to entering the Canadian gasoline refining industry.

Regarding the importation of gasoline into Canada, the national averaging provisions included in the SiGR Amendments aim to provide additional compliance flexibility and thereby increase the available supply of gasoline, which can benefit gasoline retailers and consumers, by allowing companies to average the sulphur content of imported gasoline across multiple provinces. This provision is likely to be of interest to companies that import gasoline into multiple provinces. As well, under the annual pool average compliance option, the use of the temporary SCU trading system will essentially allow the averaging of gasoline sulphur content over the 2012–2019 period, while under the batch flat limit compliance option, the maximum allowable content of sulphur in gasoline will be set at 14 ppm from 2017 to 2019 and at 12 ppm from 2020 and beyond. In general, gasoline importers are not expected to face difficulties sourcing lower sulphur gasoline given its projected availability worldwide (e.g. from the United States, Japan, Europe and other jurisdictions).

Overall, the SiGR Amendments are expected to increase production costs for the Canadian fuel refining sector, and fuel importers may pay an increased price for gasoline that meets the more stringent sulphur standards. The average gasoline production costs are estimated to increase by about 0.2 cents per litre. Some of these costs are expected to be passed on to consumers. The degree to which gasoline production cost increases are passed on to consumers depends on several market factors, including gasoline distribution constraints, market share competition, refinery capacity and production, and gasoline demand. Any potential gasoline price increase resulting from the SiGR Amendments is likely to be small relative to the price of gasoline and its normal day-to-day volatility. A complete analysis of price impacts is beyond the scope of this analysis.

Vehicle sector impacts: The ORVEER Amendments will introduce regulatory provisions harmonized with those of the United States EPA, thus maintaining common Canada–United States standards. As a result, the Amendments are expected to preserve the competitiveness of the Canadian vehicle manufacturing industry and minimize the compliance burden for vehicle manufacturers and importers by allowing companies to benefit from harmonized compliance, data and testing requirements. The ORVEER Amendments will also increase costs for the Canadian vehicle manufacturing and importing sectors. Similarly to the United States, the average vehicle production costs are expected to increase starting with the 2017 model year and are estimated to be about $74 per 2025 model year when the emission standards reach full stringency. Some of these costs are expected to be passed on to consumers. Potential vehicle price increases resulting from the ORVEER Amendments are likely to be small relative to total vehicle production costs. Considering that the potential price increases are likely to be small, it is expected that any subsequent decrease in vehicle sales will be negligible. A complete analysis of price impacts is beyond the scope of this analysis.

Regional impacts: Assuming that the costs of the SiGR Amendments are distributed based on refinery locations and their expected capital and operating investments, and that the costs of the ORVEER Amendments are distributed across Canada based on the distribution of sales of new vehicles, the costs are expected to be relatively evenly distributed across Canada. Areas of Canada with the greatest population densities and vehicle use are expected to see the greatest health and environmental benefits as a result of the Amendments. Net benefits are expected across Canada, as shown in Table 17.

Table 17: Regional distribution of impacts of the Amendments (millions of 2013 dollars discounted to present value using a 3% discount rate)

Impacts by region West Ontario East Canada
Health and environmental benefits 2,129 3,645 1,748 7,522
Fuel costs due to new sulphur standards 451 237 402 1,091
Vehicle costs due to new emission standards 483 609 562 1,653
Net benefits 1,195 2,799 783 4,777

Note: The net benefit estimates presented here do not exactly correspond to those in the benefit and cost summary table due to rounding and because they do not include business administrative and government costs. The West region includes Yukon, the Northwest Territories, Nunavut, British Columbia, Alberta, Saskatchewan and Manitoba. The East region includes Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador.

“One-for-One” Rule

As required under the “One-for-One” Rule, stakeholders were consulted on the administrative requirements that were included in the proposed Amendments in order to inform estimates of administrative burden. Given the estimated increases in administrative burden described below, the SiGR Amendments and the ORVEER Amendments are both considered an “IN” under the “One-for-One” Rule; therefore, they will each require equal and offsetting reductions in administrative costs imposed by other federal regulations. (see footnote 26) As neither the SiGR Amendments nor the ORVEER Amendments will create new regulatory titles, there will be no requirement to repeal existing regulations.

Net increases in administrative burden costs under the SiGR Amendments are associated with learning about the new administrative obligations, the temporary SCU trading system, completing applications, and additional record-keeping and reporting requirements. The temporary trading system expires at the end of 2019, after which there are expected to be no incremental business administrative costs. Assuming that all parties elect to participate in the temporary SCU trading system, the new administrative burden was estimated at about $5,534 in annualized average costs to the gasoline producing and importing sector. Net administrative impacts per business for 16 impacted stakeholders (14 refineries and 2 importers) were estimated to be on average 14 hours per year, which corresponds to approximately $346 in annualized average costs per business when allocated over the first 10 years of administrative cost impacts (2015–2024).

The ORVEER Amendments will also be expected to result in increases in administrative burden costs due to learning about the new administrative obligations and additional record-keeping and reporting requirements associated with the fleet averaging and phasing in of emission standards. There will be minor decreases in administrative burden costs due to streamlined requirements related to the importation of vehicles into Canada. Overall, the ORVEER Amendments will introduce a new net administrative burden of about $67,698 in annualized average costs to the vehicle manufacturing and importing sector. Net administrative impacts per business for 45 impacted stakeholders were estimated to be on average 57 hours per year, corresponding to about $1,504 in annualized average costs per business when allocated over the first 10 years of administrative cost impacts (2017–2026).

Small business lens

The small business lens does not apply to the Amendments as the impacted communities consist of medium and large businesses only. There are currently no small business producers or importers of gasoline that report under SiGR, and the SiGR Amendments will remove all current reporting requirements for producers or importers of less than 400 m3, or 400 000 litres, of gasoline annually. The small business lens does not apply to the ORVEER Amendments, as the impacted regulatory community consists exclusively of Canadian subsidiaries of multinational vehicle corporations.

Consultation

Consultations prior to the publication of the proposed Amendments in CG-I

On June 7, 2013, the Minister of the Environment (the Minister) announced the intent to further regulate air pollutant emissions from passenger cars and light-duty trucks of model years 2017 and beyond and to lower the level of sulphur in gasoline. On June 8, 2013, the Government of Canada published in CG-I the Notice of intent to develop regulations to further limit emissions of smog-forming air pollutants from new cars and light trucks and to reduce the sulphur content of gasoline. (see footnote 27) The Minister’s announcement specified that Canada’s proposed regulatory actions would build upon current regulations and would be aligned with the U.S. EPA Tier 3 standards. The publication of the notice of intent provided an opportunity to initiate early consultations with provincial and territorial governments as well as stakeholders and seek input on the development of the proposed Amendments. This announcement was followed by stakeholder consultations in the summer of 2013 to further clarify the announcement, initiate discussions on a preliminary regulatory approach and provide background to support formal comments on the notice of intent.

Ten submissions were received during the 30-day public comment period after the publication of the notice of intent: five from fuel stakeholders, four from vehicle stakeholders and one from a municipality. Environment Canada considered each of these comments, which were further discussed through informal technical working groups. These working groups, consisting of representatives from vehicle manufacturers and importers and gasoline producers and importers, met on several occasions in the summer and fall of 2013 with the goal of further discussing issues relevant to the notice of intent and to review key policy objectives, guiding principles and vehicle and fuel linkages. Discussions centered on issues affecting the potential design of the proposed Amendments and a preliminary framework for aligning with the U.S. Tier 3 standards.

As a complement to the meetings of the informal technical working groups, Environment Canada undertook a series of individual meetings with primary suppliers (refiners and importers) of gasoline. The goal of these meetings was to reach out to primary suppliers to gather or validate individual information to support the regulatory analysis. Comments from these discussions were consistent with those from earlier meetings.

Generally, comments from stakeholders included

While there was some support for an interim average, the majority of support was for a temporary trading system for sulphur in gasoline. Consequently, the proposed SiGR Amendments included the option of participating in a temporary SCU trading system for the years 2014 to 2019. This system also aimed to provide flexibility and lead time as requested by refiners. Environment Canada had also maintained the current never-to-be-exceeded 80 ppm batch maximum as part of the proposed SiGR Amendments.

Environment Canada specifically raised the question of the default batch limit with working group members. While there was support for retaining the option of a default batch limit, recommendations on specific levels were limited.

CEPA National Advisory Committee (CEPA NAC)

Environment Canada offered to consult representatives from provincial, territorial and aboriginal governments through CEPA NAC, in conjunction with the release of the notice of intent, when CEPA NAC members were informed of this release via a letter dated June 12, 2013. In accordance with section 140 of CEPA 1999, Environment Canada also offered to consult with CEPA NAC members on the subject of the proposed Amendments.

Consultations following the publication of the proposed Amendments in CG-I

The publication of the proposed Amendments in CG-I on September 27, 2014, initiated a 75-day comment period where interested parties were invited to submit their written comments. The proposed Amendments were posted on Environment Canada’s CEPA Environmental Registry Web site to make them broadly available to interested parties. Environment Canada also distributed an email to interested parties to inform them of the formal consultation process. During the comment period, Environment Canada invited a wide range of stakeholders to attend meetings and webinars that were held to provide an overview of the proposed Amendments and to answer questions to better inform possible written submissions. These sessions were attended by representatives of the provincial and territorial governments, other federal government departments, the vehicle and fuel industries and non-governmental environmental organizations.

Environment Canada also sent a letter to CEPA NAC members to inform them of the release of the proposed Amendments and of the opportunity to be consulted and to submit written comments. No comments were received from CEPA NAC members.

Environment Canada received a total of 12 written submissions from a range of stakeholders, including from the CFA, CVMA, GAC, Motorcycle and Moped Industry Council (MMIC), Manufacturers of Emission Controls Association (MECA), and Canadian Independent Petroleum Marketers Association (CIPMA), as well as from four different refining companies and two public health organizations. Environment Canada has taken these views into account in developing the Amendments.

All stakeholders supported the overall proposed direction of aligning with the U.S. EPA Tier 3 standards. Vehicle and fuel industry stakeholders generally supported Environment Canada’s regulatory approach of addressing vehicle emission and sulphur in gasoline standards as an integrated package and emphasized the need to publish the Amendments as soon as possible to provide industry stakeholders with regulatory certainty and sufficient lead time to comply.

Notwithstanding the above, various stakeholders requested changes to some elements of the proposed Amendments to increase alignment with U.S. requirements, to address unique Canadian considerations, or to modify the regulatory text for improved clarity concerning definitions or other administrative provisions. As well, some stakeholders requested clarifications regarding the regulatory text and its applicability. Environment Canada has addressed most of these concerns by providing detailed explanations to stakeholders or by making modifications to the regulatory text. The following paragraphs summarize the major issues raised by interested parties with respect to the proposed Amendments and Environment Canada’s consideration of these issues leading to the development of the Amendments.

Comments and responses concerning the SiGR Amendments
Permanent averaging, banking and trading (ABT) system

Comment: A stakeholder from the fuel industry requested that the SiGR Amendments include a full averaging, banking and trading (ABT) system on a permanent basis (i.e. continuing after 2019) to increase alignment with the U.S. regime and provide more compliance flexibility. Other stakeholders from the fuel industry supported the proposed temporary SCU trading system.

Response: The temporary SCU trading system was proposed to provide more compliance flexibility during the transition leading to 2020 and would conclude after 2019. Canadian refining companies are expected to use the temporary SCU trading system to make necessary investments in alignment with their periodic upgrade and maintenance schedules, and trading of SCUs between refining companies would not be expected to occur after 2019 under an ongoing ABT system. In addition, if a permanent ABT system was adopted, the opportunity for trading within companies could provide a competitive advantage to companies operating multiple refineries relative to companies operating a single refinery. Further, situations of unbalanced gasoline quality across regions of the geographically dispersed Canadian market could arise if a refining company decided to only use SCUs instead of producing cleaner, lower sulphur gasoline. Taking into account the concerns mentioned above regarding an ongoing ABT system and recognizing that the smaller Canadian refining market would provide less liquidity for trading SCUs, Environment Canada has decided to maintain the SCU trading system established under the SiGR Amendments until December 31, 2019.

Generation of sulphur compliance units (SCUs) for 2012 and 2013

Comment: Stakeholders from the fuel industry requested that the SiGR Amendments allow the generation of SCUs under the temporary SCU trading system for 2012 and 2013 in alignment with the Tier 3 Final Rule.

Response: Under the proposed SiGR Amendments, SCUs could be generated under the temporary trading SCU system if a primary supplier’s annual pool average is lower than the applicable sulphur limit for the years 2014 to 2019. Refiners in the United States have the option to carry forward SCUs generated during 2012 and 2013 into the Tier 3 program. The U.S. EPA added these provisions to its Tier 3 Final Rule following public consultations in order to provide the fuel industry with additional compliance flexibility to transition to meeting the more stringent gasoline sulphur standards. Environment Canada concurs that the availability of additional SCUs generated during 2012 and 2013 would align with the U.S. regime and could provide additional flexibility to allow Canadian refiners to meet transitional compliance on their own schedules. Accordingly, Environment Canada will accept SCU generation during 2012 and 2013 under the temporary trading system. All SCUs that are generated under the temporary SCU trading system will expire after the respective compliance requirements are met for 2019.

Regulatory requirements concerning gasoline imported into Canada

Comment: A stakeholder from the fuel industry requested that all gasoline imported from the United States and subject to the U.S. EPA Tier 3 standards be deemed compliant under the SiGR, on the basis that gasoline purchased at a U.S. terminal would have been required to comply with the U.S. standards. Environment Canada engaged the stakeholder and a revised recommendation was submitted by the stakeholder requesting a “small importer exemption” with a limited scope that included caps on sulphur levels and the volume of imports of gasoline. The requests were made with the objective of providing Canadian independent importers and marketers of gasoline with greater access to imported fuel from the United States without incurring additional costs and administrative burden, particularly during times of gasoline supply shortages within the Canadian petroleum refining community. However, other stakeholders from the fuel industry indicated that they do not support the request for a permanent “small importer exemption,” as it would not require gasoline importers in Canada to comply with the sulphur standards that apply to other suppliers of gasoline in Canada.

Response: If the stakeholder’s recommendations were implemented, Canada would run the risk of enabling the importation of higher sulphur gasoline, since the U.S. system is based on compliance with an annual average sulphur limit under an ongoing ABT system, with a higher sulphur limit on individual batches of gasoline. The requested approach would provide a competitive advantage to gasoline importers that would be able to source gasoline from suppliers in the United States exceeding the new sulphur standards that Canadian refining companies will be required to meet under the SiGR Amendments. Further, the U.S. program does not have a similar option for imports from Canada. Environment Canada has therefore maintained, in the SiGR Amendments, the approach of mandating that all gasoline imported into Canada be required to comply with specific Canadian sulphur standards which also apply to gasoline produced in Canada for the Canadian market.

Environment Canada does not expect that the SiGR Amendments will contribute to any fuel supply shortages in Canada, and there have been no concerns of potential fuel shortages expressed by the Canadian petroleum refining sector. Nevertheless, Environment Canada recognizes that fuel supply shortages can occur due to unforeseen circumstances, such as major refinery fires or natural disasters. Section 147 of CEPA 1999 and the existing Regulations Prescribing Circumstances for Granting Waivers Pursuant to Section 147 of the Act allow the Minister to grant temporary waivers from fuel regulatory requirements in the case of an actual or anticipated fuel supply shortage during a declared state of emergency. Accordingly, if a fuel supply shortage occurs during a declared state of emergency in which Canadian refiners cannot supply independent fuel marketers, a targeted waiver from requirements of the SiGR and from other fuel regulations under CEPA 1999 could be considered to address the specific circumstances.

Environment Canada recognizes that market dynamics in the petroleum sector are complex and fuel supply in Canada can be affected by many factors, including the obligation on fuel producers and importers to comply with applicable regulatory requirements. Environment Canada administers several regulations under CEPA 1999 that establish requirements related to the content of fuels and reporting of fuel-related information. These fuel regulations have been developed to protect the health of Canadians and the environment, while seeking to maintain a level playing field among regulated parties and minimize regulatory burden.

In recognition of concerns raised with respect to fuel supply, the SiGR Amendments have been modified to require that the sulphur content of imported gasoline be averaged on a national basis, rather than on a provincial basis, for primary suppliers that elect for the annual pool average compliance option. This approach aims to provide additional compliance flexibility, and thereby increase the available supply of gasoline, which can benefit gasoline retailers and consumers, by allowing companies to average the sulphur content of imported gasoline across multiple provinces. This provision is likely to be of interest to companies that import gasoline into multiple provinces. In addition, Environment Canada is committed to undertake a review of its full suite of fuel regulations to determine if there are any existing regulatory barriers that may be unwarranted or may cause undue economic hardship for fuel importers with a particular focus on independent fuel importers, marketers and retailers. Environment Canada considers that undertaking a comprehensive review of the full suite of fuel regulations can best identify and assess the broader issues introduced by the stakeholder. The review will be conducted in consultation with stakeholders and is targeted for completion in the spring of 2016.

Credit for the addition of ethanol

Comment: Stakeholders from the fuel industry requested that the annual average sulphur adjustment provisions due to ethanol blending be less restrictive by accounting for the addition of ethanol into gasoline at terminals that have multiple sources of gasoline. A defined ethanol sulphur concentration was also requested.

Response: The SiGR include provisions that account for the dilution of gasoline sulphur levels through the addition of oxygenates (including ethanol) and butane into gasoline that occurs at terminals that have a single facility source of gasoline. Ethanol blending in Canada was minimal when the SiGR were originally developed and, as a result, accounting for the addition of ethanol into gasoline at terminals that could have multiple sources of gasoline was not considered at the time. Given the increase in ethanol blending that has occurred since then, Environment Canada concurs that it is appropriate to add an allowance to adjust sulphur concentrations due to downstream blending of ethanol at multiple-sourced (common) terminals. Accordingly, Environment Canada has added provisions to the SiGR Amendments to allow for the accounting of the dilution of gasoline sulphur levels through the addition of oxygenates and butane that occurs at common facilities, and for the use of a 5 ppm default sulphur concentration for ethanol, in alignment with the United States.

Requirements for pool-to-pool trading of SCUs

Comment: Stakeholders from the fuel industry requested the allowance of multiple internal trades between pools owned by a primary supplier, but the retention of the one-trade limit between primary suppliers. Stakeholders from the fuel industry also recommended that confidential business information concerning which facilities are involved in SCU trading between primary suppliers be considered protected information. Therefore, these stakeholders requested the removal of the requirement in the SiGR to make this information available between primary suppliers.

Response: The proposed temporary SCU trading system had a one-trade limit for any given SCU. The one-trade limit was intended to simplify the temporary trading system and prevent trading speculation that could increase administrative costs incurred by primary suppliers. Environment Canada agrees that additional flexibility is appropriate to facilitate internal trading in closer alignment with the United States. and that it would be appropriate to limit the amount of information required to be shared between primary suppliers for trading. The U.S. Tier 3 standards allow multiple trades within a company and establish a limit of two trades between companies, with restrictions on the second trade. Also, the United States protects confidential business information in such trades. The SiGR Amendments include provisions to allow multiple trades within a company and retain the one-trade limit between companies, as requested by industry stakeholders. In addition, the requirement for one primary supplier to know the exact pool owned by another primary supplier with which they will trade SCUs is removed, increasing alignment with the U.S. confidentiality requirements.

Comments and responses concerning the ORVEER Amendments
Phase in of PM and evaporative emission standards

Comment: Stakeholders from the vehicle manufacturing and importing industry suggested that compliance with the proposed phase in of tighter PM and evaporative standards could be a barrier to the introduction of Canada-unique vehicles that may appeal to Canadians and recommended that compliance with these standards not be required until 2021 and 2022, respectively (i.e. when fully phased in in the United States). (see footnote 28) Other stakeholders from the vehicle manufacturing and importing industry supported the proposed approach to phase in the PM and evaporative emission standards in line with the EPA.

Response: The proposed ORVEER Amendments required that, as in the United States, an increasing percentage of a company’s new vehicles comply with the Tier 3 PM and evaporative emission standards starting with model year 2017. The approach regarding the phase in of PM and evaporative emission standards, which includes a Canada-specific alternative phase-in option, provides considerable compliance flexibility for a company’s Canada-unique vehicles. Environment Canada has maintained the approach for phasing in the PM and evaporative emission standards as proposed in CG-I, since this approach will not prevent the introduction of future (not yet manufactured) Canada-unique vehicles, but seeks to ensure that these vehicles, contribute to overall emission performance which is comparable to that under the U.S. regime.

Stricter emission standards

Comment: A stakeholder from the vehicle parts manufacturing industry requested that Canada consider adopting the more stringent PM standard of the CARB (i.e. 1 mg/mi phased in beginning with model year 2025), while two public health organizations requested that more stringent standards for on-road heavy-duty vehicles above heavy-duty weight class 3 be adopted.

Response: Environment Canada has maintained the emission standards as proposed in CG-I which align with U.S. Tier 3 standards. The EPA and the CARB both plan to phase in a PM emission standard of 3 mg/mi; the EPA will phase in this standard over model years 2017 to 2022, while the CARB phase-in period will end with model year 2021. While the EPA’s PM standard will remain at 3 mg/mi after the 2022 model year, the CARB will subsequently phase in a more stringent 1 mg/mi PM standard over the model years 2025 to 2028. Given the long-term nature of the CARB’s 1 mg/mile PM standard, Environment Canada will monitor technical progress and may consider tighter standards in the future in coordination with the U.S. EPA. While the Tier 3 standards in the ORVEER Amendments do not apply to heavy-duty vehicles above heavy-duty weight class 3, such as long-haul trucks powered by diesel engines, the ORVEER contain significantly more stringent PM and NOx emission standards for these vehicles beginning with the 2007 model year, which represent a 90% reduction compared to the standards that applied to the 2006 model year. The implementation of these standards is expected to continue delivering important air pollutant emission reductions as new heavy-duty vehicles continue to replace older vehicles on Canadian roads.

EPA administrator discretion

Comment: Stakeholders from the vehicle manufacturing and importing industry requested the inclusion of provisions to allow Environment Canada to use discretion in administering regulatory requirements for Canada-unique vehicles, similar to U.S. EPA administrator discretion. It was stated that not allowing such administrative discretion can reduce compliance flexibility for Canada-unique vehicles relative to EPA-certified vehicles.

Response: Environment Canada has maintained the proposed CG-I approach, as it aligns as much as possible with the U.S. program within the legislative framework of CEPA 1999. To provide as much flexibility as possible, the ORVEER will continue to allow an EPA-certified vehicle or engine to conform to the standards in its certificate.

Labelling of vehicles deemed to be “equivalent” to EPA-certified vehicles

Comment: Stakeholders from the vehicle manufacturing and importing industry expressed support for a Canada-specific emission control information label for vehicles determined to be “equivalent” to EPA-certified vehicles as proposed in CG-I. Other stakeholders requested provisions to allow companies to affix the U.S. EPA compliance label to avoid the additional burden involved in affixing a different Canadian label.

Response: Environment Canada has modified the proposed CG-I approach to address this comment. The ORVEER Amendments set labelling specifications for vehicles determined by the Minister as being “equivalent” to EPA-certified vehicles. Instead of introducing a specific label for vehicles determined to be “equivalent” to EPA-certified vehicles, the ORVEER Amendments require that these vehicles bear the equivalent label as the one for Canada-unique vehicles.

Evidence of conformity for vehicles sold concurrently in Canada and the United States

Comment: Stakeholders from the vehicle manufacturing and importing industry requested that the definition of “concurrent sale” for the purposes of evidence of conformity be defined in a guidance document so that it may be more easily revisited and adjusted in the future. The stakeholders also requested clarification on the type of evidence required to demonstrate to Environment Canada that a concurrent sale of a vehicle model has taken place in Canada and the United States. Other stakeholders from the vehicle manufacturing and importing industry recommended that the definition of concurrent sale be established in the ORVEER Amendments.

Response: Environment Canada has included an interpretative provision in the ORVEER Amendments that sets out what is meant by “concurrent sale,” as well as a requirement to demonstrate concurrent sale, where applicable. The types of evidence that can be used to demonstrate concurrent sale will be included in existing guidance material concerning submission requirements for evidence of conformity.

Submission of records

Comment: Stakeholders from the vehicle manufacturing and importing industry indicated that the requirement to submit to the Minister any records submitted to the EPA to maintain a certificate of conformity is overly burdensome.

Response: The proposed ORVEER Amendments added provisions that require that information submitted to the U.S. EPA to update or amend an EPA certificate of conformity be submitted to the Minister upon request. Environment Canada has maintained the proposed CG-I approach regarding the submission to the Minister of updates or amendments to EPA certificates of conformity upon request, as it will provide Environment Canada with important emission performance information in situations where the EPA certificate serves as the basis for a company’s evidence of conformity. Given that the records will already be developed and submitted to the U.S. EPA, this requirement is not expected to substantially increase administrative burden.

Electronic reporting

Comment: Stakeholders from the vehicle manufacturing and importing industry requested that regulatory reporting requirements be made via the VEERR to reduce duplication of reporting across Environment Canada’s different vehicle and engine emission regulations.

Response: Environment Canada intends to modify VEERR to allow reporting information related to air pollutant emissions, in addition to reporting information related to GHG emissions.

Notices of defect

Comment: Stakeholders from the vehicle manufacturing and importing industry commented that the requirement in the proposed ORVEER Amendments to send a notice of defect to owners of affected vehicles in the official language of their choice was unclear.

Response: The proposed ORVEER Amendments updated the provisions concerning notices of defect to streamline the requirements and provide owners of affected vehicles with a notice of defect in the official language of choice of the owner, or in both official languages if the preference of the owner is not known. In response to the stakeholders’ comment, Environment Canada has made modifications to these provisions in the ORVEER Amendments to improve their clarity.

Regulatory cooperation

Maintaining alignment with U.S. fuel quality standards and air pollutant emission standards for vehicles and engines is consistent with the objectives of the AQA, the Government of Canada’s Clean Air Regulatory Agenda and the RCC. Consistent with this objective of maintaining alignment, the notice of intent released by Environment Canada on June 8, 2013, included the intent to align both SiGR and ORVEER with the U.S. EPA’s Tier 3 rule in order to further limit emissions of smog-forming air pollutants from new cars and light trucks, and to reduce the sulphur content of gasoline.

Rationale

Smog has a significant negative impact on the environment and the health of Canadians. The Amendments represent an integrated strategy to reduce smog caused by the emission of air pollutants from vehicles and will help ensure cleaner air for Canadians. The SiGR Amendments are made under the Fuels Division in Part 7 of CEPA 1999. Consistent with the requirements of this Division of CEPA 1999, the Governor in Council is of the opinion that the SiGR Amendments will make a significant contribution to the prevention of, or reduction in, air pollution. The SiGR Amendments will reduce the limit of sulphur in gasoline from a 30 ppm to a 10 ppm annual average, which will subsequently result in significant reductions in emissions of air pollutants from both existing and new on-road vehicles. In combination with the requirement for less sulphur in gasoline introduced by the SiGR Amendments, the Tier 3 emission standards included in the ORVEER Amendments will lead to significant reductions in emissions of air pollutants from new on-road vehicles, compared to the current Tier 2 emission standards. Therefore, implementing the Amendments concurrently will result in important health and environmental benefits for Canadians, and will maintain regulatory alignment between Canada and the United States.

To meet the requirements of the Amendments, petroleum refineries and vehicle and engine manufacturers and importers will have to make investments with a present value of approximately $2.7 billion to reduce the sulphur content of gasoline and install advanced emission control technologies over the 2017–2030 period. During this period, these investments are expected to generate health and environmental benefits for Canadians with a present value of approximately $7.5 billion, resulting in an estimated net present value of $4.8 billion for Canadian society. Between 2017 and 2030, air quality improvements resulting from the Amendments are expected to prevent about 1 400 premature deaths, nearly 200 000 days of asthma symptoms and 2.8 million days of acute respiratory problems related to air pollution. The Amendments are also expected to have minimal impacts on the price of gasoline and vehicles. In present value terms, the average gasoline production costs are expected to increase by about 0.2 cents per litre, while the average vehicle production costs are expected to increase by about $74 per new vehicle when the emission standards reach full stringency. Some of these costs are expected to be passed on to consumers.

The Amendments will align Canadian regulations with the U.S. EPA Tier 3 standards, ensuring common requirements in both jurisdictions and preserving the competitiveness of Canadian vehicle manufacturing and gasoline producing industries. The U.S. EPA Tier 3 emission standards represent the most stringent national air pollutant standards in the world. In addition, the U.S. EPA Tier 3 gasoline sulphur standards are achieving low levels similar to the levels being achieved in California and Europe, as well as in Japan, South Korea and several other countries. The Amendments were developed in consultation with key stakeholders who broadly support alignment with the U.S. EPA standards.

Implementation, enforcement and service standards

Environment Canada administers a comprehensive program to implement, enforce and verify compliance with the SiGR and ORVEER. Members of the regulated community will be responsible for ensuring that they are in compliance with the SiGR and ORVEER, as well as with the Amendments, and they will continue to be required to produce and maintain evidence of compliance. To assist with ORVEER implementation, existing guidance material will be updated to contain reference to certain heavy-duty vehicles. This guidance material will include information to address new “evidence of conformity” requirements and the procedures to be followed when submitting required documentation. With respect to the SiGR, guidance material will be updated to include requirements for the temporary SCU trading system over the 2012–2019 period, along with the 10 ppm standard for sulphur in gasoline starting in 2017.

Since the Amendments will be made under CEPA 1999, enforcement officers will, when verifying compliance with the Amendments, apply the Compliance and Enforcement Policy for CEPA 1999. Regarding the Amendments, Environment Canada will continue to respect the same service standards in terms of reviewing and responding to regulatory documents in a timely manner. Environment Canada will strive to respond to submissions according to the timelines published in the Submission Requirements for Evidence of Conformity for Light-Duty Vehicles, Light-Duty Trucks and Medium-Duty Passenger Vehicles Guidance Document. (see footnote 29)

Performance measurement and evaluation

The expected outcome of the Amendments is in alignment with departmental priorities to reduce emissions of air pollutants and GHGs from transportation sources (vehicles, engines and fuels). The performance of the Amendments in achieving these outcomes will be measured and evaluated.

Clear and quantified performance indicators will be defined for each outcome and will be tracked annually through yearly reporting and testing requirements. For gasoline producers and importers, these indicators include annual reporting of average sulphur concentrations, volumes produced and imported, and the maximum sulphur content of batches. For on-road vehicle manufacturers and importers, performance indicators include importation declarations, emissions verification testing of vehicles by Environment Canada, evidence of conformity documentation and the end-of-model-year reports that companies will submit to Environment Canada.

Regular review and evaluation of these performance indicators will allow Environment Canada to detail the impacts of the Amendments on the gasoline production and importation sector and on the on-road vehicle sector, as more low-emitting vehicles enter the Canadian market, and to evaluate the performance of the Amendments in reaching the intended targets.

Contacts

Jody Barclay
Acting Manager
Fuel Quality Section
Oil, Gas and Alternative Energy Division
Energy and Transportation Directorate
Environmental Stewardship Branch
Environment Canada
351 Saint-Joseph Boulevard, 12th Floor
Gatineau, Quebec
K1A 0H3
Telephone: 819-420-7972
Fax: 819-420-7410
Email: fuels-carburants@ec.gc.ca

Josée Lavergne
Manager
Air Pollutant Regulatory Development Section
Transportation Division
Energy and Transportation Directorate
Environmental Stewardship Branch
Environment Canada
351 Saint-Joseph Boulevard, 13th Floor
Gatineau, Quebec
K1A 0H3
Telephone: 819-420-8034
Email: VehicleandEngineInfo@ec.gc.ca

Yves Bourassa
Director
Regulatory Analysis and Valuation Division
Economic Analysis Directorate
Strategic Policy Branch
Environment Canada
10 Wellington Street, 25th Floor
Gatineau, Quebec
K1A 0H3
Fax: 819-953-3241
Email: ravd.darv@ec.gc.ca