Vol. 148, No. 21 — October 8, 2014

Registration

SOR/2014-207 September 19, 2014

CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999

Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations

P.C. 2014-935 September 18, 2014

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 December 8, 2012, a copy of the proposed Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations, 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 and 162 of the Canadian Environmental Protection Act, 1999 (see footnote c), makes the annexed Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations.

REGULATIONS AMENDING THE PASSENGER AUTOMOBILE AND LIGHT TRUCK GREENHOUSE GAS EMISSION REGULATIONS

AMENDMENTS

1. (1)The definitions “car line” and “transmission class” in subsection 1(1) of the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (see footnote 1) are repealed.

(2) The definition “curb weight” in subsection 1(1) of the Regulations is replaced by the following:

“curb weight”
« masse en état de marche »

“curb weight” means, at the manufacturer’s choice, the actual or manufacturer’s estimated weight of a vehicle in operational status with all standard equipment and weight of fuel at nominal tank capacity and the weight of optional equipment.

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

“cargo box length at the floor”
« longueur de caisse au plancher »

“cargo box length at the floor” means the longitudinal distance between the inside front of the cargo box and the inside of the closed endgate as measured at the surface of the cargo box floor along the vehicle’s centreline.

“cargo box length at the top of the body”
« longueur de caisse au sommet de la carrosserie »

“cargo box length at the top of the body” means the longitudinal distance between the inside front of the cargo box and the inside of the closed endgate as measured at the height of the top of the cargo box along the vehicle’s centreline.

“cargo box width”
« largeur de la caisse de chargement »

“cargo box width” means the width of the cargo box as measured at the cargo box’s narrowest point between the wheelhouses.

“fire fighting vehicle”
« véhicule d’incendie »

“fire fighting vehicle” means a passenger automobile or light truck 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.

“full-size pick-up truck”
« grosse camionnette »

“full-size pick-up truck” means a light truck that has a passenger compartment and a cargo box without a permanently fixed roof and that meets the following specifications:

“GCWR”
« PNBC »

“GCWR” means the gross combination weight rating specified by a manufacturer as the maximum combined weight of a towing vehicle, its passengers and its cargo, plus the weight of the trailer and its cargo.

“mild hybrid electric technology”
« technologie électrique hybride légère »

“mild hybrid electric technology” means a technology that includes automatic start/stop capability and regenerative braking capability, and with which the recovered energy is at least 15% but less than 65% of the total braking energy, as determined in accordance with the test procedure set out in section 116(c) of Title 40, chapter I, part 600, subpart B, of the CFR.

“natural gas vehicle”
« véhicule au gaz naturel »

“natural gas vehicle” means a vehicle designed to operate exclusively on natural gas.

“payload capability”
« charge utile »

“payload capability” means the difference between the GVWR and curb weight of a vehicle.

“strong hybrid electric technology”
« technologie électrique hybride complète »

“strong hybrid electric technology” means a technology that includes automatic start/stop capability and regenerative braking capability, and with which the recovered energy is at least 65% of the total braking energy, as determined in accordance with the test procedure set out in section 116(c) of Title 40, chapter I, part 600, subpart B, of the CFR.

“towing capability”
« capacité de remorquage »

“towing capability” means the difference between the GCWR and GVWR of a vehicle.

(4) Subsection 1(2) of the Regulations is repealed.

2. Subsection 6(2) of the Regulations is replaced by the following:

Exception

(2) Subsection (1) does not apply to any company that, since September 23, 2010 or an earlier date, has been authorized to apply the national emissions mark to a vehicle under the On-Road Vehicle and Engine Emission Regulations.

3. Subsections 8(3) and (4) of the Regulations are replaced by the following:

Fleets of the 2011 model year

(3) A company’s fleet of passenger automobiles or light trucks of the 2011 model year does not include vehicles that were manufactured before September 23, 2010, unless the company elects to include all of its passenger automobiles or light trucks of the 2011 model year in the fleet in question and reports that election in its end of model year report.

Emergency vehicles

(4) Despite subsection (1), a company may, for the purposes of sections 10, 13 to 31 and 33 to 40, elect to exclude emergency vehicles from its fleets and its temporary optional fleets of passenger automobiles and light trucks of the model year corresponding to the year during which this subsection comes into force and any subsequent model year, if it reports that election in its end of model year report for that model year.

4. Section 9 of the Regulations is amended by adding the following after subsection (3):

Exception — ambulance or fire fighting vehicle

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

5. Subsection 10(1) of the Regulations is replaced by the following:

Nitrous oxide and methane emission standards

10. (1) Subject to subsection (2) and section 12, passenger automobiles and light trucks of the 2012 model year or a subsequent model year must conform to the following exhaust emission standards for nitrous oxide (N2O) and methane (CH4) for the applicable model year:

6. Section 11 of the Regulations is replaced by the following:

Interpretation of standards

11. The standards referred to in section 10 are the certification and in-use standards for the applicable useful life, taking into account the test procedures, fuels and calculation methods set out for those standards in subpart B of Title 40, chapter I, subchapter C, part 86 of the CFR and in subpart B of Title 40, chapter I, subchapter Q, part 600, of the CFR.

7. (1) Subsection 14(1) of the Regulations is replaced by the following:

Non-application of the standards respecting CO2 equivalent emissions

14. (1) A company that manufactured or imported at least one passenger automobile or light truck but in total not more than 749 passenger automobiles and light trucks of either the 2008 or 2009 model years for sale in Canada is not subject to sections 13 and 17 to 20 for vehicles of the 2012 model year or a subsequent model year if

New companies — 2017 model year and subsequent model years

(1.1) A company that did not manufacture or import any passenger automobiles or light trucks of the 2011 to 2016 model years for sale in Canada during the 2010 to 2016 calendar years is not subject to sections 13 and 17 to 20 for vehicles of the 2017 model year or a subsequent model year if the company submits a declaration as set out in section 35 and

(2) The portion of subsection 14(2) of the Regulations before paragraph (a) is replaced by the following:

Conditions

(2) If, for the three consecutive model years preceding the model year in question, the average number of passenger automobiles and light trucks that were manufactured or imported by a company for sale in Canada is equal to or greater than 750 — other than by reason of the company purchasing another company — the company becomes subject to sections 13, 17 to 20 and 33 for its passenger automobiles and light trucks of the following model year:

8. Section 15 of the Regulations is replaced by the following:

Rounding — general

15. (1) If any of the calculations in these Regulations, except for those in paragraphs 17(4)(b) and (5)(b), subsections 17(6) and (7), section 18, subsections 18.1(1), (2), (5) and (10), sections 18.2 and 18.3 and subsection 18.4(1), results in a number that is not a whole number, the number must be rounded to the nearest whole number in accordance with section 6 of the ASTM International method ASTM E 29-93a, entitled Standard Practice for Using Significant Digits in Test Data to Determine Conformance with Specifications.

Rounding — nearest tenth of a unit

(2) If any of the calculations in paragraphs 17(4)(b) and (5)(b), subsections 17(6) and (7), section 18, subsections 18.1(1), (2), (5) and (10), sections 18.2 and 18.3 or subsection 18.4(1) results in a number that is not a whole number, the number must be rounded to the nearest tenth of a unit.

9. (1)Subsections 17(2) and (3) of the Regulations are replaced by the following:

Calculation of fleet average CO2 equivalent emission standard for 2012 and subsequent model years

(3) Subject to sections 24 and 28.1, a company must calculate the fleet average CO2 equivalent emission standard for its fleet of passenger automobiles and its fleet of light trucks of the 2012 model year and subsequent model years in accordance with the following formula:

Detailed information can be found in the surrounding text.

where

(2) The portion of subsection 17(4) of the Regulations before paragraph (a) is replaced by the following:

Targets — passenger automobiles of the 2012 to 2016 model years

(4) For fleets of the 2012 to 2016 models years, the CO2 emission target value applicable to a group of passenger automobiles of a given model year corresponds to the following:

(3) The portion of item 5 of the table to paragraph 17(4)(a) of the Regulations in column 1 is replaced by the following:

Item Column 1

Model Year
5. 2016

(4) The portion of item 5 of the table to paragraph 17(4)(b) of the Regulations in column 1 is replaced by the following:

Item Column 1

Model Year
5. 2016

(5) The portion of item 5 of the table to paragraph 17(4)(c) of the Regulations in column 1 is replaced by the following:

Item Column 1

Model Year
5. 2016

(6) The portion of subsection 17(5) of the Regulations before paragraph (a) is replaced by the following:

Targets — light trucks of the 2012 to 2016 model years

(5) For fleets of the 2012 to 2016 model years, the CO2 emission target value applicable to a group of light trucks of a given model year corresponds to the following:

(7) The portion of item 5 of the table to paragraph 17(5)(a) of the Regulations in column 1 is replaced by the following:

Item Column 1

Model Year
5. 2016

(8) The portion of item 5 of the table to paragraph 17(5)(b) of the Regulations in column 1 is replaced by the following:

Item Column 1

Model Year
5. 2016

(9) The portion of item 5 of the table to paragraph 17(5)(c) of the Regulations in column 1 is replaced by the following:

Item Column 1

Model Year
5. 2016

(10) Section 17 of the Regulations is amended by adding the following after subsection (5):

Targets — passenger automobiles of the 2017 model year and subsequent model years

(6) The CO2 emission target value applicable to a given group of passenger automobiles of the 2017 model year and subsequent model years corresponds to the value determined for that group in accordance with section 1818(c)(2)(i) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

Targets — light trucks of the 2017 model year and subsequent model years

(7) The CO2 emission target value applicable to a given group of light trucks of the 2017 model year and subsequent model years corresponds to the value determined for that group in accordance with section 1818(c)(3)(i) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

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

Fleet average CO2 equivalent emission value

18. A company must calculate the fleet average CO2 equivalent emission value for its fleet of passenger automobiles and its fleet of light trucks of the 2011 model year and subsequent model years in accordance with the following formula:

D – E – F – G – H

where

Fleet average carbon-related exhaust emission value for the 2011 model year

18.1 (1) The fleet average carbon-related exhaust emission value for the 2011 model year, expressed in grams of CO2 equivalent per mile, is calculated by dividing 8,887 by the company’s fleet average fuel economy for that model year calculated in accordance with the following formula:

Detailed information can be found in the surrounding text.

where

Fleet average carbon-related exhaust emission value for 2012 and subsequent model years

(2) Subject to subsections (8) to (10), a company must calculate the fleet average carbon-related exhaust emission value for each of its fleets of the 2012 model year and subsequent model years using the following formula:

Detailed information can be found in the surrounding text.

where

Advanced technology

(3) When calculating the fleet average carbon-related exhaust emission value in accordance with subsections (1) and (2) for fleets of the 2011 to 2016 model years, a company may, for the purposes of the descriptions of B and C in subsections (1) and (2), elect to multiply the number of advanced technology vehicles in its fleet by 1.2, if the company reports that election and indicates the number of credits obtained as a result of that election in its end of model year report.

Multiplier for certain vehicles

(4) Subject to subsection (5), when calculating the fleet average carbon-related exhaust emission value in accordance with subsection (2) for fleets of the 2017 to 2025 model years, a company may, for the purposes of the descriptions of B and C in subsection (2), elect to multiply the number of advanced technology vehicles, natural gas vehicles or natural gas dual fuel vehicles in its fleet by the number set out in the following table in respect of that type of vehicle for the model year in question, if the company reports that election and indicates the number of credits obtained as a result of that election and the number of vehicles in question in its end of model year report.

Item Column 1



Model Year		 Column 2

Electric Vehicle
and Fuel Cell
Vehicle Multiplier		 Column 3

Plug-in Hybrid
Electric Vehicle
Multiplier		 Column 4

Natural Gas Vehicle
and Natural Gas Dual
Fuel Vehicle Multiplier
1. 2017 2.5 2.1 1.6
2. 2018 2.5 2.1 1.6
3. 2019 2.5 2.1 1.6
4. 2020 2.25 1.95 1.45
5. 2021 2.0 1.8 1.3
6. 2022 1.5 1.3 1.0
7. 2023 1.5 1.3 1.0
8. 2024 1.5 1.3 1.0
9. 2025 1.5 1.3 1.0

Requirement — plug-in hybrid electric vehicles

(5) A company may make an election under subsection (4) in respect of a plug-in hybrid electric vehicle of the 2017 to 2025 model years only if the vehicle has an all-electric driving range equal to or greater than 16.4 km (10.2 miles) or an equivalent all-electric driving range equal to or greater than 16.4 km (10.2 miles). The all-electric driving range and the equivalent all-electric driving range are determined in accordance with section 1866(b)(2)(ii) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

Maximum decrease for dual fuel vehicles

(6) For the purposes of subsections (1) and (2) for fleets of the 2011 to 2015 model years, and for the purposes of section 29 for fleets of the 2008 to 2010 model years, if the fleet contains alcohol dual fuel vehicles or natural gas dual fuel vehicles, the fleet average carbon-related exhaust emission value is the greater of

Alternative value

(7) For the purposes of section 510(j)(2)(vi) of Title 40, chapter I, part 600, subpart F, of the CFR, a company may use an alternative value for the weighting factor “F” if the company provides the Minister with evidence demonstrating that the alternative value is more representative of its fleet.

Maximum number — until 2016 model year

(8) For the purposes of paragraphs (a) and (b) of the description of A in subsection (2), a company must replace the carbon-related exhaust emission value, referred to in the description of A in that subsection, with the value determined under subsection (10) for all of the electric vehicles and plug-in hybrid electric vehicles in its fleets of the model year corresponding to the year during which this subsection comes into force, and subsequent model years until the 2016 model year, that are in excess of the following applicable maximum number of advanced technology vehicles:

Maximum number — 2022 to 2025 model years

(9) For the purposes of paragraphs (a) and (b) of the description of A in subsection (2), a company must replace the carbon-related exhaust emission value, referred to in the description of A in that subsection, with the value determined under subsection (10) for all of the electric vehicles and plug-in hybrid electric vehicles in its fleets of the 2022 to 2025 model years that are in excess of the following applicable maximum number of advanced technology vehicles:

Electric vehicles and plug-in hybrid electric vehicles in excess of maximum number

(10) For any electric vehicles and plug-in hybrid electric vehicles that are in excess of the applicable maximum number, a company must determine the carbon-related exhaust emission value for the model year in question, taking into account subsection 19(2) and expressing the result in grams of CO2 equivalent per mile, in accordance with

Fuel cell vehicles

(11) For the purposes of subsections (8) and (9), a company must count its fuel cell vehicles first, before counting the other advanced technology vehicles.

Allowance for reduction of air conditioning refrigerant leakage

18.2 (1) A company may elect to calculate, using the following formula, an allowance for the use, in its fleet of passenger automobiles or light trucks, of air conditioning systems that incorporate technologies designed to reduce air conditioning refrigerant leakage:

Detailed information can be found in the surrounding text.

where

Allowance for improvement of air conditioning system efficiency

(2) A company may elect to calculate, using the following formula, an allowance for the use, in its fleet of passenger automobiles or light trucks, of air conditioning systems that incorporate technologies designed to reduce air-conditioning-related CO2 emissions by improving air conditioning system efficiency:

Detailed information can be found in the surrounding text.

where

Allowance for certain innovative technologies

18.3 (1) Subject to subsection (3), a company may elect to calculate, using the following formula, an allowance for the use, in its fleet of passenger automobiles or light trucks of the 2014 model year and subsequent model years, of innovative technologies that result in a measurable CO2 emission reduction and that are referred to in section 1869(b)(1) of Title 40, chapter I, subchapter C, part 86, of the CFR:

Detailed information can be found in the surrounding text.

where

Alternative procedure

(2) Instead of determining the allowance for each innovative technology that is used in the fleet in accordance with the description of A in subsection (1), a company may

Maximum allowance — certain innovative technologies

(3) If, for a model year, the total of the allowances for innovative technologies that a company elects to determine, for a single vehicle, in accordance with the description of A in subsection (1) is greater than 10 grams of CO2 per mile, the company must calculate, using the following formula, the allowance for the use, in its fleet of passenger automobiles or light trucks of that model year, of innovative technologies that result in a measurable CO2 emission reduction and that are referred to in section 1869(b)(1) of Title 40, chapter I, subchapter C, part 86, of the CFR:

Detailed information can be found in the surrounding text.

where

Adjustment

(4) For the purposes of subsection (3), the company must perform the following calculation and ensure that the result does not exceed 10 grams of CO2 per mile:

Detailed information can be found in the surrounding text.

where

Allowance for innovative technologies

(5) A company may elect to calculate, using the following formula, an allowance for the use, in its fleet of passenger automobiles or light trucks, of innovative technologies — other than those referred to in subsection (1) — that result in a measurable CO2 emission reduction:

Detailed information can be found in the surrounding text.

where

Alternative procedure to the 5-cycle methodology

(6) If the 5-cycle methodology referred to in subsection (5) cannot adequately measure the emission reduction attributable to an innovative technology, a company may, instead of determining the allowance for the innovative technology in accordance with the description of A in subsection (5),

Allowance for certain full-size pick-up trucks

18.4 (1) Subject to subsections (2) to (4), for fleets of light trucks of the 2017 to 2025 model years, a company may elect to calculate, using the following formula, a CO2 allowance for the presence, in its fleet, of full-size pick-up trucks equipped with hybrid electric technologies and of full-size pick-up trucks that achieve carbon-related exhaust emission values below the applicable target value:

Detailed information can be found in the surrounding text.

where

Allowance limitations — hybrid electric technologies

(2) The allowance for the use of hybrid electric technologies referred to in paragraphs (a) and (b) of the description of AH in subsection (1) may be calculated in respect of full-size pick-up trucks of a model year only if the percentage in the fleet of full-size pick-up trucks of that model year that are equipped with those technologies is equal to or greater than the percentage for that model year set out in section 1870(a)(1) or (2), depending on the technology used, of Title 40, chapter I, subchapter C, part 86, of the CFR. The allowance referred to in paragraph (a) of the description of AH may be calculated only for full-size pick-up trucks of the 2017 to 2021 model years.

Allowance limitations — carbon-related exhaust emissions performance

(3) The allowance for full-size pick-up trucks that achieve a carbon-related exhaust emission value referred to in paragraphs (a) and (b) of the description of AR in subsection (1) may be calculated in respect of full-size pick-up trucks of a model year only if the percentage in the fleet of full-size pick-up trucks of that model year that achieve such a value is equal to or greater than the percentage for that model year set out in section 1870(b)(1) or (2), depending on the emission performance achieved, of Title 40, chapter I, subchapter C, part 86, of the CFR. The allowance referred to in paragraph (a) of the description of AR may be calculated only for full-size pick-up trucks of the 2017 to 2021 model years.

Single allowance

(4) A company must not claim, in respect of the same pick-up truck, both the allowance referred to in the description of AH in subsection (1) and the allowance referred to in the description of AR in that subsection.

Election

(5) A company that elects to multiply the number of advanced technology vehicles in its fleet in accordance with subsection 18.1(4) must not use the allowance referred to in the description of AR in subsection (1) for the same vehicle.

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

Interpretation of standards

19. (1) The carbon-related exhaust emission value and the fuel economy level that are calculated in accordance with section 18.1 must be calculated taking into account the applicable test procedures, fuels and calculation methods set out in subpart B of Title 40, chapter I, subchapter C, part 86 and in subpart B of Title 40, chapter I, subchapter Q, part 600, of the CFR and taking into account any clarifications or additional information issued by the EPA, if the company keeps a copy of those clarifications or that additional information.

Representative data

(2) When a company calculates the fleet average carbon-related exhaust emission value under section 18, the data and values used in the calculation must represent at least 90% of the total number of vehicles in the company’s fleet with respect to the configuration.

12. (1)The portion of subsection 20(3) of the Regulations before the word “where” is replaced by the following:

Calculation

(3) Subject to subsections (3.1) and (3.2), a company must calculate the credits or deficits for each of its fleets using the following equation:

Detailed information can be found in the surrounding text.

(2) Section 20 of the Regulations is amended by adding the following after subsection (3):

Alternative standard — nitrous oxide

(3.1) For each test group in respect of which a company uses, for any given model year, an alternative standard for nitrous oxide (N2O) under subsection 10(1), the company must use the following formula, expressing the result in megagrams of CO2 equivalent, and add the sum of the results for each test group to the number of credits or deficits calculated in accordance with subsection (3) for the fleet to which the test group belongs:

Detailed information can be found in the surrounding text.

where

Alternative standard — methane

(3.2) For each test group in respect of which a company uses, for any given model year, an alternative standard for methane (CH4) under subsection 10(1), the company must use the following formula, expressing the result in megagrams of CO2 equivalent, and add the sum of the results for each test group to the number of credits or deficits calculated in accordance with subsection (3) for the fleet to which the test group belongs:

Detailed information can be found in the surrounding text.

where

(3) Subsection 20(5) of the Regulations is replaced by the following:

Time limit — credits for 2011 to 2016 model years

(5) Credits obtained for a fleet of passenger automobiles or light trucks of the 2011 to 2016 model years may be used in respect of any fleet of passenger automobiles or light trucks of any model year after the model year in respect of which the credits were obtained, until the 2021 model year, after which the credits are no longer valid.

Time limit — credits for 2017 model year and subsequent model years

(6) Credits obtained for a fleet of passenger automobiles or light trucks of the 2017 model year or a subsequent model year may be used in respect of any fleet of passenger automobiles or light trucks of any model year up to five model years after the model year in respect of which the credits were obtained, after which the credits are no longer valid.

13. (1)Subsection 21(2) of the Regulations is replaced by the following:

Remaining credits

(2) Subject to subsection (2.1), a company may bank any remaining credits to offset a future deficit or transfer the remaining credits to another company, except during the 2012 to 2015, and, if applicable, 2016, model years if the company elects to create a temporary optional fleet under section 24.

Remaining credits — transfer prohibited

(2.1) A company that has made an election under section 28.1 and obtained credits in respect of its fleets of the 2017 to 2020 model years may not transfer any remaining credits to another company.

(2) Subsection 21(4) of the French version of the Regulations is replaced by the following:

Rajustement

(4) Le nombre de points obtenu à l’égard de parcs de l’année de modèle 2011 composés en partie de véhicules à alcool à double carburant ou de véhicules à gaz naturel à double carburant qui est disponible pour compenser un déficit à l’égard d’un parc d’automobiles à passagers ou de camions légers de l’année de modèle 2012 ou d’une année ultérieure doit être rajusté à partir de l’hypothèse selon laquelle tous les véhicules à alcool à double carburant et les véhicules à gaz naturel à double carburant fonctionnent seulement à l’essence ou au carburant diesel.

14. The Regulations are amended by adding the following after section 21:

Limit on use of 2011 model year credits

21.1 (1) Despite subsection 21(3), the total number of credits obtained in respect of fleets of the 2011 model year that a company may use to offset a deficit incurred in respect of a fleet of passenger automobiles or light trucks of a given model year or a temporary optional fleet of passenger automobiles or light trucks of a given model year must not exceed the maximum number calculated using the following formula:

Detailed information can be found in the surrounding text.

where

Advanced technology

(2) For the purposes of description of BATV in subsection (1), a company may elect to multiply the number of advanced technology vehicles by 1.2, if the company made that election for the 2011 model year and reported that election in its end of model year report for the 2011 model year.

Representative data

(3) When a company determines the value corresponding to the description of ANoATV and AATV in subsection (1), the data and values used in the calculation must represent at least 90% of the vehicles in question in the company’s fleet with respect to the configuration.

Number of vehicles in fleet

(4) For the purposes of subsection (1), the company must include in its fleet of passenger automobiles or light trucks the same number of vehicles that it included in its fleets for the purposes of its end of model year report for the 2011 model year.

Negative result

(5) For greater certainty, if the result of the calculation set out in subsection (1) in respect of fleets of the 2011 model year is negative, then the total number of credits that a company may use to offset a deficit is zero.

15. The Regulations are amended by adding the following after section 28:

FLEXIBILITY MEASURES FOR THE 2017 TO 2020 MODEL YEARS

CO2 emission target values

28.1 A company that has elected to create a temporary optional fleet under subsection 24(1) and that manufactured or imported in total 750 or more, but less than 7,500, passenger automobiles and light trucks of the 2009 model year for sale in Canada may, when calculating the fleet average CO2 equivalent emission standard under section 17 for fleets of the 2017 to 2020 model years, elect, for a given model year, to replace the CO2 emission target value applicable to a given group of passenger automobiles or light trucks under section 17 with the following, if the company reports that election in its end of model year report:

Merger

28.2 For the purposes of section 28.1, in the case of a company that merges with one or more companies after December 31, 2009, the total number of passenger automobiles and light trucks of the 2009 model year manufactured or imported for sale in Canada by the company is the sum of the number of passenger automobiles and light trucks of the 2009 model year manufactured or imported for sale in Canada by each of the merged companies.

Purchase

28.3 For the purposes of section 28.1, in the case of a company that purchases one or more companies after December 31, 2009, the total number of passenger automobiles and light trucks of the 2009 model year manufactured or imported for sale in Canada by the company is the sum of the number of passenger automobiles and light trucks of the 2009 model year manufactured or imported for sale in Canada by the company and all purchased companies.

16. Subsection 29(6) of the Regulations is replaced by the following:

Time limit — credits for the 2009 model year

(6) Early action credits obtained for a fleet of passenger automobiles or light trucks of the 2009 model year may be used in respect of any fleet of passenger automobiles or light trucks of the 2011 to 2014 model years, after which the credits are no longer valid.

Time limit — credits for the 2010 model year

(6.1) Early action credits obtained for a fleet of passenger automobiles or light trucks of the 2010 model year may be used in respect of any fleet of passenger automobiles or light trucks of the 2011 to 2021 model years, after which the credits are no longer valid.

17. (1)Subparagraph 31(2)(a)(ii) of the Regulations is replaced by the following:

(2) The portion of paragraph 31(3)(h) of the Regulations before subparagraph (i) is replaced by the following:

(3) The portion of paragraph 31(3)(i) of the Regulations before subparagraph (i) is replaced by the following:

(4) Paragraph 31(3)(j) of the Regulations is replaced by the following:

18. Section 32 of the Regulations is repealed.

19. (1)Subsection 33(2) of the Regulations is amended by adding the following after paragraph (b):

(2) Paragraph 33(2)(d) of the Regulations is replaced by the following:

(3) Paragraph 33(2)(i) of the Regulations is replaced by the following:

(4) Paragraphs 33(2)(l) to (o) of the Regulations are replaced by the following:

(5) Paragraph 33(2)(q) of the Regulations is replaced by the following:

(6) Subsection 33(2) of the Regulations is amended by striking out “and” at the end of paragraph (s) and by adding the following after paragraph (s):

(7) Paragraph 33(3)(a) of the Regulations is amended by adding the following after subparagraph (i):

(8) Paragraph 33(3)(c) of the Regulations is replaced by the following:

(9) Paragraph 33(3)(h) of the Regulations is replaced by the following:

(10) Paragraphs 33(3)(j) to (l) of the Regulations are replaced by the following:

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

Declaration — subsection 14(1) or paragraph 14(1.1)(d)

35. (1) For the purposes of subsection 14(1) or paragraph 14(1.1)(d), a company must submit a declaration to the Minister, signed by a person who is authorized to act on behalf of the company, no later than May 1 of the calendar year that corresponds to the model year in respect of which the company does not wish to be subject to sections 13 and 17 to 20, and must specify in the declaration the total number of passenger automobiles and light trucks manufactured or imported for sale in Canada for each model year in question.

Declaration — paragraphs 14(1.1)(a) to (c)

(2) For the purposes of paragraphs 14(1.1)(a) to (c), a company must submit a declaration to the Minister, signed by a person who is authorized to act on behalf of the company, no later than May 1 of the calendar year that corresponds to two, three or four model years, as the case may be, following the first model year for which the company manufactures or imports passenger automobiles or light trucks for sale in Canada, and must specify in the declaration the total number of passenger automobiles and light trucks manufactured or imported for sale in Canada for the model year in question.

21. (1)Paragraphs 39(1)(d) and (e) of the Regulations are replaced by the following:

(2) Paragraph 39(2)(c) of the Regulations is replaced by the following:

(3) Paragraph 39(2)(f) of the Regulations is replaced by the following:

22. Section 44 of the Regulations is amended by adding the following after subsection (3):

Applicable standard — sub-configuration

(4) For the purposes of subsection (3), if the carbonrelated exhaust emission value for a subconfiguration of the model type in question was used in the calculation under subsection 18.1(2), the prescribed standard that applies to a vehicle is the product of 1.1 multiplied by the carbon-related exhaust emission value for that subconfiguration.

23. The Regulations are amended by replacing “18(3)” with “18.1(2)” in the following provisions:

24. The Regulations are amended by replacing “18(10)” with “18.3(6)” in the following provisions:

25. The Regulations are amended by replacing “the coming into force of these Regulations” and “the day on which these Regulations come into force” with “September 23, 2010” in the following provisions:

COMING INTO FORCE

26. (1)Sections 2 to 6, subsections 12(1) and (2) and sections 14 and 18 come into force on the day on which these Regulations are registered.

(2) Sections 1 and 7 to 11, subsection 12(3) and sections 13, 15 to 17 and 19 to 25 come into force six months after the day on which these Regulations are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

1. Executive summary

Issues: Greenhouse gases (GHGs) are primary contributors to climate change. The most significant sources of anthropogenic GHG emissions are a result of the combustion of fossil fuels, including gasoline and diesel. In 2009, Canada signed the Copenhagen Accord, committing to reduce its GHG emissions to 17% below 2005 levels by 2020, establishing a target of 607 megatonnes (Mt) of carbon dioxide equivalent (CO2e). This mirrors the reduction target set by the United States. Canada has a long-standing policy of aligning transportation emissions standards with those of the United States. Alignment provides significant environmental and economic benefits to Canada while minimizing costs to industry and consumers.

The transportation sector is a significant source of GHG emissions in Canada, accounting for 24% of total emissions in 2010. (see footnote 2) In that year, passenger automobiles and light trucks (hereinafter referred to as light-duty vehicles) accounted for approximately 13% of Canada’s total GHG emissions or 53% of transportation emissions.

Description: The Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (covering model years 2017 and beyond) [hereinafter referred to as the amended Regulations] build on the success of the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (hereinafter referred to as the current Regulations) covering model years 2011 through 2016. They have been developed in collaboration with the United States Environmental Protection Agency (U.S. EPA) to ensure alignment of Canada’s regulations with those of the United States in a manner that is consistent with the authorities provided under the Canadian Environmental Protection Act, 1999 (CEPA 1999). The amended Regulations continue to apply to companies that manufacture or import new light-duty vehicles into Canada for the purpose of sale. Similar to the current Regulations, the amended Regulations establish progressively more stringent annual fleet average GHG emission standards over the 2017 to 2025 model years, while providing companies with flexibility mechanisms to allow them to comply in a cost-effective manner.

Cost-benefit statement: Over the lifetime operation of all 2017 to 2025 model year light-duty vehicles sold in Canada, the amended Regulations are estimated to result in a cumulative reduction of 174 Mt of CO2e in GHG emissions (or an average incremental reduction of 19.3 Mt of CO2e per model year). (see footnote 3) The present value of benefits from the amended Regulations is estimated to be Can$60.3 billion. (see footnote 4) The benefits quantified include pre-tax fuel savings, reduced refuelling time, additional driving and reduced GHG emissions. The present value of costs from the amended Regulations is estimated to be $11.2 billion. This includes costs to consumers (incremental technology costs) and costs to Government (vehicle testing, compliance promotion, enforcement and administration). Both benefits and costs are increased due to the “rebound effect,” which is the additional driving or mobility associated with a reduction in driving costs. The rebound effect provides additional benefits to vehicle owners in the form of increased vehicle-kilometres driven, but can also increase costs to society due to increased traffic congestion, motor vehicle crashes, and noise. The present value of net benefits of the amended Regulations is estimated to be $49 billion. Overall, the total benefits exceed total costs by a ratio of over five to one.

The amended Regulations are anticipated to increase the cost of manufacturing light-duty vehicles, which is expected to be passed on directly to consumers purchasing these vehicles. For example, the amended Regulations will add an additional $733 to the average purchase price of a 2021 model year vehicle, rising to an additional $1,829 for a 2025 model year vehicle, as compared to the baseline, in the absence of the amended Regulations (i.e. a continuation of the standards for 2016 model year vehicles).(see footnote 5) The benefits resulting directly from the amended Regulations include fuel savings of approximately 75 billion litres over the lifetime of the 2017 to 2025 model year vehicles. It is estimated that the added costs to these vehicles will be more than offset by fuel savings, with a payback period of between one to three years.

“One-for-One” Rule and small business lens: Environment Canada (EC) has reviewed the administrative burden imposed by the current Regulations in an attempt to identify areas in which the burden could be reasonably reduced. As of the coming into force of the amended Regulations, companies are no longer required to submit an annual preliminary model year report, which represents a noticeable decrease in their administrative burden. Companies are still required to submit annual end of model year reports to enable Environment Canada to assess individual company compliance with the amended Regulations; however these changes result in a net decrease in regulatory burden. Therefore, the amended Regulations are considered an “OUT” under the rule and are estimated to cost Can$59,190, or Can$2,573 per business. The regulated community comprises manufacturers and importers of new light-duty vehicles sold in Canada. All of the companies to which the current Regulations apply are Canadian branches of multinational corporations, and as a result, the spirit of the small business lens does not apply.

Domestic and international coordination and cooperation: The standards for GHG emissions from new light-duty vehicles of model years 2017 through 2025 have been developed in cooperation with the U.S. EPA, continuing a harmonized Canada-United States regulatory approach.The alignment approach is consistent with the Regulatory Cooperation Council’s Joint Action Plan, announced by Prime Minister Harper and President Obama on December 7, 2011, which establishes an enhanced level of regulatory cooperation and alignment between Canada and the United States. The amended Regulations also reflect the global trend towards the regulation of improved automotive fuel economy and GHG emission reductions.

Performance measurement and evaluation: The Performance Measurement and Evaluation Plan (PMEP) describes the desired outcomes of the amended Regulations, such as GHG emissions reductions, and establishes indicators to measure and evaluate the performance of the amended Regulations in achieving these outcomes. The measurement and evaluation will be tracked on a yearly basis, with a five-year compilation assessment, and will be based on the information and data submitted in accordance with the reporting requirements and records of the companies.

2. Background

In 2009, the Government of Canada committed in the Copenhagen Accord to reducing total GHG emissions by 17% from 2005 levels by 2020, a national target that mirrors that of the United States. This target was reaffirmed by the Government of Canada in the Cancun Agreements in 2010.

The Government of Canada has a plan to reduce national GHG emissions based on a sector-by-sector regulatory approach. Taking action to reduce GHG emissions from new light-duty vehicles is an important element of the Government’s plan to introduce an integrated, nationally consistent approach to reduce GHG emissions, in order to achieve its Copenhagen 2020 target.

In October 2010, the Government of Canada published the current Regulations covering new light-duty vehicles of model years 2011 through 2016, under CEPA 1999. These Regulations prescribe progressively more stringent annual emission standards for new light-duty vehicles of model years 2011 to 2016, in alignment with those of the United States.(see footnote 6) As a result of these Regulations, it is projected that the average GHG emission performance of new light-duty vehicles for the 2016 model year will be about 25% better than 2008 model year vehicles sold in Canada. Also in October 2010, the Government of Canada published a Notice of Intent(see footnote 7) to continue working with the United States and build upon the standards already in place to develop more stringent GHG emission standards for new light-duty vehicles of model years 2017(see footnote 8) and beyond.

In November 2011, Environment Canada released a consultation document (see footnote 9) related to the development of the amended Regulations. The document described the key elements being considered for inclusion in the amended Regulations and sought early input from interested parties, for a 30-day period.

In December 2012, the Government of Canada published the proposed Regulations in the Canada Gazette, Part I, which initiated a formal 75-day comment period. Environment Canada considered all comments received during the comment period in developing the amended Regulations.

The automotive manufacturing sector includes motor vehicle manufacturing, motor vehicle body and trailer manufacturing, and motor vehicle parts manufacturing. The automotive manufacturing sector is Canada’s largest manufacturing sector, is highly integrated with the United States and Mexico, and is labour- and capital-intensive. In 2010, the Canadian automotive sector employed 109 300 Canadians. Eighty-two percent of those jobs were located in Ontario. An additional 332 000 workers are employed in the aftermarket and dealerships across Canada.

In 2010, the automotive manufacturing sector accounted for over 12% of manufacturing GDP and 1.5% of Canada’s total GDP. (see footnote 10) Canada exports almost 90% of the vehicles produced in Canada to the United States. (see footnote 11) Export-oriented Canadian automotive assemblers include General Motors, Ford, Chrysler, Toyota, and Honda.

Within the automotive manufacturing sector at large, the automobile and light-duty motor vehicle manufacturing sector (see footnote 12) directly employed approximately 29 000 people in 2010. Also in 2010, auto manufacturing exports totalled $37.5 billion while auto manufacturing imports totalled $30 billion, reflecting a trade surplus of $7.5 billion. In 2008, the Canadian light-duty and heavy-duty vehicle manufacturing sector accounted for about 16% of North American vehicle production, and domestic sales represented 10% of the North American market. (see footnote 13)

3. Issues

Greenhouse gases are primary contributors to climate change. The most significant sources of anthropogenic GHG emissions are a result of the combustion of fossil fuels, including gasoline and diesel fuel. Anthropogenic emissions of GHGs have been increasing significantly since the industrial revolution. This trend is likely to continue unless significant action is taken. In Canada, 80% of total national GHG emissions are associated with the production and consumption of fossil fuels for energy purposes.(see footnote 14) Canada is a vast country with a diverse climate, which makes the impacts of climate change all the more important.

Vol. 148, No. 21 — October 8, 2014

According to the International Energy Agency, Canada’s CO2 emissions from fuel combustion in 2009 accounted for approximately 2% of global emissions. Canada’s share of total global emissions, like that of other developed countries, is expected to continue to decline in the face of rapid emissions growth from developing countries. (see footnote 15) In 2010, Canada’s GHG emissions totalled 692 Mt. Canada is moving forward to regulate GHGs on a sector-by-sector basis, aligning with the United States where appropriate. The Government of Canada has started with the transportation and electricity sectors — two of the largest sources of Canadian emissions — and plans to move forward with regulations in partnership with other key economic sectors.

Transportation is a significant source of GHG emissions in Canada. In 2010, (see footnote 16) 24% of total Canadian GHG emissions came from transportation sources (air, marine, rail, road and other modes). In that year, light-duty vehicles accounted for approximately 13% of Canada’s total GHG emissions or 53% of transportation emissions. Given that there are over 18 million light-duty vehicles on Canadian roads, they are a major contributor to GHG emissions in Canada. (see footnote 17)

4. Objectives

The Government of Canada is taking action to reduce GHG emissions from new light-duty vehicles. The amended Regulations are a key initiative with the objective of addressing climate change, protecting the environment and supporting the deployment of technologies that reduce GHG emissions.

The Joint Action Plan for the Canada-United States Regulatory Cooperation Council announced that “in addressing climate change, both Canada and the U.S. have implemented aggressive emissions targets in the transportation sector. Continuing progressive and aligned action to reduce GHGs from vehicles is a priority for both countries. There is an opportunity for regulators to work more closely with the aim of better synchronizing implementation of regulations and leveraging existing expertise.” (see footnote 18)

5. Description

The amended Regulations

The Government of Canada is establishing more stringent GHG emission standards for light-duty vehicles of model years 2017 and beyond, in alignment with the U.S. EPA standards. Accordingly, Environment Canada has incorporated the U.S. EPA regulatory standards by reference (as amended from time to time) as the most efficient means of maintaining harmonized standards in Canada.

The amended Regulations build on the expected GHG emission reductions from the current Regulations. The current Regulations, for the first time, established progressively more stringent GHG emission standards for new light-duty vehicles in Canada for the 2011–2016 model years. The amended Regulations, like the current Regulations, have been developed in collaboration with the U.S. EPA in a manner that is consistent with the authorities provided under CEPA 1999. (see footnote 19) Similar to the current Regulations (i.e. for model years 2011 to 2016), the amended Regulations establish progressively more stringent annual fleet average emission standards over the 2017 to 2025 model years while providing companies with flexibility mechanisms to allow them to comply in a cost-effective manner.

Applicability

The amended Regulations continue to apply to companies that manufacture or import new light-duty vehicles into Canada for the purpose of sale.

As of the coming into force of the amended Regulations, companies have the option of excluding emergency vehicles (see footnote 20) from calculations of both the fleet average CO2e emission standards and fleet average carbon-related emission values. These vehicles are not subject to the prescribed emission standards for nitrous oxide (N2O) and methane (CH4). This option is provided to recognize the fact that emergency vehicles play a role in society that requires that the primary factor in technology application decisions regarding the vehicles be the operational and performance requirements.

Starting in model year 2017, any company that manufactures or imports fewer than 750 vehicles per year — calculated as a three-year rolling average — is not subject to the fleet average CO2e emission standards. This also applies to new small volume companies that manufacture or import fewer than 750 vehicles per year in their first, second and third model years in the Canadian market. If a company’s three-year rolling average exceeds the prescribed 750-vehicle limit, that company becomes subject to the fleet average CO2e emission standards in a future model year, determined by the amount by which the three-year rolling average exceeds the 750-vehicle limit. If the three-year rolling average is greater than 750, but less than 7 500, the company becomes subject to the fleet average CO2e emission standards in the second model year following the last model year used to establish the average number. If the three-year rolling average is equal to or greater than 7 500, the company becomes subject to the fleet average CO2e emission standards in the model year after the last model year used to establish the average number. If a company manufactures or imports fewer than 750 vehicles in its first model year in the Canadian market, but manufactures or imports more than 750 in its second model year, it will be required to comply with the CO2e emission standards in that second model year.

The companies that compose this category are typically importers of high-performance vehicles in a niche market. While these vehicles emit higher levels of CO2 compared to the average light-duty vehicle, the volumes of these vehicles that enter Canada on an annual basis are sufficiently small to make their impact on total light-duty vehicle GHG emissions negligible. Further, these companies typically offer a very limited range of vehicles, which makes compliance with fleet average CO2 emission standards very challenging. Environment Canada intends to monitor these companies and the technologies present on their vehicles to determine if any future regulatory amendments are required.

While any such companies are not subject to the fleet average CO2e emission standards, they continue to be subject to the prescribed emission standards for N2O and CH4.

GHG emission standards

Under the amended Regulations, each company is required to comply with unique fleet average CO2e emission standards based on the mix of light-duty vehicles that it imports or manufactures for sale in Canada, as is the case with the current Regulations. Each company’s annual fleet average CO2e emission standards are determined based on the CO2e emission target values that are a function of the size of vehicles and the number of vehicles in the company’s fleets in the associated model year. The size of each vehicle is based on the vehicle’s “footprint” attribute, namely the area calculated by multiplying the distance between the left and right tires by the distance between the axles.

For passenger automobiles of model years 2017 through 2025, the CO2e emission target values for vehicles of a given footprint will be reduced on average by 5% per year, initially referenced to the model year 2016 standard and continuing through model year 2025. In recognition of the fact that most light trucks face more significant CO2e emission reduction challenges than typical passenger automobiles due to the utility function they serve in the transportation system, the CO2e emission target values for light trucks will initially decrease at a lower average annual rate — 3.5% per year — than those for passenger automobiles in model years 2017 through 2021. For model years 2022 through 2025, the CO2e emission target values for light trucks will be reduced on average by 5% per year. Since a company’s applicable fleet average GHG emission standards in a given model year are calculated using these target values, they become proportionately more stringent with each model year depending on the company’s fleet mix.

The U.S. EPA has finalized these same progressively stringent standards for model years 2017 to 2025. Establishing these future emission standards over this regulatory period provides certainty that society will benefit from the long-term benefits associated with lower GHG emissions from light-duty vehicles and that the auto industry will benefit from long-term regulatory certainty. These standards have been established based on comprehensive analysis, using the best available data regarding future sales volumes and technology forecasts.

In recognition of the particularly long time frame associated with setting standards for 2022 to 2025, the U.S. EPA has also committed to undertaking a mid-term evaluation process to confirm the appropriateness of the final standards for those four model years. According to this commitment, the U.S. EPA is expected to finalize the mid-term evaluation by April 1, 2018, taking into account the best available data at that time to reassess those standards and, subsequently, make any regulatory adjustments warranted by the outcomes.

Environment Canada will collaborate with the U.S. EPA on technical studies and research to inform this U.S.-led mid-term evaluation. This collaboration will include partnerships on studies relevant to both countries. Environment Canada will also undertake consultations with Canadian stakeholders during the mid-term review process. Environment Canada also intends to undertake a review of the impacts associated with any new standard that could possibly result from the U.S. mid-term evaluation in order to inform the path forward.

As is the case with the current Regulations, the amended Regulations continue to prescribe standards for non-CO2 GHG emissions, namely N2O and CH4. While the emissions of these substances are small in comparison with CO2 on a volume basis, they have greater global warming potential than CO2; therefore, they also require control limits. The amended Regulations allow companies to elect to comply with the standards in each model year in one of three ways, by

Compliance flexibility

The amended Regulations provide companies with flexibility to design cost-effective compliance strategies. For example, the GHG emission credit system included in the current Regulations continues to provide companies with the option to obtain credits in model years in which they perform better than the prescribed standards and use them to offset deficits in model years in which they do not achieve the prescribed standards. Companies may obtain these credits based on their own performance or they may obtain them through transactions with other companies with an available credit surplus.

Vehicle emission allowances

In addition to the emission credit system, for model years 2017 and beyond, the following vehicle emission allowances that are included in the current Regulations continue to apply; however, the methodology for quantifying them has been updated to align it with the associated U.S. methodologies:

The amended Regulations also include provisions that are intended to create a regulatory incentive for companies to bring certain vehicles or vehicle technologies to market. In general, these provisions allow a manufacturer or importer to report a carbon-related exhaust emission value for a model type that is lower than its measured value if it employs certain technologies. The amended Regulations include the following provisions.

Vehicle emission adjustments for advanced technology vehicles: electric vehicles, plug-in hybrid electric vehicles, fuel cell vehicles

Under the current Regulations, for the purpose of calculating its fleet average carbon-related exhaust emission values, a company must use a carbon-related exhaust emission value of 0 grams of CO2e per mile for any of its model types that are electric vehicles or fuel cell vehicles. For plug-in hybrid electric vehicle (PHEV) model types, the 0 grams of CO2e per mile value must be used to represent the portion of driving for which electricity is used to propel the vehicles. The cumulative number of vehicles to which a company may apply the 0 grams of CO2e per mile value is limited to prescribed volume limits up to model year 2016.

The amended Regulations continue to allow companies to use the 0 grams of CO2e per mile value for these vehicles. There are no cumulative volume limits applicable to fleets of model years 2017 to 2021. Cumulative volume limits apply to the total number of these vehicles to which the 0 grams of CO2e per mile value can be used in model years 2022 to 2025. The amended Regulations require companies that exceed the prescribed cumulative volume limits for advanced technology vehicles to estimate and report an equivalent carbon-related emission value of the portion of driving for which electricity is used, for any model types associated with the volume of vehicles in surplus of the prescribed limits.

Volume multiplier for advanced technology vehicles, natural gas dual fuel vehicles and dedicated natural gas vehicles

Under the current Regulations companies may also, for the purpose of calculating their fleet average carbon-related exhaust emission values, elect to multiply the total number of advanced technology vehicles (electric vehicles, plug-in hybrid electric vehicles and fuel cell vehicles) in their fleets by a factor of 1.2. In order to incentivize the deployment of advanced technology vehicles, the amended Regulations allow companies to elect to multiply the total number of electric vehicles, plug-in hybrid-electric vehicles (PHEVs) and fuel cell vehicles, as well as natural gas dual fuel vehicles and dedicated natural gas vehicles in their fleets by a prescribed factor for model years 2017 to 2025. This factor is dependent on the technology of the vehicle and the model year in which it was manufactured or imported. The prescribed factor for electric and fuel cell vehicles, as shown in Table 1, is 2.5 in 2017, phasing down to 1.5 in 2025; the prescribed factor for PHEVs is 2.1 in 2017, phasing down to 1.3 in 2025; the prescribed factor for natural gas dual fuel vehicles and dedicated natural gas vehicles is 1.6 in 2017, phasing down to 1.3 in 2021. Starting in model year 2017, the prescribed factor for PHEVs is only available for use with those vehicles that have a minimum all-electric driving range that exceeds the prescribed limit of 16.4 km. Application of these prescribed factors increases the impact of these advanced technology vehicles in the calculation of company fleet-average carbon-related exhaust emission values.

The prescribed factors applicable to advanced technology vehicles shown in Table 1 are 0.5 higher than those that were found in the proposed Regulations. This change is meant to respond to comments received during the consultation period (see section 10) and also to better reflect the GHG intensity of the cleaner Canadian electricity generation, in comparison to the United States’ electricity generation. This means that the amended Regulations recognize that Canadian electric vehicles will emit fewer upstream GHG emissions than the same vehicles used in the United States. The short-term impact of the added flexibility is that companies that sell advanced technology vehicles will report more credits in their end of model year report.

Table 1: Volume multiplier for advanced technology vehicles, natural gas dual fuel vehicles and dedicated natural gas vehicles

Model Year Electric and Fuel Cell Vehicles PHEVs Natural Gas Dual Fuel Vehicles and Dedicated Natural Gas Vehicles
2017 2.5 2.1 1.6
2018 2.5 2.1 1.6
2019 2.5 2.1 1.6
2020 2.25 1.95 1.45
2021 2.0 1.8 1.3
2022–2025 1.5 1.3 1.0
Vehicle emission adjustments for the use of hybrid technologies on full-size pick-up trucks

The amended Regulations allow, as of model year 2017, companies to elect to calculate an allowance associated with the presence of hybrid technology on full-size pick-up trucks. This flexibility is meant to incentivize greater hybridization among vehicles that can serve some utility function in the Canadian marketplace. However, such a choice can only be made if that technology is present on a minimum percentage of that company’s fleet of full-size pick-up trucks that is equal to or greater than the prescribed penetration rate associated with that model year (see Table 2). The penetration rate depends on the model year in question and the level of hybridization (i.e. mild (see footnote 22) or strong (see footnote 23) hybrid electric technology as shown in Table 2).

Vehicle emission adjustments for full-size pick-up trucks that achieve a significant emission reduction below the applicable target

The amended Regulations allow, as of model year 2017, companies to elect to calculate an allowance for any model types that meet the definition of full-size pick-up trucks and have a carbon-related exhaust emission value that is greater than 80% and less than or equal to 85% of its carbon dioxide emission target value in that model year, calculated according to that model type’s footprint. However, such an election can only be made if the volume of vehicles that meet this condition comprises a percentage of that company’s full-size pick-up truck fleet that is equal to or larger than the prescribed penetration rate associated with that model year. The penetration rate depends on the model year in question as shown in Table 2.

Table 2: Prescribed penetration rates for full-size pick-up trucks

Model Year Minimum Company % of Full-size Pick-up Trucks (see footnote 24)
With Mild Hybrid Electric Technology With Strong Hybrid Electric Technology Emission Reduction Performance (Emission is > 80% and ≤ 85% of applicable target)
2017 20% 10% 15%
2018 30% 20%
2019 55% 28%
2020 70% 35%
2021 80% 40%
2022–2025 No allowance No allowance

The amended Regulations also allow, as of model year 2017, companies to elect to calculate an allowance for any model types that meet the definition of full-size pick-up trucks and have a carbon-related exhaust emission value that is less than or equal to 80% of its carbon dioxide emission target value in that model year, calculated according to that model type’s footprint. However, such an election can only be made if the volume of vehicles that meet this condition comprises a percentage of that company’s full-size pick-up truck fleet that is equal to or larger than 10% for model years 2017 to 2025.

Extended flexibility to intermediate volume companies

Intermediate volume companies (see footnote 25) tend to operate in niche markets, with a small range of vehicle offerings. These companies sell moderate volumes of vehicles, with a relatively narrow range of GHG emission performance. Over the short term, intermediate volume companies are challenged to match the pace of fleet average GHG emission reductions of large companies. This was recognized during the development of the current Regulations and, to address this issue, an optional compliance flexibility referred to as “temporary optional fleets” was provided. Under these provisions, intermediate volume companies could elect to subject a portion of their fleets of light-duty vehicles to a less stringent standard than would otherwise apply. This temporary relief was provided to ease the transition for these companies into the regulatory program.

Under the current Regulations, these provisions are available to companies through to model year 2016, after which they will expire. In recognition of the fact that the fleet average GHG emission standards for model years 2017 to 2025 are sufficiently stringent to similarly challenge intermediate volume companies, the amended Regulations continue to provide compliance flexibilities to these companies. Any intermediate volume companies that were eligible to use temporary optional fleets for model year 2016 are allowed to follow an alternative schedule of annual emission standards for model years 2017 to 2020, as shown in Table 3. As of model year 2021, these companies will have to comply with the prescribed standard associated with the model year in question. Any company that elects to use the alternative schedule will not be permitted to sell any emission credits obtained against these standards to any other regulated company.

Table 3: Alternative schedule of fleet average CO2e emission standards for eligible intermediate volume companies

Model Year Applicable Fleet Average
CO2e Emission Standard
2017 2016
2018 2016
2019 2018
2020 2019
2021 2021
2022 2022
2023 2023
2024 2024
2025 2025
Emission credit system

The current Regulations prescribe a lifetime of five model years for all obtained credits, after which those credits expire. In recognition of the stringency of the GHG emission standards for model years 2017 to 2025, as of the coming into force of the amended Regulations, the lifetime of any early action credits obtained in model year 2010 and credits obtained for model years 2011 to 2015 are extended such that they can be used to offset any deficits through model year 2021. From model year 2016, any credits obtained are subject to a five model year lifetime. (see footnote 26)

Under the current Regulations, for model year 2011, each company is required to calculate its fleet average carbon-related exhaust emission value by dividing 8 887 by its fleet average fuel economy value, calculated as follows:

Detailed information can be found in the surrounding text.

Where

Under the U.S. fuel economy regulations, for model year 2011, each company is required to calculate its fleet average fuel economy using a different methodology of averaging, calculated as follows:

Detailed information can be found in the surrounding text.

Where

While the Canadian and U.S. regulations prescribed consistent methodologies for companies to use when calculating model year 2011 fleet average CO2e emission standards, as a result of the discrepancy described above, there was an inconsistency between the prescribed methodologies for companies to use when calculating model year 2011 fleet average carbon-related emission values. Following the Canadian methodology, companies reported lower fleet average carbon-related exhaust emission values than would have been reported had the averaging methodologies been consistent.

In order to take corrective action and ensure regulatory alignment with the United States, the amended Regulations prescribe a limit on the total number of obtained model year 2011 credits that each company can use to offset future model year deficits. The prescribed limit for each company will be equal to the number of credits it would have obtained if its fleet average carbon-related exhaust emissions had been calculated using the averaging methodology prescribed under the United States fuel economy regulations for model year 2011.

Regulatory administration

On January 18, 2012, the Government of Canada announced it would implement a “One-for-One” Rule to control the administrative burden that regulations place on business. Environment Canada has reviewed the administrative burden imposed by the current Regulations in an attempt to identify areas in which the burden could be reasonably reduced.

Under the current Regulations, companies are required to submit an annual preliminary model year report. Given that the annual preliminary report is not intended to establish company compliance with the Regulations, but rather to orient regulators as to the initial actions of the regulated companies during a model year, the regulatory administrative burden imposed by this provision was identified as an area that could be curbed without impacting the objectives and goals of the Regulations. As a result, Environment Canada has decided that, as of the coming into force of the amended Regulations, companies are no longer required to submit an annual preliminary model year report.

With regard to the end of model year report, the amended Regulations will be administered in a similar manner to the current Regulations, taking advantage of the existing reporting and compliance verification framework that has been implemented for model years 2011 to 2016.

In terms of quantifying vehicle emissions, the amended Regulations incorporate all of the same test methods and procedures as used in the United States. This provides clear direction to regulated companies and allows test data produced to demonstrate compliance under U.S. regulations to be used to demonstrate compliance in Canada.

6. Regulatory and non-regulatory options considered

Status quo approach

The current Regulations are in force under the authority of CEPA 1999 to reduce GHG emissions from light-duty vehicles. These Regulations establish progressively stringent annual emission standards for new vehicles of the 2011 to 2016 model years which are aligned with those of the U.S. EPA. In the absence of amendments, the model year 2016 standards would apply to all future model years.

The final rulemaking for new standards in the United States for GHG emissions from new light-duty vehicles of model years 2017 through 2025 was published on August 28, 2012. A failure to implement more stringent annual standards in Canada beyond 2016 would create regulatory misalignment between Canada and the United States. Any misalignment would result in fewer environmental and consumer benefits and the possible increase in costs associated with the administration of different regulatory requirements in each country.

Voluntary approach

Given that there are already regulations in force in both Canada and the United States to address GHG emissions from light-duty vehicles, a voluntary approach would represent a loss of benefits from maintaining regulatory alignment with the United States. Under a voluntary approach, it’s possible that auto manufacturers and importers could use an unregulated Canadian market as an outlet for non-complying light-duty vehicles. This scenario would create regulatory uncertainty and reduce expected benefits for both consumers and the environment.

Regulatory approach

Canada has a long-standing policy of aligning transportation emissions standards with those of the United States. Alignment provides significant environmental and economic benefits to Canada while minimizing costs to industry and consumers. There is an opportunity to build on the Government of Canada’s successful development and implementation of the current Regulations and move forward with progressively stringent annual GHG emission standards for model years 2017 through 2025.

Maintaining a common North American approach to regulating GHG emissions from vehicles of model year 2017 and beyond, not only benefits the environment, but also consumers and the competitiveness of the North American auto industry. Continuing to maintain regulatory alignment with the United States provides regulatory certainty and ensures common standards in both countries, which minimizes the administrative burden on Canadian companies. Common Canada-United States standards are important to preserve the competitiveness of the Canadian auto sector, due to the high level of integration within the industry.

7. Benefits and costs

An analysis of the benefits and costs of the amended Regulations was conducted in order to estimate and monetize the impacts of the regulatory initiative on stakeholders, including the Canadian public, industry, and government. Under this analysis, the estimated impacts of the amended Regulations are those which accrue from the incremental changes from the baseline 2016 (see footnote 27) standards (in the current Regulations) compared to the 2017–2025 model year vehicle standards (in the amended Regulations). The number of vehicles from each model year that are assumed to be in service originates from a light-duty vehicle sales forecast. (see footnote 28) This analysis assumes a maximum vehicle lifetime of 26 years for cars and 31 years for light-duty trucks. Over this period, the population of these model year vehicles on the road decline over time to reflect normal vehicle retirements due to accidents and wear and tear. In total, the analysis measures costs and benefits under the Regulations over the period 2017 up to 2056, to reflect the lifetime survival for the cohort of nine model years (2017 to 2025).

Summary

While the amended Regulations will impose costs on industry, consumers and Government, the benefits from reduced GHG emissions, coupled with substantial fuel savings and additional driving, will result in a significant net benefit over the lifetime of 2017 to 2025 model year light-duty vehicles. (see footnote 29)

The present value of all benefits included in the analysis is estimated to be approximately $60.3 billion, and the present value of all costs is estimated at approximately $11.2 billion. The present value of the net benefits of the Regulations is $49.0 billion. Overall, the total benefits exceed total costs by a ratio of over five to one.

Significant global environmental benefits are revealed in the analysis, with the reduction in GHG emissions estimated to be 174 Mt CO2e over the lifetime operation of 2017–2025 model year vehicle fleets, estimated at a present value of $4.4 billion in benefits, using a social cost of carbon (SCC) present value (in 2013) of $29.38 per tonne CO2e (in 2012 dollars), increasing over time.

Approach to benefit and cost estimates

The costs of the amended Regulations have been estimated using the output from the Optimization Model for Reducing Emissions of Greenhouse Gases from Automobiles (OMEGA), (see footnote 30) originally developed by the U.S. EPA. Canadian data was applied to this output in order to estimate the impacts of the amended Regulations related to the Canadian fleet. The cost-benefit analysis (CBA) estimates the costs to producers of meeting company-unique fleet average GHG emission standards, based on the cost of applying GHG reducing technologies to their vehicles.

The amended Regulations will result in greater fuel efficiency for model year 2017 to 2025 light-duty vehicles, making driving cheaper and reducing GHG emissions to the benefit of all Canadians. A range of benefits to consumers should result from greater fuel efficiency: fuel savings, fewer trips to the gas station, and benefits from additional driving, all of which have been estimated and monetized.

The total benefits associated with increased fuel efficiency are estimated to be worth $55.8 billion; $50.1 billion of these benefits result from pre-tax fuel savings, $4.0 billion from the value of additional driving, and $1.7 billion from fewer refuelling trips. In addition, the benefits of reduced GHG emissions resulting from the amended Regulations are estimated to be $4.4 billion. Total benefits from the amended Regulations are estimated to be $60.3 billion. Both costs and benefits are increased due to the rebound effect, (see footnote 31) which provides additional benefits to vehicle owners in the form of increased vehicle-kilometres driven, but can also increase costs to Canadians due to increased traffic congestion, motor vehicle crashes, and noise. These sources of costs and benefits are also estimated monetarily.

Summary of monetized benefits and costs
Benefits Costs
Pre-tax fuel savings Technology costs
Reduced refuelling time Noise, accidents and congestion
Additional driving Government administration
Avoided GHG damages  
Analytical scenarios
Business as usual

The cost-benefit analysis makes a “business as usual” (BAU) forecast for vehicles of the 2017–2025 model years, including assumptions regarding their technological characteristics, lifetime usage, fuel consumption and emissions in the absence of the amended Regulations and assuming the current Regulations for the 2016 model year standard remain in place for 2017–2025 model year vehicles. For each manufacturer, the forecast includes the fuel consumption and GHG emission characteristics of each vehicle model (nameplate) and main variants — i.e. the technologies incorporated — and the fuel consumption/emission rates per vehicle-kilometre.

Regulatory policy

This scenario is defined by the implementation of the amended Regulations. The technology costs reported by model year are incremental to the costs associated with company compliance in the model year 2016. Under the regulatory scenario, technologies and compliance options are applied to vehicles in order for companies to meet their regulated standards, and the estimated incremental cost per vehicle is calculated on this basis. This leads to increased prices for purchasers of new vehicles; however, results show that increases in fuel efficiency allow for a simple payback period of one to three years for model year 2017 to 2025 vehicles.

The regulatory standards respond to the observation that some fuel efficiency improvements do not occur spontaneously, despite the obvious fuel savings. The U.S. EPA has provided analysis on this very question in its regulatory impact analysis for the 2017–2025 light-duty vehicle greenhouse gas emission standards. This concerns a phenomenon in consumer decision-making known as the energy paradox, which has several possible and complementary explanations. Consumers may undervalue future savings, be overly averse to upfront costs, have incomplete information or understanding of (how to estimate) the value of savings, and/or be considering the uncertainty of future fuel prices. Furthermore, vehicle purchase decisions are complex and consumers may value other vehicle attributes more greatly than fuel efficiency, and may associate inexpensive or less desirable vehicles with fuel efficiency (vehicle as a status symbol). For example, a consumer may choose vehicle characteristics such as class, style, power, and comfort before considering fuel efficiency. Consumers cannot simply opt for greater fuel efficiency in any given car (and if they could, may not be willing to pay for it), but are limited to the options supplied to them.

Because Canadian standards will be equivalent to those in the United States, it is the assumption of the Canadian analysis that each vehicle offered in Canada will also be offered in the U.S. market, as in practice manufacturers design vehicles for the larger market. For the purpose of the analysis however, we assume that incremental costs and benefits in Canada will be fully the result of the Canadian amended Regulations with no spill-over effects from the U.S. regulations. This is the same approach that was used for the analysis of the current Regulations for model years 2011–2016.

Under the U.S. regulations, U.S. manufacturers and importers must ensure that the average GHG emissions of the vehicles they sell in a given model year are less than the prescribed standards. Canadian-made vehicles will play an important role in U.S. fleet average emissions. Likewise, Canadian manufacturers and importers will be required to make technological improvements to lower the GHG emissions from their products, regardless of Canadian regulatory intervention. Costs to the Canadian auto sector are therefore primarily a result of integration with the United States, and would not be avoided even if Canada chose an alternative regulatory approach.

Cost-benefit analysis, sources of data and main assumptions

OMEGA, which is a vehicle technology forecasting and costing model, compares all practical sets of modifications and selects those which minimize total costs for each manufacturer. The output from OMEGA consists of estimated average emission rates for cars and light trucks, average costs per vehicle and total costs for the specified model year standard. OMEGA predicts changes in the fuel consumption and emissions of each vehicle variant, which might change their performance characteristics and their prices, but it does not predict sales changes (i.e. sales remain constant throughout the analysis). OMEGA demonstrates how each of the vehicles could be modified by the application of technologies to meet the standards at the least cost, given assumptions about the menu of available technologies.

The CBA applied Canadian sales forecasts, fleet mix, and prices for vehicle technologies to the OMEGA output. Analysis was conducted to demonstrate the overall fuel savings, GHG emissions reductions, and cost impacts for all 2017–2025 model year vehicles sold in Canada. The benefits and costs of the incremental impacts of the amended Regulations are calculated based on specific factors, including technology costs, vehicle sales forecasts, energy price forecasts, vehicle distance travelled and emission factors. The calculations model the incremental changes to vehicle distances travelled, fuel consumed and GHG emissions when compared with the business as usual scenario, which applies the same forecast results, excepting the increased standards of the amended Regulations which impact the technology costs and the fuel efficiency per vehicle.

Updated cost-benefit analysis, sources of data and inputs

Following publication in the Canada Gazette, Part I, Environment Canada applied updated values for fuel and technology cost forecasts, GHG emission rates, and passenger refuelling time values, and updated the base year to 2013 and calculated values in 2012 Canadian dollars. Based on new information from the U.S. EPA Final Rulemaking for 2017–2025 Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Economy Standards, (see footnote 32) the average estimated vehicle technology costs and emission rates were updated from those published in the Canada Gazette, Part I. This has resulted in an increase in the estimated GHG reductions and fuel savings. Furthermore, the updated fuel price forecasts increased by approximately 20% from those presented in the Canada Gazette, Part I, which has led to significantly higher fuel cost savings and associated net benefit estimates.

Rebound effect

For drivers, the amended Regulations are expected to generate fuel savings, some of which would be directed to additional driving. The additional driving is commonly known as the rebound effect, which reflects increased vehicle use resulting from the decrease in travel cost per kilometre. Alternatively, it is referred to as an elasticity of kilometres driven with respect to fuel cost per kilometre. For their U.S. model year 2012–2016 standards, the U.S. EPA and the U.S. National Highway Traffic Safety Administration (NHTSA) applied a rebound rate of 10%, reflecting their assessment of empirical research in the United States. (see footnote 33) Likewise, Canada’s model year 2011 to 2016 regulation also applied a 10% rebound rate. The analysis of the model year 2017–2025 standards continues the application of a rebound rate of 10%.

Additional driving

The benefit from additional driving is increased mobility — additional trips, and trips to more distant destinations due to the reduced cost of driving. The amended Regulations are expected to decrease the price per kilometre as a result of increased fuel efficiency, resulting in an increase in kilometres driven. This relationship is estimated by the rebound effect — how many more kilometres will be driven as a result of a price change. Since additional kilometres travelled will become cheaper, Canadians will drive more.

The total benefit from a number of kilometres driven is not the sum of what was paid for it, but the sum of what people would have been willing to pay for it. This was estimated based on expected consumer response to the change in price per kilometre travelled.

Reduced refuelling time

The value of reduced refuelling time was calculated by lifetime vehicle kilometres driven, average tank size and refill volume, with a five-minute average refuelling time, $14.00 (see footnote 34) wage rate per hour as a proxy for time value, and an estimated average vehicle occupancy of 1.66. An adjustment was made to reflect the estimated proportion of refuelling trips with a primary purpose other than to refuel. (see footnote 35) Overall, the amended Regulations are expected to result in a reduction of approximately one billion (see footnote 36) refuelling stops over the lifetime of model year 2017 to 2025 light-duty vehicles. The estimated benefit from reduced refuelling time is $1.7 billion.

Calculation of on-road fuel consumption

Fuel efficiency is derived from average CO2 emissions estimates provided by OMEGA. OMEGA estimates vehicle emissions in grams of CO2/mile and reflects those measured according to prescribed emission test procedures, or “lab-tested” emissions. The carbon content of the fuel (g/L) was used to convert emissions rates to fuel consumption rates (L/100 km). The conversion of “lab-tested” fuel consumption into “on-road” fuel consumption has been obtained through a series of calculations. (see footnote 37) An adjustment was made for the energy density ratio of Indolene (testing fuel) and retail gasoline. An additional adjustment was made for an estimated “gap” of 20% between off-road and on-road efficiency that represents various factors that are not fully represented under the prescribed emission test procedures, such as driving behaviour and weather. The result is an estimate of “on-road” fuel consumption for the fleet of vehicles to which the amended Regulations will apply.

Sales forecasts

An input required for the cost-benefit analysis is the Canadian vehicle sales forecasts by vehicle type and by company, which were provided to Environment Canada by ENVIRON Inc. (ENVIRON). Forecasted estimates for annual vehicle type sales in the 2017 to 2025 model years were based on macroeconomic variables, forecasts of replacement demand, and other market intelligence. ENVIRON used core Canadian macroeconomic indicators consistent with Environment Canada’s Energy-Economy-Environment Model for Canada (E3MC). (see footnote 38) The forecasts used current makes and models as proxies for projecting future vehicle types to the resolution required by OMEGA. Given the long range time frame that the forecast covered, the estimates represent a plausible scenario for potential yearly sales forecasts of vehicles from 2017 to 2025 in Canada.

Canadian light-duty vehicle sales forecast
  MY 2017 MY 2018 MY 2019 MY 2020 MY 2021 MY 2022 MY 2023 MY 2024 MY 2025 Combined MYs 2017–2025
Light-duty vehicle sales (thousands) 1 619 1 629 1 649 1 659 1 669 1 680 1690 1 701 1 726 15 022

MY = model year

In order to construct a complete Canadian future vehicle fleet, the forecasts were combined with vehicle type, GHG performance information, and other vehicle specifications obtained from EC’s Vehicle and Engine Emissions Reporting Registry (VEERR, previously called VFEIS) System. The vehicle type market shares were established using the ENVIRON forecast; however, total sales volumes were subsequently normalized to the total annual car and truck sales projected by EC’s macroeconomic E3MC Model for the 2017 to 2025 period. The normalized Canadian vehicle forecasts were applied to the U.S. EPA’s OMEGA technology cost estimates to evaluate the per-vehicle costs and GHG emission performance associated with industry compliance with the amended Regulations.

Benefits

Benefits to consumers

The amended Regulations provide consumers with a variety of significant benefits which result from increased fuel efficiency of these new standards, including pre-tax fuel savings, reduced re-fuelling time, and additional driving due to the increased distance travelled per litre of fuel. Vehicles will be more-fuel efficient due to the amended Regulations, able to drive further with the same volume of fuel and therefore require less frequent refuelling. Drivers also have the option of driving further for the same fuel cost, due to increased fuel efficiency.

Over the lifetime operation of all 2017 to 2025 model year vehicles, consumers can expect to receive $50.1 billion in pre-tax fuel savings.

Total benefits to consumers, including pre-tax fuel savings, reduced refuelling time, and additional driving resulting from increased fuel economy, are estimated to be $55.8 billion.

Benefits to the environment

The social cost of carbon (SCC) was used in the modelling of the cost-benefit analysis of environmental regulations in the Regulatory Impact Analysis Statement (RIAS) to quantify the benefits of reducing GHG emissions. It represents an estimate of the economic value of avoided climate change damages at the global level for current and future generations as a result of reducing GHG emissions. The calculations of SCC are independent of the method used to reduce emissions.

The SCC is also used by the United States in their cost-benefit analysis of regulations. The values used by Environment Canada are based on the extensive work of the U.S. Interagency Working Group on the Social Cost of Carbon.

The SCC values used in this assessment also draw on ongoing work being undertaken by Environment Canada in collaboration with an interdepartmental federal government technical committee, and in consultation with a number of external academic experts. This work involves reviewing existing literature and other countries’ approaches to valuing GHG emissions. Preliminary recommendations, based on current literature and in line with the approach adopted by the U.S. Interagency Working Group on the Social Cost of Carbon, (see footnote 39) are that it is reasonable to estimate SCC values at a central value of $29.38/tonne of CO2 in 2013 up to $62.69 in 2056, increasing at a given percentage each year associated with the expected growth in damages. (see footnote 40)

The social cost of carbon values should increase over time to reflect the increasing marginal damages of climate change as projected GHG concentrations increase. The time-varying schedule of SCC estimates for Canada has been derived using the same growth rates as those of the U.S. Interagency Working Group. The U.S. growth rates have been calculated from the results of several runs made by Integrated Assessment Model, which calculates SCC values at different points in time.

Environment Canada’s review also concludes that a value of $116.45/tonne in 2013 up to $246.83 in 2056 should be considered in our analysis, which would reflect a 95th percentile value on a right-skewed probability distribution, and arguments raised by Weitzman (2011) (see footnote 41) and Pindyck (2011) (see footnote 42) regarding the treatment of right-skewed probability distributions of the SCC in cost-benefit analyses. (see footnote 43) Their argument calls for full consideration of low probability, high-cost climate damage scenarios in cost-benefit analyses to more accurately reflect risk. A value of $116.45 per tonne does not, however, reflect the extreme end of SCC estimates, as some studies have produced values exceeding $1,000 per tonne (see footnote 44) of carbon emitted.

An interdepartmental working group on SCC also concluded that it is necessary to continually review the above estimates in order to incorporate advances in physical sciences, economic literature, and modelling to ensure the SCC estimates remain current. Environment Canada will continue to collaborate with the Government of Canada’s interdepartmental working group on the SCC and outside experts to review and incorporate as appropriate new research on SCC in the future.

The OMEGA emissions model was used to estimate the impact of the amended Regulations in terms of reductions in vehicle GHG emissions. The amended Regulations are estimated to result in a lifetime model-year reduction of 3.44 Mt beginning in model year (MY) 2017 and increasing each year to 35.33 Mt for MY 2025. Thus, as the amended Regulations come into full effect over the MY 2017–2025 period, they will result in a cumulative lifetime GHG emission reduction of 174 Mt arising from new vehicles entering the market in these nine years. The value of these reductions based on the SCC is estimated to be $4.4 billion.

For MY 2026 and subsequent model years, the amended Regulations will remain in full effect. The scope of the CBA, however, is limited to the lifetime operation of MY 2017–2025 vehicles. Looking beyond MY 2025, it also becomes more likely that some of these GHG emission reductions would have occurred even in the absence of the amended Regulations and could not therefore be fully attributed to the amended Regulations.

Total benefits

Combined benefits to consumers and Canadians are estimated to be $60.3 billion over the lifetime operation of all 2017 to 2025 model year vehicles in Canada.

Costs

Costs to automobile manufacturers

It is assumed that automobile manufacturers will need to redesign and apply technologies to their vehicles in order to comply with the amended Regulations and will pass along those costs directly to consumers in the form of increased purchase prices, relative to baseline vehicles of the same model year. Due to the alignment of standards under the amended Regulations and U.S. regulations, those technology costs are expected to be similar in Canada and in the United States.

Costs to consumers

The amended Regulations are expected to result in greater technology costs for vehicles to meet the new and increasingly stringent standards in each model year. The analysis assumes that manufacturers will pass all of these costs on to consumers. Those technology costs incurred by consumers at the time of a new vehicle purchase are expected to total approximately $10 billion (see footnote 45) for all model year 2017 to 2025 vehicles sold in Canada.

These costs are incremental to the baseline such that, for example, technology costs add $211 million (present value) to the costs of the model year 2017 fleet, and $2.22 billion (present value) to the costs of the model year 2025 fleet.

The incremental technology costs for model year 2017 are expected to average $131 for cars and $170 for light trucks, increasing to $1,639 for cars and $2,113 for light trucks in model year 2025 in order to meet the increasingly stringent standards of the amended Regulations. In reality, relative changes in vehicle prices and performance likely affect consumer choice; however, it is not within the capacity of the analysis to model consumer choice.

Costs to Canadians

One of the major benefits that will result from the regulatory amendments is fuel savings due to the deployment of fuel-saving technologies. However, fuel savings could encourage more driving (i.e. the rebound effect), (see footnote 46) as the cost of driving decreases, which could lead to more accidents, congestion, noise, etc. This assessment is supported by the U.S. EPA analysis. However, the U.S. EPA concludes that the impact of increased driving associated with the rebound effect is small relative to the overall benefits. The amended Regulations are expected to increase societal costs related to noise, accidents and congestion resulting from the expected increased driving resulting from the improved fuel economy (the rebound effect). These are estimated to cost Canadians $1.2 billion over the lifetime driving of all model year 2017 to 2025 vehicles, with $29 million attributed to the 2017 model year, rising to $228 million due to the 2025 model year standards.

Costs to Government

The costs to Government of promoting regulatory compliance, administering and enforcing the Regulations, and conducting vehicle emissions testing in support of the amended Regulations is expected to remain at the same levels as those required to support the current regulatory program for model years 2011–2016. The present value of these combined costs is expected to be $1.7 million in calendar year 2017, declining to $830,000 in calendar year 2025 with an overall cost of $9.5 million for model years 2017 to 2025 combined. As a simplifying assumption, government costs calculated for a given calendar year were allocated to that model year.

Total costs

Combined costs to consumers and Canadians are estimated to be $11.2 billion over the lifetime operation of all 2017 to 2025 model year vehicles in Canada.

Key results

Net benefits: The amended Regulations are expected to result in net benefits for each model year, beginning with a $1.1 billion net benefit for the lifetime of model year 2017 vehicles and $9.2 billion for model year 2025 vehicles, totalling $49.0 billion in net benefits over the lifetime operation of all model year 2017 to 2025 vehicles in Canada.

Benefit-to-cost ratio: Overall, it is expected that the amended Regulations will result in a benefit-to-cost ratio of over five to one over the lifetime operation of all model year 2017 to 2025 vehicles in Canada.

Consumer net benefits: The amended Regulations are expected to increase new vehicle prices by an average of approximately $147 (2012 Canadian dollars) for the 2017 model year over baseline 2017 model year prices, and $1,829 for the 2025 model year over baseline 2025 model year prices, reflecting the increasingly stringent new regulatory standards. These costs would be offset by fuel cost savings, additional driving and reduced refuelling time due to the amended Regulations. Environment Canada’s analysis indicates that the increased vehicle prices are expected, on average, to be recovered in one to three years strictly as a result of fuel savings. Environment Canada expects the overall lifetime net benefit to vehicle owners (consumers) resulting from the amended Regulations to be greater than $45.8 billion (consumer benefits less technology costs) for all vehicles from model years 2017 to 2025.

Quantified impacts

Reduction in GHGs: The aligned Canada-United States regulatory approach is expected to result in a reduction in GHG emissions from the 2017 and later model year vehicles throughout their lifetime of operation. These reductions would occur as a result of GHG emission-reducing technologies applied in order to comply with the emissions standards. Environment Canada analysis suggests that the amended Regulations are expected to reduce GHG emissions by 174 Mt over the lifetime operation of 2017 to 2025 model year vehicles.

Fuel savings: Estimates by Environment Canada indicate that the amended Regulations are expected to save 1.55 billion litres of fuel over the lifetime operation of model year 2017 light-duty vehicles in Canada, leading to monetary savings of about $1.1 billion. Overall, the estimates suggest that 75 billion litres of fuel would be saved in Canada over the lifetime operation (see footnote 47) of the 2017–2025 model year vehicles. These estimated pre-tax fuel savings are valued at $50.1 billion.

Table 4: Summary of main results (2012CAN$ millions, discounted to 2013 using 3% discount rate)

Incremental
costs and
benefits		 MY 2017 MY 2018 MY 2019 MY 2020 MY 2021 MY 2022 MY 2023 MY 2024 MY 2025 Combined MYs 2017–2025
A. Quantified impacts
Benefits to consumers
Pre-tax fuel savings 1,135 2,322 3,497 4,627 5,758 6,727 7,694 8,661 9,706 50,127
Reduced refuelling time 36 75 113 150 187 221 255 289 326 1,652
Additional driving 105 209 305 391 470 540 606 670 737 4,034
Total consumer benefits 1,276 2,606 3,915 5,168 6,416 7,488 8,556 9,620 10,769 55,813
Benefits to Canadians
Reduction in GHGs (SCC at $29/tonne) 91 198 302 404 510 597 687 778 878 4,444
Total benefits 1,367 2,803 4,217 5,572 6,925 8,085 9,242 10,398 11,647 60,257
Costs to consumers
Technology costs 211 412 607 791 966 1,296 1,611 1,911 2,214 10,018
Administrative costs (savings)(see footnote 48) (0.07) (0.07) (0.07) (0.07) (0.06) (0.06) (0.06) (0.06) (0.06) (0.57)
Costs to Canadians
Noise, accidents, and congestion 29 57 85 112 138 161 183 205 228 1,198
Costs to Government
Compliance promotion, enforcement, regulatory administration, vehicle emission testing (see footnote 49) 1.7 1.3 1.1 1.0 0.9 0.9 0.9 0.9 0.8 9.5
Total costs 241.2 470.5 693.7 903.7 1,104.6 1,457.7 1,794.9 2,116.6 2,443.1 11,226.0
Net benefits (SCC at $29/tonne) 1,126 2,333 3,523 4,668 5,821 6,627 7,447 8,282 9,204 49,031
Net benefits (alternate SCC at $116/tonne) 1,397 2,920 4,421 5,869 7,334 8,399 9,483 10,586 11,805 62,213
Benefit-to-cost ratio (SCC at $29/tonne) 5.7 6.0 6.1 6.2 6.3 5.5 5.2 4.9 4.8 5.4
B. Quantified impacts, non-monetized — e.g. from a risk assessment (see footnote 50)
Reduction in greenhouse gases (Mt of CO2e) 3.4 7.4 11.5 15.5 19.7 23.3 27.0 30.9 35.3 174
Fuel savings (billions of litres of gasoline) 1.5 3.1 4.8 6.5 8.3 10.0 11.8 13.6 15.6 75
C. Qualitative impacts
  • Firms involved in oil extraction, petroleum refiners and retailers may be impacted by reduced demand for motor gasoline due to the fuel economy improvements resulting from the amended Regulations.
  • Overall, the health benefits associated with the amended Regulations are expected to be positive but small due to limited impacts on criteria air contaminant (CAC) emissions. Due to the expected small changes of CAC concentrations in ambient air, it is not possible to provide a quantitative estimate of the impacts on health. Small health benefits may be the result of the small reductions in ambient PM2.5 concentrations due to the amended Regulations.
  • The impacts of the amended Regulations include a small reduction in administrative burden to regulated firms.

Table 5: Average incremental technology cost versus fuel savings per vehicle, by model year (2012CAN$)

Payback MY 2017 MY 2018 MY 2019 MY 2020 MY 2021 MY 2022 MY 2023 MY 2024 MY 2025
Cars

Technology cost/car

 131 262 393 524 655 901 1,147 1,393 1,639

Break even (years)

 3.16 3.01 2.95 2.91 2.87 3.10 3.24 3.31 3.35
Light duty trucks

Technology cost/truck

 170 340 509 679 849 1,165 1,481 1,797 2,113

Break even (years)

 1.17 1.12 1.09 1.08 1.06 1.28 1.44 1.56 1.65
Average vehicle (cars and light duty trucks)

Technology cost/vehicle

 147 293 440 586 733 1,007 1,281 1,555 1,829

Break even (years)

 1.77 1.69 1.65 1.63 1.61 1.86 2.04 2.18 2.27

Table 6 below presents GHG damages avoided, by model year and combined, as well as the socio-economic net benefits (excluding GHG reduction benefits) and the per-tonne socio-economic cost of GHG damages avoided (negative $305/tonne).

Table 6: Summary metrics (2012CAN$)

  MY 2017 MY 2018 MY 2019 MY 2020 MY 2021 MY 2022 MY 2023 MY 2024 MY 2025 Combined MYs 2017–2025
CO2 damages avoided (Mt CO2e, discounted at 3%) 3.44 7.44 11.55 15.55 19.77 23.3 27.00 30.99 35.33 174
Present value of the socio-economic costs which equal total costs minus non-GHG benefits (in millions of 2012 Canadian dollars) –44,605
Present value of the socio-economic cost per tonne of CO2 damages avoided ($/tonne) –305

Sensitivity analysis was conducted to compare the impact of lower, central and higher variables. Technology costs were assessed at plus or minus 30%, while discount rates were assessed at 0%, 3% and 7%, as presented in Table 7.

Table 7: Sensitivity analysis, net benefits (2012CAN$ billions, discounted to 2013)

Sensitivity variables Net Benefit
Lower Central Higher
Sensitivity to technology costs (-30%, central, +30%) 52.0 49.0 46.0
Sensitivity to discount rates (7%, 3%, undiscounted) 26.0 49.0 82.4
Emissions of criteria air contaminants

The use of the vehicles that would be subject to the amended Regulations will also generate emission changes of criteria air contaminants (CACs), (see footnote 51) including particulate matter (PM2.5), nitrogen oxide (NOx), volatile organic compounds (VOCs), carbon monoxide (CO), and sulphur dioxide (SO2). In general, these pollutants and the secondary compounds produced in the atmosphere as a result of their emission (e.g. secondary PM2.5 and ozone) impact both human health and the environment.

Criteria air contaminants are not controlled by the amended Regulations; however, light-duty vehicle emissions of NOx, VOC, CO, and PM2.5 are regulated under the On-Road Vehicle and Engine Emission Regulations, which prescribe emission standards for these pollutants in terms of the maximum mass that can be emitted per distance travelled. Emissions of these CACs are assumed to increase over the lifetime of the model years covered by the amended Regulations due to an increase in overall vehiclekilometres travelled.

The amended Regulations are expected to result in small but gradually increasing emissions of VOCs and NOx over time. Given the uncertainty associated with the available data, it was not possible to draw a general conclusion regarding the direction of change in ambient ozone levels.

Nevertheless, emissions of SO2 are related directly to the sulphur content of the fuel — which is regulated under the Sulphur in Gasoline Regulations and the Sulphur in Diesel Fuel Regulations — and the total amount of fuel consumed/combusted. Therefore, since the amended Regulations will lead to a decrease in overall fuel consumption by the regulated vehicles, it is anticipated that emissions of SO2 will also decrease. Overall, it is expected that the decrease in SO2 emissions and the increase in primary PM2.5 emissions will result in a small net decrease (e.g. less than 0.003µg/m3 reduction of annual PM2.5 average for year 2030) in ambient PM2.5 concentrations in major Canadian urban centres. Accordingly, the associated health benefits, including reduced risk of premature mortality, emergency room visits and hospital admissions for cardiorespiratory outcomes, would be small.

Considering the expected small changes of CAC concentrations in ambient air, it is not possible to provide a quantitative estimate of the impacts on health. In conclusion, the amended Regulations are expected to result in small health benefits as a result of the small reductions in ambient PM2.5 concentrations. The health impacts from ozone are expected to be negligible. Overall, the health benefits associated with the amended Regulations are expected to be positive but small.

8. “One-for-One” Rule

The “One-for-One” Rule was implemented to control new administrative burden imposed on businesses as a result of regulations. In summary, the rule requires that departments

The administrative changes that will be implemented through the amended Regulations will result in a net decrease in regulatory burden; therefore, the amended Regulations are considered an “OUT” under the rule. Reductions in burden will be achieved primarily by removing the annual preliminary model year reporting requirements under the current Regulations.

Based on calculations carried out using the Standard Cost Model methodology, these regulatory changes have been estimated to result in an annualized decrease in total administrative costs to all businesses subject to the Regulations of approximately Can$59,190, or Can$2,573 per business. (see footnote 52) In addition to the 75-day public comment period following publication in Canada Gazette, Part I, Environment Canada has held a number of meetings with representatives of the Canadian auto industry to consult on the proposed regulatory amendments and the assumptions behind the one-for-one calculation, including an estimated average of 80 hours of staff time avoided per company per year due to the removal of annual preliminary reporting requirements. Industry representatives have not expressed any concerns with the estimated administrative reductions resulting from the amended Regulations, in particular the removal of the annual preliminary reporting requirements.

9. Small business lens

All of the companies to which the current Regulations apply — and to which the amended Regulations continue to apply — are Canadian branches of multinational corporations. As a result, the small business lens does not apply to the amended Regulations, although the compliance costs are expected to be greater than $1 million annually.

The regulated community comprises manufacturers and importers of new light-duty vehicles sold in Canada. It excludes companies or individuals that

The burden for reporting compliance is the responsibility of the manufacturers and importers, which are Canadian subsidiaries of multinational automobile manufacturers, rather than retailers or low volume importers. Nevertheless, the amended Regulations continue to recognize the unique challenges of companies that manufacture or import small volumes of new light-duty vehicles for sale in Canada.

The current Regulations include provisions specifically designed to reduce the compliance burden of such companies. These provisions temporarily allow companies that manufacture or import a total volume of light-duty vehicles that is less than a prescribed threshold to elect to comply with less stringent standards through model year 2016. These provisions were designed in recognition of the fact that these companies, which, in general, have a more limited suite of vehicle offerings than do full line companies, could benefit from a less aggressive fleet average standard, which would allow more time to adjust their product plans accordingly. In addition, the fleet average CO2e emission standards do not apply to any companies that manufacture or import, on average, fewer than 750 new light-duty vehicles in Canada per year.

The amended Regulations continue to not apply to the fleet average CO2e emission standards of those companies that manufacture or import, on average, fewer than 750 new light-duty vehicles per year.

10. Consultation

10.1. Consultations before the publication of the proposed Regulations in the Canada Gazette, Part I

In 2010, the Minister of the Environment and the U.S. President announced their respective intentions to further regulate GHG emissions from light-duty vehicles of model years 2017 and beyond. The Minister of the Environment’s announcement specified that Canada’s proposed Regulations would build upon the current Regulations in force for model years 2011 to 2016 and would be aligned with those of the United States.

On November 16, 2011, Environment Canada released a consultation document (see footnote 53) on the proposed regulatory approach to reduce GHG emissions from light-duty vehicles of model years 2017 and beyond in alignment with the U.S. EPA. The goal of the consultation document was to solicit early views from interested parties regarding this regulatory development process and Canada’s intent to continue its successful policy of regulatory alignment with the United States in this area. The document was distributed to key stakeholders, provinces and territories and also published on Environment Canada’s CEPA Environmental Registry Web site to make it broadly available to all interested parties for a 30-day comment period.

In addition to the release of the consultation document, a number of meetings, including a workshop in February 2012, were held with representatives of the Canadian vehicle industry, provincial governments, environmental groups and other interested parties to discuss the intended regulatory approach.

In response to the consultation document, the Department received nine written submissions from the following groups: industry associations (3), vehicle manufacturers and importers (3), environmental non-governmental organizations (2) and one provincial government.

Submissions generally expressed support for Canada’s approach of aligning with the United States for model years 2017 and beyond. Some key issues related to Canada’s approach to achieving regulatory alignment were also raised. These comments and others provided during the aforementioned consultations were taken into account in developing the proposed Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations.

10.2. Consultations after the publication of the proposed Regulations in the Canada Gazette, Part I

Publication of the proposed Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations in the Canada Gazette, Part I, on December 8, 2012, initiated a 75-day comment period where interested parties were invited to submit their written comments on the proposed Regulations. (see footnote 54) The proposed Regulations were also posted on Environment Canada’s CEPA Environmental Registry Web site to make it broadly available to interested parties. Environment Canada distributed an email to a broad range of interested parties to inform them of the formal consultation process. On February 11, 2013, Environment Canada held an information session with representatives of provincial and territorial governments, industry associations, vehicle manufacturers and importers, and environmental nongovernmental organizations to provide an overview of the proposed Regulations, and answer questions to better inform possible written submissions. Environment Canada also held a number of meetings with industry stakeholders to better understand their views on the proposed Regulations.

Environment Canada received nine written submissions from provincial governments (2), vehicle manufacturers and importers (5), and manufacturers and importers associations (2). Environment Canada took these views into account when developing the final amended Regulations. The following paragraphs summarize the major issues raised by interested parties on the proposed Regulations and Environment Canada’s analysis leading to the development of the final amended Regulations.

10.2.1. Maintaining alignment with the U.S. EPA’s greenhouse gas emission standards for passenger automobiles and light trucks

Overall, alignment with the U.S. EPA remains important for stakeholders in the context of North America’s integrated vehicle industry, although some have requested Canada-unique approaches for some elements of the amended Regulations.

One manufacturers and importers association re-iterated their support for Canada to maintain full regulatory alignment with the U.S. regulations. The submission stated that alignment allows for the leveraging of North American economies of scale and provide the greatest access to advanced technologies. The submission further indicated that compliance requirements and flexibility mechanisms proposed by Environment Canada should be identical to those provided by the United States. The U.S. EPA Regulations are very complex, the submission stated, and have a broad range of flexibility measures focused on encouraging the deployment of GHG technologies beyond powertrain efficiencies. The submission also indicated that it is essential that these same flexibility measures are also provided to automobile companies in Canada.

Another manufacturers and importers association and some member companies expressed concerns with the application of the U.S. regulations to the Canadian market. The submission stated that Canada’s fleet mix is significantly different relative to the United States, which could make the standards in Canada more stringent. An example of such differences mentioned in the submission is a proportionally greater number of small compact vehicles in Canada, which are subject to numerically more stringent emission standards than larger vehicles. The submission recommended a number of Canada-unique flexibilities, summarized in sections below.

Response: Environment Canada has a long-standing policy of aligning transportation emissions standards with those of the United States. Alignment provides significant environmental and economic benefits to Canada while minimizing costs to industry and consumers.

Environment Canada acknowledges that, while the Canadian light-duty vehicle market comprises essentially the same vehicle offerings as the U.S. light-duty vehicle market, when it comes to the mix of new vehicles purchased every year, the Canadian market is not a smaller replica of the U.S. market. There are some differences, as highlighted by one manufacturers and importers association.

That being said, the vast majority of light-duty vehicles are imported into Canada by large corporations with sufficient volume and diversity so as to not make small fleet mix differences a significant barrier to compliance. Also, the amended Regulations provide a variety of compliance flexibilities that allow companies to adjust their fleet mix, if needed, to meet their regulatory obligations.

10.2.2. Stringency of emission standards

One manufacturers and importers association and some member companies expressed in their submissions their view that the proposed Regulations include inequitable stringency levels in the emission standards for passenger automobiles and light trucks. More specifically, the submissions stated that the proposed targets favour light trucks and particularly full-size pick-up trucks, resulting in a disproportionate regulatory burden on companies that are focused on passenger automobiles and/or mid-size and smaller light trucks. The submissions highlighted the need for potential Canada-unique flexibilities to mitigate the impact of inequitable stringency levels.

One company recommended that the proposed Regulations be changed so that target values have equitable stringency levels for all market segments.

Another manufacturers and importers association expressed their support for emission standards that are fully aligned with those of the U.S. EPA.

Response: Light trucks, particularly large light trucks, are designed to serve some kind of utility function (e.g. towing, hauling), at least more so than typical passenger automobiles. Manufacturers and importers of such vehicles face a challenge to achieve significant GHG emission reductions while maintaining this functionality, which is a key to meeting consumer expectations. In recognition of this challenge, the annual rate at which the carbon dioxide emission target values for light trucks reduce in model years 2017 to 2021 is, on average, 3.5% per year — a lower average annual rate than the 5% applicable to passenger automobiles.

Environment Canada recognizes the importance of aligned emission standards and is not modifying the stringency levels of the target values.

10.2.3. Flexibilities for small- and medium-size pick-up trucks

One manufacturers and importers association stated in its submission that Environment Canada should ensure that producers of affordable, fuel efficient small- and medium-size pick-up trucks do not bear a disproportionate portion of the regulatory burden. The submission indicated that the proposed Regulations failed to properly consider the merits of small- and medium-size pick-up trucks as viable alternatives to full-size pick-up trucks. It further stated that smaller pick-up trucks can provide consumers with similar utility function, produce fewer GHG emissions, and deliver improved fuel efficiency. As pick-up truck consumers in Canada continue to replace older vehicles with new and more fuel efficient models, the submission indicated that Environment Canada should consider providing similar allowances, such as those applicable to hybrid technologies, for small- and medium-size pick-up trucks that are currently only offered to large pick-up trucks.

Response: In alignment with the United States, the amended Regulations provide compliance flexibilities to companies importing or manufacturing full-size pick-up trucks.

Full-size pick-up trucks face particular challenges in introducing hybrid technologies or other technologies that significantly reduce their carbon-related exhaust emission value below their target value, while maintaining their utility and performance. Environment Canada recognizes these challenges and, as of model year 2017, the amended Regulations will provide companies the flexibility to calculate an allowance applicable to model types that meet the definition of full-size pick-up truck as described in section 5.

These provisions are also consistent with commitments made by Canada and the United States to synchronize and align the Regulations under the Regulatory Cooperation Council.

10.2.4. Mid-term review

One manufacturers and importers association recommended in its submission a regulatory mechanism to review the applicability and appropriateness of the 2022–2025 standards, similar to the U.S. process (referred to in the United States as the “mid-term” review, which needs to be completed by April 2018). The submission indicated the need for Environment Canada to consult with Canadian manufacturers and importers, and take into account Canada-unique considerations when determining the applicability of the 2022–2025 emission standards in the Canadian context.

Another manufacturers and importers association stated in its submission that aligning with the U.S. EPA standards for model years 2017 and beyond provides regulatory certainty. The submission supported Environment Canada’s commitment to participate in the mid-term review and highlighted the importance to maintain alignment if the U.S. mid-term review were to lead to changes to the U.S. regulations.

Response: Environment Canada agrees that there are benefits to providing long-term regulatory certainty to Canada’s automobile industry to ensure that Canada continues to benefit from the environmental and economic benefits of regulatory alignment. The Government of Canada will regulate GHG emissions from light-duty vehicles from model year 2017 and beyond, in alignment with the U.S. EPA emission standards.

Because of CEPA 1999’s limited enabling authority, the concept of the mid-term review has not been included in the amended Regulations. The amended Regulations incorporate by reference the U.S. standards for model years 2022 to 2025. This will maintain alignment should the U.S. EPA modify the 2022–2025 emission standards as a result of its mid-term review.

In addition, Environment Canada is committed to consulting with stakeholders as well as provinces, territories and the industry on the results of the U.S. mid-term review to ascertain whether any changes are required to the Regulations. Environment Canada also intends to undertake a review of costs and benefits resulting from the impacts associated with any possible new requirements being proposed as a result of the U.S. mid-term review. Canada-unique considerations will also be taken into account, if necessary.

10.2.5. Intermediate-volume manufacturers

One manufacturers and importers association and some member companies recommended in their submissions that the flexibilities offered to intermediate-volume companies for model years 2012–2016 be extended to the 2017–2025 period. The submissions stated that smaller volume companies may face unique challenges in transitioning to mandatory compliance with the 2017–2025 fleet average GHG emission standards. The submissions also stated that several intermediate volume companies occupy the niche market of relatively small and high-performance vehicles (i.e. high fuel consumption and GHG emissions), a situation that inherently makes compliance with the GHG standards for model years 2017–2025 more difficult.

The submissions further indicated that intermediate-volume companies will be unable to rely upon credit trading or purchase CO2 emission credits from competitors in order to achieve their compliance goals.

Response: As a form of short term compliance flexibility and in order to help high-performance vehicle manufacturers transition to a regulatory regime, the current Regulations for model years 2012–2016 establish, under certain conditions, 25% less stringent standards for vehicles manufactured or imported by intermediatevolume companies. The amended Regulations for model years 2017 and beyond will phase out this flexibility by 2021.

Environment Canada recognizes that 2017–2025 standards are challenging for all companies but more so for a number of intermediate-volume companies. That said, Environment Canada has not received information to the effect that the GHG performance of intermediate-volume companies in Canada will be any different than their performance in the United States. In other words, Environment Canada is not aware of marked differences between the vehicle fleets of U.S. and Canadian intermediate-volume companies that would justify Canada-unique flexibilities.

Environment Canada is establishing in the amended Regulations Canada-unique enhanced flexibility for electric vehicles (section 10.2.8 below) in response to other comments received. That additional flexibility may be advantageous to some intermediatevolume companies. For example, intermediate-volume companies that plan to introduce all electric and plug-in hybrid electric vehicles will benefit from the additional flexibility provided to those vehicles.

10.2.6. Four-wheel drive and all-wheel drive vehicles

One manufacturers and importers association commented in its submission that the proposed Regulations will force Canadian companies to limit the sale of four-wheel drive and all-wheel drive vehicles given the higher GHG emissions associated with four-wheel drive and all-wheel drive technology. The submission reported that Canadians have a stronger preference for four-wheel drive and all-wheel drive vehicles relative to Americans because of Canada’s winter driving conditions and terrain. The submission also recommended an adjustment factor (undefined) to address this concern.

Another manufacturers and importers association expressed their support for full regulatory alignment with the U.S. regulations.

Response: In alignment with the United States, the amended Regulations establish separate GHG emission standards for passenger automobiles and light trucks. Light trucks are subject to numerically higher emission standards, in recognition of their utility function (see sections 5 and 10.2.2).

Certain vehicle segments, such as some small sport utility vehicles, are classified as light trucks if they are equipped with four-wheel drive or all-wheel drive technology, whereas their two-wheel drive variant are classified as passenger automobiles. The presence, in a company’s fleets, of such four-wheel drive or all-wheel drive vehicles, compared to their two-wheel drive variant, may therefore positively impact the company’s compliance with the amended Regulations. Conversely, other vehicle segments, such as some sedans, remain classified as passenger automobiles regardless of whether they are equipped with four-wheel drive or all-wheel drive technology. The presence, in a company’s fleets, of such four-wheel drive or all-wheel drive vehicles may have a slight adverse impact on the company’s compliance with the amended Regulations, given the small GHG emission increase normally associated with four-wheel drive or all-wheel drive vehicles compared to their two-wheel drive variant.

Notwithstanding the above, the amended Regulations require GHG emission improvements from all vehicle segments, including four-wheel drive and all-wheel drive vehicles. This approach promotes innovation in all vehicle segments and increases the GHG mitigation potential under the amended Regulations. Also, the amended Regulations provide a variety of compliance flexibilities that allow companies to adjust their fleet mix, if needed, to meet their regulatory obligations.

This approach is also consistent with commitments made by Canada and the United States to synchronize and align the Regulations under the Regulatory Cooperation Council.

10.2.7. Applicability to “nearly new” vehicles imported into Canada

One manufacturers and importers association expressed concerns that the proposed Regulations do not include measures to address the potential role of importers of nearly new vehicles for profit. Their submission stated that not including importers of nearly new vehicles in the Canadian Regulations could incite some companies to import nearly new vehicles from the United States to satisfy the demand in Canada. The submission recommended that importers of nearly new vehicles be required to meet the proposed standards in order to avoid compromising Canada’s environmental objectives.

Response: Environment Canada recognizes that the large supply of used vehicles in the United States will continue to provide opportunities for Canadian consumers and vehicle brokers to source vehicles across the border. However, like the current Canadian Regulations for model years 2011–2016, and in alignment with the U.S. GHG standards for model years 2017 and beyond, the amended Regulations do not apply to nearly-new vehicles imported into Canada. It is expected that the influence of the amended Regulations on the importation of nearly new vehicles for sale in Canada will be very limited. From an environmental perspective, any new vehicle that would be sold at the retail level in the United States would be included in the emission standards and compliance programs of the corresponding U.S. national regulatory regime. Accordingly, not including nearly new vehicles in the Canadian Regulations is not expected to compromise the overall environmental objectives of the common North American standards.

10.2.8. Flexibilities for electric vehicles

Under the Canadian Council of Ministers of the Environment (CCME), provincial and territorial governments have indicated their support for exploring ways to increase the deployment of advanced vehicle technologies in the Canadian marketplace. One manufacturers and importers association, some member companies and one provincial government also stated in their submissions that Environment Canada should provide additional incentives to support the introduction of electric vehicles in the context of Canada’s clean electricity production compared to the United States. The submissions reported that electric vehicles operated in Canada may generate only one third of the CO2-equivalent emissions as compared to the United States. The submissions also stated that it is difficult for Canadian companies to develop a business case to support the introduction of electric vehicles given a lack of market incentives and the absence of a regulatory framework.

Response: Environment Canada confirms that Canada’s electricity production has a much smaller carbon-footprint than in the United States. Approximately 23% and 71% of Canada’s and the United States’ electricity, respectively, was generated using fossil fuels. Renewable sources contributed to 62% and 10% of total electricity generated in Canada and in the United States, respectively. (see footnote 55)

In alignment with the United States, the proposed Regulations allowed companies to multiply the number of electric vehicles in their fleet by a prescribed factor, which ranged from 1.3 to 2.0 over the 2017–2021 period. It should be noted that the existing Regulations allow companies to multiply the number of electric vehicles in their fleet by a factor of 1.2, a flexibility that is not offered in the U.S. regulations. Given that Canada’s electricity generation is cleaner than the United States electricity generation, Environment Canada is increasing by 0.5 all the prescribed factors applicable to advanced technology vehicles for model years 2017–2021. Environment Canada is including a factor of 1.5 applicable to electric and fuel cell vehicles of model years 2022–2025 and a factor of 1.3 applicable to plug-in hybrid electric vehicles of model years 2022–2025 (see Table 1).

11. Regulatory cooperation

The Joint Action Plan for the Canada–United States Regulatory Cooperation Council announced that “in addressing climate change, both Canada and the United States have implemented aggressive emissions targets in the transportation sector. Continuing progressive and aligned action to reduce GHGs from vehicles is a priority for both countries. There is an opportunity for regulators to work more closely with the aim of better synchronizing implementation of regulations and leveraging existing expertise.” (see footnote 56)

12. Rationale

The amended Regulations are expected to achieve the Government of Canada’s objective to continue to reduce GHG emissions from light-duty vehicles and build upon the success of the current Regulations, which apply to new light-duty vehicles of model years 2011 to 2016. The amended Regulations align with the national GHG emission standards of the U.S. EPA for model years 2017 to 2025, providing long-term regulatory certainty to the auto industry and common requirements in both jurisdictions to allow companies to take advantage of economies of scale. The implementation of these comprehensive and progressively stringent national GHG emission standards requires significant technological improvements to new light-duty vehicles, which will lead to significant GHG emission reductions and improved fuel efficiency. The present value to vehicle purchasers of benefits from reduced fuel consumption alone is estimated to be $50.1 billion (pre-tax) over the lifetime operation of model year 2017 to 2025 vehicles. Additional benefits include reduced refuelling time and additional driving, valued at $5.7 billion. Overall, a benefit-to-cost ratio of over five to one supports the rationale of the amended Regulations.

It is assumed that manufacturers would meet the amended Regulations by making the necessary modifications to the forecasted fleet. It is not within the capacity of OMEGA to model the full range of compliance flexibility. For instance, manufacturers could also comply by changing the sales mix of their fleets, or adding new advanced technology vehicles to their fleet, such as electric vehicles. This suggests that other lower cost options that have not been modeled may be available to companies. Further, because the full range of credit opportunities available to manufacturers was not modeled, the costs of the amended Regulations may be somewhat overestimated. For example, while trading of credits between fleets of passenger automobiles and light trucks was modeled, cross-manufacturer trading and advanced technology credits were not. The analysis is primarily intended to estimate the industry’s ability to comply with new standards without changing product mix.

The International Council on Clean Transportation (ICCT) has identified Canadian and U.S. regulatory efforts to reduce GHGs from light-duty vehicles as consistent with the broader global trend towards the regulation of fuel economy and GHG emission reductions. Around the globe, major car-manufacturing countries have put in place or are moving to set multi-year fuel economy and GHG standards. In addition to Canada and the United States, the European Union, Japan, China and South Korea are notable examples of countries that have already taken regulatory action in this area. In July 2013, Mexico published final fuel economy/GHG regulations for 2014 to 2016 model year light-duty vehicles that are similar in nature to current Canadian and U.S. regulations. As a result of this trend among key auto-manufacturing countries, the issue will continue to play a role in auto sector competitiveness on a global level.

13. Implementation, enforcement and service standards

Implementation

Environment Canada currently administers a comprehensive program to verify compliance with the On-Road Vehicle and Engine Emission Regulations under CEPA 1999, which establish federal emission standards for smog-forming emissions. The Regulations currently in place for light-duty vehicles of model years 2011–2016 are being implemented and enforced in a similar manner, and the amended Regulations for model years 2017 and beyond follow the same approach. Manufacturers and importers of new light-duty vehicles are responsible for ensuring that their products comply with the amended Regulations and are required to produce and maintain evidence of such conformity. The program includes

Environment Canada plans to coordinate monitoring efforts with the U.S. EPA by continuing to share information to increase program efficiency and effectiveness.

In administering the amended Regulations, Environment Canada will continue to respond to submissions and inquiries from the regulated community in a timely manner, taking into account the complexity and completeness of the request.

Enforcement

Since the amended Regulations are made under CEPA 1999, enforcement officers will, when verifying compliance with the amended Regulations, apply the Compliance and Enforcement Policy implemented under the Act. The Policy sets out the range of possible responses to violations, including warnings, directions, environmental protection compliance orders, ticketing, ministerial orders, injunctions, prosecution, and environmental protection alternative measures (which are an alternative to a court trial after the laying of charges for a CEPA 1999 violation). In addition, the Compliance and Enforcement Policy explains when Environment Canada will resort to civil suits by the Crown for cost recovery.

When, following an inspection or an investigation, an enforcement officer discovers an alleged violation, the officer will choose the appropriate enforcement action based on the following factors:

Environment Canada will monitor the GHG emission performance of light-duty vehicles and their fleets and compliance with the amended Regulations. In the situation where a vehicle is found to exceed the applicable limit prescribed in the amended Regulations, the normal course of events is to perform sufficient engineering assessment to determine if a notice of defect should be issued by the company to the owners of the particular model of vehicle. This may result in a product recall to fix the defect. In the case of the emission credit system, companies have three years to offset a deficit. In the situation where a company would fail to meet this requirement, the issue would be referred to an enforcement division at Environment Canada to consider actions in accordance with the Compliance and Enforcement Policy of CEPA 1999.

Service standards

For the amended Regulations, in its administration of the regulatory program, Environment Canada will provide these services in a timely manner

In addition, the Department would audit evidence of conformity of engines and vehicles and provide to manufacturers an acknowledgement of its receipt and whether it is presented “in a form and manner that is satisfactory” based on a set of criteria established by the Department. The Department intends to amend, if necessary, the existing technical guidance document to describe any modifications to procedures to be followed when submitting required documentation.

14. Performance measurement and evaluation

The Performance Measurement and Evaluation Plan (PMEP) describes the desired outcomes of the amended Regulations and establishes indicators to assess the performance of the amended Regulations in achieving these outcomes. The PMEP package will be composed of three documents

The three documents complement each other and allow the reader to gain a clear understanding of the outcomes of the amended Regulations, the performance indicators, as well as the evaluation process.

The PMEP details the suite of outcomes for each unit as they comply with the amended Regulations. These outcomes include the following:

As a key feature of the amended Regulations, companies will be subject to progressively more stringent standards during the 2017–2025 model year period. Also, the amended Regulations only target new vehicles. Existing vehicles are not subject to the amended Regulations. As a result, the outcomes, such as anticipated reductions in GHG emissions, will take place progressively and accumulate over time as the Canadian vehicle fleet turns over.

Clear, quantitative indicators and targets, where applicable, will be defined for each outcome — immediate, intermediate, and final — and will be tracked on a yearly basis or every five years, depending on the indicator and outcome. In addition, a compilation assessment will be conducted every five years to gauge the performance of every indicator against the identified targets. This regular review process will allow the Department to clearly detail the impact of the amended Regulations on the on-road light-duty vehicle sector as more and more low GHG-emitting vehicles enter the market, and to evaluate the performance of the amended Regulations in reaching the intended targets. These performance indicators will be available in the PMEP table of indicators, and make direct references to the outcomes listed in the logic model.

The formal PMEP related to the amended Regulations will be finalized and made available to interested parties within 12 months following the publication of the final Regulations in the Canada Gazette, Part II, but prior to the due date for compliance obligations associated with model year 2017.

15. Contacts

Mark Cauchi
Director
Transportation Division
Environment Canada
351 Saint-Joseph Boulevard, 13th Floor
Gatineau, Quebec
K1A 0H3
Telephone: 819-994-3706
Fax: 819-953-7815
Email: GHGRegDev_Vehicles@ec.gc.ca

Yves Bourassa
Director
Regulatory Analysis and Valuation Division
Environment Canada
10 Wellington Street, 25th Floor
Gatineau, Quebec
K1A 0H3
Telephone: 819-953-7651
Fax: 819-953-3241
Email: RAVD.DARV@ec.gc.ca