Canada Gazette, Part I, Volume 160, Number 25: Regulations Amending the Vessel Pollution and Dangerous Chemicals Regulations (Part 2, Division 1 — Oil) and the Administrative Monetary Penalties and Notices (CSA 2001) Regulations

June 20, 2026

Statutory authority
Canada Shipping Act, 2001

Sponsoring department
Department of Transport

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues

Due to its high viscosity and density, HFO has the potential to cause persistent, long-term environmental impacts to polar waters, which could impact marine life and communities that rely on marine life for food. The cleanup of any spill in polar waters is complicated by harsh conditions, ice cover, remoteness, and long periods of darkness. These conditions make cleanup of an HFO spill even more difficult, as HFO does not evaporate quickly and is more persistent in the environment.

In recognition of the irreversible environmental damage a single HFO spill could have, the IMO has adopted prohibitions under MARPOL against the use or carriage of HFO^{footnote 1} as fuel in polar waters. The international prohibition has been in place for the Antarctic area since August 1, 2011, and came into force for Arctic waters on July 1, 2024. Canada currently implements the Arctic prohibition through Transport Canada’s (TC’s) Interim Order No. 3 Prohibiting the Carrying of Certain Oils on Board Vessels in Arctic Waters — a temporary measure to mitigate the direct or indirect risk to the environment. Accordingly, domestic regulatory amendments are needed to implement the prohibition.

The proposal would introduce new prohibitions that are not currently captured under the administrative monetary penalty regime, necessitating related amendments to the Administrative Monetary Penalties and Notices (CSA, 2001) Regulations (AMPNR) to designate these new provisions in the VPDCR as violations.

Background

The IMO is the United Nation’s specialized agency setting global standards for the safety and security of international shipping and the prevention of pollution by vessels. MARPOL, a treaty administered by the IMO, is the main international convention focused on preventing marine pollution from ships by operational or accidental causes. The IMO Polar Code is mandatory under MARPOL for ships operating in polar waters and sets out requirements for safety and pollution prevention relevant to navigation in these waters, including design standards for fuel tanks to mitigate pollution risks.

The VPDCR, made under the CSA, 2001, are Canada’s primary domestic regulations for implementing MARPOL requirements. They incorporate these international requirements into Canadian law and establish environmental standards that help prevent discharges of vessel-sourced pollution and regulate air emissions from vessels operating in waters under Canadian jurisdiction, as well as from Canadian-flagged vessels wherever they operate. The VPDCR set out standards that are additional or complementary to those set out to MARPOL and the Polar Code, ensuring Canada meets its international obligations while maintaining a strong domestic framework. The VPDCR are organized into nine divisions addressing oil, noxious liquid substances and dangerous chemicals, marine pollutants, sewage, garbage, air, pollutant substances, anti-fouling systems and greywater.

HFO is a generic term used in the marine industry to describe lower-cost fuels with high viscosity and density that evaporate more slowly than other fuels and are therefore more likely to become trapped in ice. HFOs have a high sulphur content and are often combined with lighter fuels to create blends, such as very low sulphur fuel oils (VLSFOs) which are still considered heavy fuel oils but with a lower sulphur content.

Marine vessels may opt to use different types of fuel to move a vessel (also referred to as fuel for propulsion), depending on their size, vessel design, route, logistics and financial considerations. Marine fuel oils typically include distillate fuels (e.g. marine gas oil or marine diesel oil), liquified natural gas (LNG) or residual fuel (e.g. HFO or Very Low Sulphur Fuel Oil (VLSFO)). Heavy fuel oils are typically less expensive than distillate or LNG and have a higher sulphur content. Large commercial vessels, such as cargo vessels, oil tankers, and bulk carriers,^{footnote 2} predominantly use HFO for long-range voyages and high sea transits.

Many vessels, such as cruise ships, icebreakers, research and fishing vessels, have transitioned to compliant low sulphur fuels, such as distillate fuel and VLSFO, to comply with the IMO’s Global Sulphur Cap, which came into force in January 2020 and limits the sulphur content of marine fuel oils to reduce harmful sulphur oxide emissions from vessels. More stringent sulphur limits apply in designated Emission Control Areas (ECAs), which are sea areas approved by the IMO to restrict air pollutants from vessels. These include the North American ECA, which includes all Canadian ports south of the 60^th parallel.

Vessels operating in ECAs must use compliant low-sulphur fuels while in these areas. As a result of both the Global Sulphur Cap and ECA requirements, vessels often carry multiple fuel types, such as HFO for high sea transits outside ECAs and low sulphur distillates or LNG for operations within ECAs. As a result, fuel changeover operations are a well-established industry operating practice for authorized representatives (owners or operators) to ensure compliance with the international sulphur limit requirements.

Antarctic waters

In 2009, IMO Member States, including Canada, approved amendments to MARPOL Annex I, Regulation 43, prohibiting the use and carriage of HFO as fuel in Antarctic waters. This prohibition took effect on August 1, 2011, and applies to all vessels operating in Antarctic waters to protect these sensitive and vulnerable waters from the threat of an HFO accident or spill. Regulation 43 was amended in 2014 to prohibit HFO being carried as cargo and use in ballast tanks (used to stabilize vessels) in addition to use as fuel in response to the sinking of a large fishing vessel with HFO in its ballast tanks. Member States were able to easily implement the HFO prohibition in Antarctic waters, as the Antarctic is governed by the Antarctic Treaty System, an international agreement that prioritizes environmental protection and prohibits commercial exploitation of Antarctic resources. As such, there is limited commercial shipping activity and no permanent residents in the Antarctic region.

There are few Canadian-flagged vessels that operate in Antarctic waters. Those that do are predominantly cruise, fishing, and research vessels that do not use HFO. There are no Canadian-flagged commercial tankers, cargo or bulk carriers in Antarctic waters. All vessels operating in Antarctic waters have been subject to the HFO prohibition under MARPOL Annex I. The proposed Regulations to prohibit the carriage as cargo, use as ballast, or carriage and use of HFO as fuel would not impose new requirements on these vessels; however, until the HFO prohibition is formally adopted into the proposed Regulations, this international obligation cannot be enforced on Canadian-flagged vessels.

Access to and operations in Antarctic waters by Canadian-flagged vessels are regulated through an existing permitting regime under the Antarctic Environmental Protection Act (AEPA), administered by the Minister of Environment and Climate Change, which has been in place since 2003. The Act requires Canadian-flagged vessels to obtain a permit from Environment and Climate Change Canada (ECCC) before entering or operating in the Antarctic, through which environmental protection and pollution prevention measures are applied. The AEPA does not incorporate MARPOL’s HFO prohibition in Antarctic waters. While the AEPA can restrict certain activities under the permitting regime, it cannot enforce the HFO prohibition until it is integrated into the VPDCR.

Arctic waters

In July 2021, IMO Member States, including Canada, adopted amendments to MARPOL Annex I introducing Regulation 43A, which prohibits the use and carriage of HFO as fuel by vessels operating in Arctic waters. The amendment entered into force internationally on November 1, 2022, with compliance required as of July 1, 2024. Unlike the Antarctic prohibition, the Arctic prohibition permits the carriage of HFO as cargo, recognizing that some Arctic countries rely on HFO for heating purposes. Although Canada does not use HFO for heating purposes, tankers are permitted to transport HFO as cargo. In Canadian Arctic waters, there are 25 Canadian-flagged vessels that could use or carry HFO. Other vessels, including tankers, cruise ships, fishing boats, research vessels, and Canadian government-owned icebreakers are using compliant fuels (e.g. distillate fuel or LNG) and are therefore not impacted by the HFO prohibition.

Regulation 43A includes two internationally agreed, time-limited transitional exceptions that allow certain vessels to delay meeting the HFO prohibition in Arctic waters. These exceptions were adopted by the IMO to balance environmental protection with operational needs in the Arctic, and to help Member States, including those with populations living in the Arctic region, maintain critical shipping operations. Canada has applied both exceptions since July 1, 2024.

Exception — Automatic exception for all vessels with protected fuel tanks (until July 1, 2029)

This exception applies to any vessel operating in any Arctic waters that is equipped with protected fuel tanks,^{footnote 3} such as double-hulled vessels. Their reinforced tank design provides greater protection and lowers spill risk in the event of grounding or collision. These vessels would be required to transition to compliant fuels on July 1, 2029. In Canadian Arctic waters, this exception applies to 18 of the 25 Canadian-flagged vessels and includes nine cargo vessels, eight tankers, and one bulk carrier (see Table 1).

Exception — Temporary waiver only for Canadian marine resupply (cargo) vessels (until July 1, 2026)

The IMO permitted countries with Arctic coastlines, like Canada, to grant temporary waivers to their domestic vessels operating in their own Arctic waters up to July 1, 2029, to minimize disruptions to their Arctic operations. Canada opted to apply a two-year waiver for Canadian-flagged marine resupply (cargo) vessels operating in Canadian Arctic waters. Vessels had to apply to TC to receive this temporary waiver. The purpose of this exception was to mitigate potential cost increases for Arctic communities as industry transitioned to more costly compliant fuels. In Canada, as this waiver expires on July 1, 2026, and vessels must then use compliant fuels, this exception will therefore not affect the proposed Regulations.

Table 1: Arctic waters; application of HFO prohibition by vessel type and key dates

Vessel type	July 1, 2024 Start of HFO prohibition	July 1, 2026 End of temporary waivers	July 1, 2029 End of automatic exception
Marine resupply (cargo) vessels	Subject to prohibition	7 vessels operating under temporary waiver	9 vessels
Tankers	Subject to prohibition	Not applicable	8 vessels (fully compliant)
Bulk carriers	Subject to prohibition	Not applicable	1 vessel
Cruise ships	Fully compliant	Not applicable	Not applicable
Fishing vessels	Fully compliant	Not applicable	Not applicable
Research vessels	Fully compliant	Not applicable	Not applicable
Icebreakers	Fully compliant	Not applicable	Not applicable

Interim orders

Canada has implemented the HFO prohibition and the two transitional exceptions through interim orders, issued under the CSA, 2001. These interim orders function as temporary regulatory instruments that the Minister of Transport may issue to mitigate the direct or indirect risk to the marine environment. They provide Transport Canada with the legal authority to ensure compliance and enforcement with the HFO prohibition and the transitional exceptions. Interim orders apply to Canadian-flagged vessels in Arctic waters and foreign-flagged vessels in Canadian Arctic waters. Under the CSA, 2001, Interim orders can only be in place for up to one year. The first interim order came into effect on July 1, 2024, followed by a second and third interim order. The current Interim Order No. 3 Prohibiting the Carrying of Certain Oils on Board Vessels in Arctic Waters is in force until December 31, 2026. Canada will continue to have an interim order until the proposed Regulations take effect.

Objective

The proposed Regulations seek to integrate Canada’s international commitments under MARPOL and the Polar Code into domestic law. The purpose of these commitments is to prevent pollution of the marine environment by vessels. The proposed Regulations would enable Canada to meet its international commitments and promote environmental stewardship and sustainability through enhanced environmental protection of polar waters. The proposed Regulations would reduce the impact of an oil spill by regulating the use and carriage of the highly viscous and dense HFO.

Description

Antarctic and Arctic waters

Canada is proposing amendments to the VPDCR to align with amendments to MARPOL Annex I. The amendments would implement Regulation 43 (Antarctic waters) and Regulation 43A (Arctic waters), which prohibit the use and carriage of HFO as fuel. The proposed Regulations would apply to Canadian-flagged vessels wherever they operate and to foreign-flagged vessels operating in Canadian Arctic waters.

Arctic waters only

The proposed Regulations include the time-limited exception applicable in Arctic waters, allowing 18 marine resupply vessels, tankers and bulk carriers with protected fuel tanks to continue to use and carry HFO until July 1, 2029. Note that all eight tankers have been operating on fuels that meet the MARPOL requirements.

Operational parameters in Antarctic and Arctic waters

The proposed Regulations would not apply to vessels engaged in saving lives, securing the safety of a vessel, or preventing the immediate loss of a vessel, thereby maintaining operational flexibility in emergency situations. The proposed Regulations would also specify that vessels would not be required to flush tanks or pipelines after discharging HFO, thereby reducing the risk of spills and environmental pollution.

Administrative amendments to the VPDCR

The proposed Regulations include minor administrative amendments to remove outdated transitional provisions in the VPDCR. The VPDCR require all oil tankers under 5000 GT (gross tonnage) to have a double hull containment system. The current text within the VPDCR states that this requirement does not apply before January 1, 2015. Similarly, determining oil tanker age had to be completed before July 6, 1996. Both transitional provisions are now obsolete, since these requirements have been in force since those dates. These changes are not expected to have any impact on stakeholders and can be repealed without affecting compliance or enforcement outcomes.

Addition of administrative monetary penalties

The proposed Regulations would also amend the Administrative Monetary Penalties and Notices (CSA, 2001) Regulations to designate four new provisions as violations for which an administrative monetary penalty (AMP) could be issued. The penalties would range from $1,250 for minor violations to $25,000 for serious violations.

Regulatory development

Consultation

Discussions with industry, Indigenous peoples, provincial and territorial governments and stakeholders began in 2019 to ensure concerns and interests reflected Canada’s position on the HFO prohibition at the IMO, ahead of the international approval.

Industry

In 2023, there were 201 vessels operating in Canadian Arctic waters, including 117 foreign-flagged vessels and 84 Canadian-flagged vessels. Vessel traffic included large commercial vessels, such as cargo ships, bulk carriers and tankers and other vessels, such as cruise ships, fishing boats, smaller pleasure crafts and Canadian government-owned icebreakers. Of the 84 Canadian-flagged vessels, 25 could use or carry for use HFO or VLSFO for propulsion. These include large commercial cargo, tankers and bulk carriers that consume large amounts of HFO, as it is more cost-effective and widely available. Discussions with industry have indicated that all tankers in Canadian Arctic waters use LNG or distillate. The other vessels, including cruise ships and icebreakers, already use distillate for propulsion. Smaller vessels, such as fishing boats and pleasure crafts, also use distillate fuel.

Discussions with the marine industry on the HFO prohibition in the Arctic began in 2019 at the fall National Canadian Marine Advisory Council (CMAC) meeting, as well as the regional CMAC meetings in the Prairie and Northern Region, Ontario, and British Columbia. The CMAC is coordinated and chaired by TC and is attended by the marine industry, provincial and municipal governments, and Indigenous peoples. These meetings were conducted to outline and garner support for Canada’s position at the IMO on the HFO prohibition in the Arctic. The Ministers of Transport and Foreign Affairs announced their support for the HFO prohibition in 2020 and since then, the prohibition has been discussed every year at national and regional CMAC meetings, including the Prairie and Northern Region CMAC in November 2025 and recently at the National CMAC in November 2025. Consultation on the HFO prohibition in the Antarctic has not been discussed, as industry has been aware of this prohibition since 2011.

No concerns were raised at these meetings on the international prohibition, but questions were asked about the schedule of the proposed Regulations and whether Canada would allow waivers to Canadian-flagged vessels while operating in Canadian waters, as permitted by the IMO. As previously indicated, the Minister of Transport rendered the decision to allow temporary waivers to Canadian marine resupply vessels, which permit these vessels to continue to use and carry HFO as fuel in Canadian Arctic waters until July 1, 2026. The waiver decision would not impact the proposed Regulations that would come into force after this date.

Other stakeholders

Discussion with environmental groups on the HFO prohibition in the Arctic began in 2019 through in-person HFO workshops, in-person meetings and online discussions. TC also posted a discussion paper, “Marine Fuel in the Arctic” in 2019, on TC’s Let’s Talk Transportation website for partners and stakeholders to share their concerns and interests. Over 100 responses were received, with the majority of feedback supporting the prohibition, as a means of strengthening environmental protection in the Arctic. Under Regulation 43A of MARPOL, two time-limited exceptions were adopted that delayed full implementation of the HFO prohibition in Arctic waters: Canadian-flagged marine resupply vessels could apply to receive a temporary waiver until July 1, 2026; and vessels equipped with protected fuel tanks are automatically permitted to use and carry HFO until July 2, 2029. Several stakeholders expressed concerns that these exceptions allow some vessels to continue to use HFO in Arctic waters, thus maintaining the risk of an HFO spill. In response, TC had additional consultations to clarify that the IMO exceptions apply only to vessels already designed to minimize spill risk, and that temporary waivers give Arctic nations time to secure alternate compliant fuels. No additional comments were received.

Provincial and territorial governments

TC began engagement with provincial and territorial governments in 2019 on the proposed Regulations and has continued discussions over the intervening years at National and Regional CMAC meetings. During initial discussions, the Government of Nunavut indicated their concerns with the potential economic impacts due to increased costs for marine resupply services in their communities. In response to these concerns, TC adopted the IMO’s exception, which allowed temporary waivers to marine resupply vessels to mitigate any cost increases. The Government of the Northwest Territories (GNWT) confirmed that there are no marine vessels that use HFO and there is less vessel traffic in the Western Arctic; therefore, communities in the Northwest Territories would not be impacted by the proposed Regulations. The GNWT was supportive of the intent of the proposal. No new concerns were raised at the November 2025 National and Regional CMAC meetings and TC will continue to facilitate discussion with provincial and territorial governments.

Other government departments

TC established a working group in 2019 with other federal departments to share information on the IMO HFO prohibition and to receive feedback on Canada’s support for the prohibition and how it links to other Government of Canada priorities. Members of the working group include Health Canada (HC), ECCC, Department of Fisheries and Oceans (DFO), Canadian Coast Guard (CCG), Global Affairs Canada (GAC), Natural Resources (NRCan), Canadian Northern Economic Development Agency (CanNor), Indigenous Services Canada (ISC) and Employment and Social Development Canada (ESDC). All federal departments indicated their support for the HFO prohibition in Canadian Arctic waters.

CCG is the lead federal response agency for Canada’s Oil Spill Preparedness and Response Regime and is responsible for maintaining a preparedness capacity for the response to spills in Canadian Arctic waters. The CCG indicated their support for the proposed Regulations and advised that there would be no impact on their resources or operational needs, as all CCG vessels operating in the Arctic use distillate fuel and would, therefore, not be affected by the HFO prohibition. In addition, the IMO prohibition does not apply to vessels engaged in oil spill preparedness and response, securing the safety of vessels or in search and rescue operations.

The proposed Regulations would be co-signed by the Minister of Transport and the Minister of Natural Resources. The proposed Regulations intersect with the mandate of the Minister of Natural Resources, as they could apply to vessels that are capable of engaging in the drilling for, or the production, conservation or processing of, oil or gas as indicated under subsection 190(2) of the CSA, 2001.

TC worked with ISC to ensure that the proposed Regulations are aligned with the Arctic and Northern Policy Framework, which is a framework based on collaboration with Indigenous peoples, territorial, provincial and federal governments to set a vision and goals for the future of Canada’s Arctic and North to 2030. The vision of the Framework includes a comprehensive strategy aimed at advancing sustainable development, improving the well-being of communities in the North, and fostering environmental stewardship in the Arctic. The goal is to build partnerships with Indigenous peoples, provinces, and territories to support climate change adaptation, economic growth, and the preservation of the environment in the North.

Indigenous peoples

TC conducted targeted engagement with Indigenous peoples and rights-holders starting in 2019. These partners were consulted through in-person HFO workshops, in-person meetings, online discussions and through the Let’s Talk Transportation website. Bilateral engagements with representatives took place, both ad hoc and on the margins of National CMAC meetings. Indigenous representative bodies such as the Assembly of Manitoba Chiefs were also engaged. Three Inuit organizations declared support for the prohibition of HFO in Arctic waters for environmental protection: Nunavut Tunngavik Inc., the Inuit Circumpolar Council and the Inuvialuit Game Council. However, some Indigenous peoples voiced their concerns that the prohibition in the Arctic may result in higher shipping costs that the marine industry may pass onto consumers, which would have a significant impact on their households and communities. To address these concerns, the Minister of Transport issued temporary waivers to Canadian marine resupply vessels until July 1, 2026, providing additional time for industry to source compliant fuels and minimize the risk that higher fuel costs would be passed to consumers. Concerns raised by Indigenous peoples also highlighted that the prohibition could have direct and indirect effects on the health and quality of life of Indigenous peoples living in the Arctic. TC informed Indigenous peoples that the purpose of the HFO prohibition is to eliminate the use of HFO in Arctic waters and require vessels to transition to cleaner fuels, thereby supporting improved environmental conditions and air quality for Arctic communities. Indigenous groups did not raise concerns regarding the time-limited exception for vessels with protected tanks, as this exception does not affect shipping costs.

In the spring and summer of 2024, TC further engaged with Inuit Tapiriit Kanatami, Inuit Circumpolar Council-Canada and Inuit Nunangat, as well as Makivvik Corporation, Nunavut Tunngavik Incorporated, Inuvialuit Regional Corporation, and the Nunatsiavut Government. Consultation opportunities were provided through regularly scheduled biweekly calls. During these engagement sessions, TC provided updates on the domestic implementation of the prohibition on the use and carriage for use as fuel of HFO in Arctic waters, which came into force on July 1, 2024, through the Interim Order No. 3 Prohibiting the Carrying of Certain Oils on Board Vessels in Arctic Waters, which remains valid until December 31, 2026. Indigenous peoples expressed that while the prohibition was welcome, they were concerned about the impacts on Arctic communities through higher costs for food, fuel and other goods because of higher marine shipping costs, as most communities depend on marine shipping for community resupply needs.

Cost-benefit analysis

In summer 2024, TC consulted HC on evaluating human health benefits associated with the proposed Regulations for Canadians living around Arctic waters. Officials from HC indicated that, given the expected emission reductions and the relatively small size of the affected Canadian population and its geographical distribution, health benefits could only be discussed qualitatively, as they could not be quantified in a meaningful way (see Regulatory analysis for detail).

At the same time, TC consulted ECCC to obtain projected fuel prices and fuel consumption (expressed in energy demand) in Canada from their Energy, Emissions and Economy Model for Canada (E3MC).^{footnote 4} The E3MC has two components. The first component is Energy 2020 (E2020), which is an integrated, multi-region, multi-sector North American model that simulates the supply, price, and demand for all fuels. The second component is The Informetrica Model (TIM), which examines consumption, investment, production, and trade decisions in the whole economy. Output from the E3MC provided TC with fuel price projections based on energy consumption and the level of greenhouse gas emissions to assess environmental and economic impacts on affected stakeholders associated with the proposed Regulations.

In fall 2024, TC consulted two affected authorized representatives, who own/operate all affected tankers and a significant portion of affected cargo ships, on their operational plans with respect to fuel usage. Both confirmed that their tankers are operating on fuels that already comply with the proposed Regulations (e.g. liquid natural gas, marine diesel oil, or ultra-low-sulphur diesel). This information has been used to inform the analysis.

These authorized representatives also confirmed that they do not anticipate any additional cost associated with fuel switching, debunkering, or flushing of tanks or pipelines associated with the proposed Regulations, as they would plan in advance for fuel usage for their voyages before entering Arctic waters. These vessels often need to travel through ECAs prior to entering Arctic waters, and as a current practice, authorized representatives of these vessels plan the fuel usage before entering ECAs where they are not allowed to use or carry fuels that do not meet ECA requirements.

Indigenous engagement, consultation and modern treaty obligations

In accordance with the Cabinet Directive on the Federal Approach to Modern Treaty Implementation, an analysis was undertaken to determine whether the proposed Regulations give rise to modern treaty implications. The assessment examined the geographic scope and subject matter of the proposal in relation to modern treaties in effect.

Section 5 of the United Nations Declaration on the Rights of Indigenous Peoples Act (UNDA) requires the Government of Canada to take, in consultation and cooperation with Indigenous peoples, all measures necessary to ensure that existing and new laws of Canada, including regulations, are consistent with the United Nations Declaration on the Rights of Indigenous Peoples.

TC has engaged implicated groups in the development of the proposed Regulations, and an UNDA assessment was completed as part of this project.

TC worked with its Indigenous Relations Office leading up to the IMO decision to implement the HFO prohibition, developing an engagement strategy and engaging extensively with Indigenous and Inuit organizations, including the Nunatsiavut Government, Makivvik Corporation, Inuvialuit Regional Corporation, Nunavut Tunngavik Incorporated, Kativik Regional Government, Kivvalliq Regional Inuit Association, Inuit Tapiriit Kanatami, Inuvialuit Game Council, and Assembly of Manitoba Chiefs. TC continues to consult and engage with Indigenous and Inuit peoples to ensure the effective implementation of the HFO prohibition in Arctic waters. Ongoing collaboration includes engagement with the Inuit Circumpolar Council, the Inuit-Crown Partnership Committee Working Group on International Inuit Issues, and the Inuit Nunangat-Transport Canada Forum.

TC’s Indigenous Relations has recommended that consultation with Indigenous Peoples continues in alignment with the UN Declaration and the Government of Canada’s Inuit Nunangat Policy, which recognizes Inuit Nunangat as a distinct region and requires federal departments to design and deliver policies in partnership with Inuit organizations. Supporting an open and transparent dialogue will support the domestic implementation of this international commitment and provide a mechanism for Inuit Treaty Organizations and Indigenous partners to inform ongoing assessments of consultation obligations, including the determination of whether the duty to consult is triggered.

The proposed Regulations are applicable to modern treaties present in Northern and Arctic Canada. There are specific Treaty provisions requiring Canada to consult before consenting to be bound by an International Agreement (see clause 17.27.3 — Labrador Inuit Comprehensive Land Claims Agreement) and a requirement to consider treaty groups’ advice in making decisions that affect marine areas (see clause 15.4.1 — Nunavut Land Claims Agreement Act (PDF)). The Nunavut Land Claims Agreement states principles that outline Inuit involvement in policy-making aspects of Arctic marine management.

Consultation with Indigenous peoples in the Arctic has indicated that, while there is general support for the environmental benefits that would be realized from prohibiting HFO, northern communities are wary of shouldering the burden of any increases in the cost of shipping, as the cost of living is already a particular concern in the Arctic. To address these concerns, the Minister of Transport rendered his decision to use waivers for Canadian-flagged vessels engaged in marine resupply voyages. This decision was made to allow additional time for industry to source compliant fuels so that the cost of switching from HFO would not be passed to the consumer. It is noted that industry is moving towards using more compliant fuels, as all tankers, cruise ships, and icebreakers in Canadian Arctic waters are using either LNG or distillate for propulsion. Note that there are no Indigenous communities in the Antarctic.

Instrument choice

As Canada is a Member State of the IMO and Party to MARPOL, it would need to implement the international HFO prohibition domestically in order to align with the amendments to MARPOL that took effect in 2011 and to be in a position to accept the amendments to MARPOL that took effect in 2024. Regulations will be used to ensure that the international requirements are followed and enforceable in Canada. The VPDCR are used to prevent and minimize discharges of vessel-sourced pollution and enforce pollution prevention measures. The VPDCR currently incorporate different provisions from MARPOL related to pollution prevention; however, the VPDCR have not been updated since 2012. As such, Division 1 (Oil) of the VPDCR, which prohibits the discharge of oil or an oily mixture into Arctic waters and the Antarctic area, needs to be updated to reflect the international HFO prohibition. Other instruments (e.g. policy guidelines) would not be appropriate or practicable to implement the HFO prohibition domestically on a permanent basis.

AMPs used under the AMPNR continue to be an ideal enforcement instrument to support marine safety and marine environmental protection because of their flexibility with a range of penalty amounts that are easily administered. AMPs are already issued by TC and provide an alternative to the use of warnings and prosecution. The CSA, 2001, requires that any provision of the Act and its regulations that are subject to AMPs in the event of non-compliance be designated as a violation under the AMPNR. As a result, amendments to the AMPNR are needed to ensure that the requirements set out in the proposed Regulations can be enforced through monetary penalties.

Regulatory analysis

The proposed Regulations would prohibit the use and carriage of HFO for use as fuel in the Arctic and Antarctic waters, which would affect authorized representatives of 25 Canadian vessels, as they would need to use fuels with lower sulphur content to operate.

As a result, the proposed Regulations would result in a total cost of $10.4 million (present value in 2023 Canadian dollars, discounted to the base year of 2027 at a 2% discount rate) between 2027 and 2036 on affected authorized representatives associated with fuel consumption, but a total monetized benefit of $4.3 million due to greenhouse gases (GHG) reduction. Therefore, the proposed Regulations would have a net monetized cost of $6.1 million. However, the proposed Regulations would ensure that Canada fulfills its international obligations, and also benefit Canadians living around the Arctic waters, especially Indigenous peoples, by reducing environmental damage, improving air quality, and enhancing human health.

A detailed cost-benefit analysis report is available upon request from the contact listed at the bottom of the RIAS.

Analytical framework

Benefits and costs for the proposed Regulations have been assessed in accordance with the Policy on Cost-Benefit Analysis of the Treasury Board of Canada Secretariat (TBS). The analysis only considers the impacts on Canadian stakeholders. Where possible, impacts are quantified and monetized, with only the direct costs and benefits for stakeholders being considered in the cost-benefit analysis.

Benefits and costs associated with the proposed Regulations are assessed based on comparing the baseline against the regulatory scenarios. The baseline scenario depicts what is likely to happen in the future if the Government of Canada does not implement the proposed Regulations. The regulatory scenario provides information on the intended outcomes because of the proposed Regulations. Further details on these two scenarios are presented below.

The analysis estimated the impact of the proposed Regulations for a 10-year period between 2027 and 2036. Unless otherwise noted, all values are expressed in present values in 2023 Canadian dollars, discounted to the base year of 2027 at a 2% discount rate for the 10-year period. The use of a 2% discount rate is to be consistent with that used to develop the social cost of greenhouse gas emissions in Canada, and this discount rate is applied to evaluating costs associated with the proposed Regulations as per TBS’s Canada’s Cost-Benefit Analysis Guide for Regulatory Proposals (the CBA Guide).^{footnote 5}

Please note that (1) numbers presented across the analysis (including those in tables) may not add up to totals due to rounding; (2) the formula used to calculate annualized values under the Cost-benefit statement follows the methodology prescribed in TBS’s CBA Guide where impacts occurred in the first analytical period are undiscounted; and (3) although IMO 2020 regulations limit sulphur content in bunker fuels to a maximum of 0.5%, a limit that applies to certain VLSFO variants, the assumption in this analysis is that marine diesel oil (MDO) contains approximately 0.1% sulphur, which is lower than the typical sulphur content of VLSFO.

Stakeholder profile

Authorized representatives

Based on TC’s internal database, four authorized representatives (all are large-sized businesses) operating 25 Canadian vessels travelled in the Canadian Arctic waters in 2023. These vessels have historically operated regularly in Canadian Arctic waters and represent most Canadian vessels in this region. For the analysis, it is assumed that these 25 vessels, and no other Canadian vessels, would continue to operate in this area during the analytical timeframe.

Among these vessels, eight are tankers, 16 are cargo vessels, and one is a bulk carrier. Specifically, 13 vessels (two tankers and 11 cargo ships) have a volume between 5 000 and 9 999 gross tonnage (GT), and 12 vessels (six tankers, five cargo ships and one bulk carrier) have a volume between 10 000 and 24 999 GT.

It is worth noting that neither foreign-flagged vessels travelling in Canadian Arctic waters nor Canadian-flagged vessels travelling in Antarctic waters would be affected by the proposed Regulations. As previously explained (see “Background” section for details), authorized representatives of these vessels have already complied with fuel requirements prescribed in the MARPOL and are expected to continue to comply with the international prohibition even in the absence of the proposed Regulations.

Northern and Indigenous communities

The proposed Regulations would impact Canadians living around Arctic waters. Based on a non-published report titled Assessment of the Benefits and Impacts Associated with a Ban on the Use and Carriage of Heavy Fuel Oil as Fuel by Ships Operating in the Canadian Arctic, prepared for TC in 2019, the proposed Regulations would particularly affect northern and Indigenous communities^{footnote 6} located in various provinces and territories (see Table 2), which include approximately 16 186 households^{footnote 7} (12 895 would be Indigenous households).^{footnote 8}

Table 2: Impacted northern and Indigenous communities

Community name	Province/Territory	Average household income (undiscounted, 2023 Can$) table a2 note a
Qikiqtani (Qikiqtaaluk)	Nunavut	$163,292
Kitikmeot	Nunavut	$140,473
Kivalliq	Nunavut	$150,678
Nunavik	Quebec	$116,162
Eeyou Istchee	Quebec	$118,800
Labrador — Nunatsiavut	Newfoundland and Labrador	$103,434
Churchill	Manitoba	$101,828
Average household income of impacted communities		$127,810
Table a2 note(s) Table a2 note a Values presented in Table 2 were originally provided in 2020 Can$ and adjusted to 2023 Can$ for the purpose of this analysis. Return to table a2 note a referrer

Baseline and regulatory scenarios

Under the baseline scenario, authorized representatives of 25 affected Canadian vessels would be allowed to use HFO, commonly the very low sulphur fuel oil (VLSFO),^{footnote 9} to operate in Canadian Arctic waters without complying with the MARPOL requirements for using or carrying HFO as fuel onboard vessels. However, based on stakeholder consultation, all eight tankers have been operating on fuels that meet the MARPOL requirements.

Of those 25 vessels, 18 vessels are exempted from the MARPOL requirements until July 1, 2029. Of the 18 exempt vessels, three are cargo vessels with MTRB-approved protected tanks, and the remaining 15 of the 18 vessels (eight tankers, six cargo vessels and one bulk carrier) also qualify for the 2029 exemption, as they have MARPOL-approved protected fuel tanks. Therefore, it is expected that affected Canadian vessels would continue using VLSFO when operating in Canadian Arctic waters, except for the eight tankers that are already operating in this region using fuels that meet the MARPOL requirement (see “Regulatory development” section for details).

Under the regulatory scenario, these authorized representatives would need to comply with the proposed Regulations, which would align with the MARPOL requirements, when operating in Canadian Arctic waters, most likely by using marine diesel oil. However, the above-mentioned exceptions and waivers would remain valid until they are expired. Authorized representatives of eight tankers would continue their existing operational plan with fuels that already meet the MARPOL requirements.

Additionally, the AMPNR would be amended to designate four new violations subject to AMPs, ranging between $1,250 and $25,000, to strengthen TC’s enforcement tools associated with the proposed Regulations.

Data and methodology

Data

Key data used in the analysis are projections of fuel prices and consumption, and the emission factors for various greenhouses (GHGs).

The fuel price projections were based on ECCC’s E3MC.^{footnote 10} The E3MC projected fuel price based on energy consumption (in $/gigajoule (GJ), excluding taxes) for HFO and MDO used in the marine sector in all Canadian provinces and territories. The analysis selected the price projections for the province of Quebec, as it is most likely where authorized representatives of affected vessels fill up their vessel fuel tanks before travelling in Canadian Arctic waters. As the E3MC does not project prices for VLSFO, they were forecasted based on E3MC’s price projections for HFO and MDO and historical data from Bunker Index (see below for details).

In addition, the analysis used the emission factors from the E3MC to estimate the levels of GHGs, presented in Table 3 below. Note that the GHG emission factors associated with HFO are used as proxies for those associated with VLSFO; as a result, the GHG emission reduction for pollutants presented in Table 3 as well as for SOx that is discussed further below could be overestimated.

Table 3: GHG emission factors, by type of fuel

Type of fuel	Emissions factor	Tonnes/GJ
HFO	Carbon dioxide (CO2)	0.074258824
	Methane (CH4)	0.00000672
	Nitrous oxide (N2O)	0.00000192
MDO	Carbon dioxide (CO2)	0.069895698
	Methane (CH4)	0.000006569
	Nitrous oxide (N2O)	0.000001877

The fuel consumption projections were based on the 2020–2023 annual average fuel consumption (in cubic metre [m³], by vessel type and GT range)^{footnote 11} travelling in Canadian Arctic waters recorded by the Protection of the Arctic Marine Environment (PAME), which uses data from the Arctic Ship Traffic Database (ASTD).^{footnote 12} The ASTD uses Automatic Identification System (AIS)^{footnote 13} to track shipping activities from all vessels in Canadian Arctic waters. While this data did not specify the types of fuel, it is expected that these vessels travelling in this region operated on the VLSFO as a result of the Global Sulphur Cap.

Methodology

Projections of fuel prices ($/GJ)

The E3MC’s projected HFO and MDO prices were used to forecast the prices for VLSFO. Historical daily fuel prices between 2020 and 2022^{footnote 14} demonstrated that, on average, the price of VLSFO was 17% higher than that of HFO, but 13% lower than that of MDO. Therefore, the lower bound and the upper bound of projected prices for VLSFO are estimated to be 117% of projected prices for HFO and 87% of projected prices for MDO, respectively, and the mid-point value (see Table 4) was used in the analysis.

The E3MC projected prices for HFO and MDO based on the current Canadian projections of demand and prices for crude oil from the Canada Energy Regulator,^{footnote 15} not the domestic demand for these fuels or the global fuel prices. Canada is a price taker in the global fuel markets given its insignificant share of global fuel consumption. In addition, changes in demand for HFO/MDO in Canada from affected vessels (see Table 5) would unlikely affect Canada’s demand for crude oil. Given that projected fuel consumption from affected vessels would be insignificant compared to that in Canada, Canadian refineries may respond to these changes by adjusting their production portfolio or increasing the import/export of fuel products; however, associated impacts on Canadian refineries’ productions (including associated impacts on GHG emissions) are expected to be negligible. Therefore, it is not expected that the proposed Regulations would influence the projected fuel prices in Canada.

Table 4: Projected annual prices for VLSFO and MDO (undiscounted, 2023 Can$/GJ)

Year	VLSFO ($/GJ)	MDO ($/GJ)	Price percentage differential
2027	25.45	29.12	14.4%
2028	24.99	28.64	14.6%
2029	24.83	28.48	14.7%
2030	24.61	28.26	14.8%
2031	24.60	28.25	14.8%
2032	24.63	28.28	14.8%
2033	24.65	28.30	14.8%
2034	24.66	28.31	14.8%
2035	24.75	28.41	14.8%
2036	24.79	28.45	14.8%

Projections of fuel consumption (expressed as energy consumption)

The projections of annual fuel consumption (expressed as energy consumption in GJ) of VLSFO for each affected vessel (excluding tankers)^{footnote 16} were derived by multiplying the historical average annual fuel consumption recorded in PAME, the conversion factor between m³ and GJ (using the conversion factor for HFO as a proxy^{footnote 17} and the expected increase in energy demand in the marine sectors in Nunavut [NU] (0.5% annual increase projected by the E3MC). The projected increases in marine energy demand in NU were used as a proxy for economic growth in the Canadian Arctic region, as vessel movement associated with community resupply and mining activities is largely influenced by the economic growth in this region.

It is important to note that, in this analysis, the proposed Regulations would not affect the travel distances (i.e. trip length or number of trips) and, therefore, the level of energy consumption for affected vessels would not be affected. To travel a specific distance, a vessel would need to consume a certain amount of energy, and this energy consumption is largely influenced by factors such as vessel size and weather conditions. Travel distances from affected vessels are business decisions determined by the demand for their services, which is largely driven by economic growth from Arctic communities. Since the proposed Regulations would neither affect factors determining the energy consumption nor the demand for services from affected vessels, their travel distances, and therefore energy consumption, would remain unchanged under both baseline and regulatory scenarios (see Table 5 for details).^{footnote 18} However, as presented in Table 4, it would be more costly to operate vessels using MDO than using HFO for the same level of energy consumption (see the “Costs” section for details); therefore, given that the energy density of MDO is lower than that of HFO, affected vessels would need to consume more MDO in volume than HFO to maintain the same energy consumption.

Table 5: Projected annual fuel consumption (expressed in energy consumption in terajoule (TJ) from affected vessels (excluding tankers)

Year	Fuel consumption (TJ)
2027	353.8
2028	355.5
2029	357.3
2030	359.1
2031	360.9
2032	362.7
2033	364.5
2034	366.3
2035	368.2
2036	370.0
Total	3 618.3

GHG emissions

The annual levels of GHG emissions released by affected vessels (excluding tankers) were calculated by multiplying the emission factor and projected annual fuel consumption presented in Tables 3 and 5, respectively.

Costs

As previously discussed, authorized representatives of 17 vessels would incur additional fuel costs, as they would need to operate these vessels on MDO; authorized representatives of seven cargo vessels would incur such costs with the coming-into-force date of the proposed Regulations, and authorized representatives of 10 vessels (nine are cargo vessels and one bulk carrier) would incur such costs as of July 1, 2029.^{footnote 19} Using the projected fuel prices presented in Table 4 and projected fuel consumption in Table 5, it is estimated that the total fuel cost would be $80.6 million under the baseline scenario, and $90.9 million under the regulatory scenario. Therefore, the incremental fuel cost is $10.4 million in total, of which $9.1 million would be attributed to the authorized representatives of cargo vessels, and $1.3 million to the authorized representatives of the bulk carrier. It is not anticipated that the Government of Canada would incur costs associated with the proposed Regulations. TC’s MSIs have enforcement tools to ensure compliance with international requirements (e.g. MARPOL and the Global Sulphur Cap), which are part of standard and ongoing operating practices (see the “Implementation, compliance and enforcement, and service standards” section for details).

Benefits

The proposed Regulations would result in a total benefit of $4.3 million associated with GHG reduction. In addition, Canadians living around the Canadian Arctic waters would benefit from reduced environmental damages in the event of an HFO spill and enhanced human health from improved air quality.

An additional benefit of the proposed Regulations would be the alignment of Canada’s domestic regulations with international requirements and fulfillment of Canada’s international obligations. This would help maintain Canada’s reputation with the IMO, of which Canada is a signatory to the MARPOL.

GHG emission reduction

Using the emission factors presented in Table 3 and the projected fuel consumption in Table 5, it is estimated that 268.7 kilotonnes (kt) of GHGs would be emitted under the baseline scenario, and 254.8 kt of GHGs would be emitted under the regulatory scenario. Therefore, the proposed Regulations would reduce a total of 13.9 kt of GHG, of which 13.9 kt would be CO₂, 0.0005 kt would be CH₄ and 0.0001 kt would be N₂O.

Using the social cost of greenhouse gases in Canada, it is estimated that the proposed Regulations would result in a total benefit of $4.3 million associated with GHG reduction.

Human health benefits

The sulphur content of marine fuels has a direct influence on the amount of sulphur emissions released during its combustion. Higher sulphur fuels have also been linked with higher emissions of particulate matter, including metals. A Canadian study^{footnote 20} has shown that the adoption of lower-sulphur fuels as part of the implementation of the North American Emission Control Area (PDF) improved air quality at Canadian port cities.

Marine vessel emissions of sulphur oxides (SOx, primarily sulphur dioxide [SO₂]) can have direct effects on air quality and human health, especially for those with pre-existing respiratory diseases (e.g. asthma). SO₂ is also transformed in the atmosphere into sulphate, which, like black carbon, is an important component of ambient fine particulate matter (PM_2.5). Exposure to ambient PM_2.5 causes multiple adverse human health effects that are well recognized internationally. Health Canada has concluded that exposure to PM_2.5 increases the risk of cardiorespiratory mortality, asthma exacerbation and adverse cardiovascular outcomes,^{footnote 21} and there is evidence it may be associated with other adverse health outcomes, such as diabetes and preterm birth. Importantly, the evidence indicates that there is no exposure threshold: that is, any incremental reduction in exposure is associated with a reduction in risk. About 12 500 deaths a year in Canada are attributable to exposure to ambient PM_2.5.^{footnote 22}

Using the emission factor for SOx generated by VLSFO or MDO consumption, the proposed Regulations are estimated to reduce a total of 716.1 tonnes of SOx emissions from vessel exhaust. The reduction in SOx may also lower the level of emissions of other pollutants such as black carbon and particulate matters in the Canadian Arctic region, as SOx is a primary precursor for their formation; however, the reduction of these secondary pollutants cannot be quantified, as their relationship with SOx is not always straightforward, and other factors (e.g. nitrogen oxide [NOx], meteorological conditions) also play a significant role in their formation. Nevertheless, reduced air pollution emissions from vessels in this area could potentially reduce ambient SO₂ and PM_2.5 concentrations and improve air quality. Consequently, the proposed Regulations could reduce the associated health risks to Canadians living in this area with improved air quality. The magnitude of changes in overall air pollutants and air pollution-related health impacts in Canada associated with the proposed Regulations cannot be quantified at this time.

The quantification of air pollution health benefits relies on a health impact function that accounts for changes in air pollution exposures, the risks of adverse effects from exposure to a pollutant, population counts, as well as population health. The use of lower sulphur content fuels in vessels operating in the Canadian Arctic waters is expected to have a positive impact on air quality along shipping routes and in areas affected by emissions from vessels. However, owing to the relatively small number of vessels affected by the proposed Regulations (17 vessels that would need to switch fuels), the quantity of fuel consumed and the location of shipping routes away from communities, the changes in air pollution exposures are expected to be small. Combined with the low population density in the Canadian Arctic region, the air pollution health benefits are also expected to be small.

More importantly, it is uncertain whether air quality modelling would predict meaningful changes in ambient concentrations. That is, the changes in ambient concentrations in the Canadian Arctic region associated with the proposed Regulations could be within the modelling uncertainty (i.e. less than 0.01 microgram/m³ for PM_2.5 and less than 0.01 part per billion for nitrogen dioxide and ground-level ozone). Ultimately, this would not allow any health impacts modelling. Lastly, owing to the unique environmental and demographic (e.g. low population density) conditions in the Arctic, as well as the small number of affected vessels, it would not be appropriate to extrapolate findings from air quality and health simulations conducted in higher population density regions of Canada, such as large urban centres, as part of other marine-related policies. Any type of quantification of health impacts requires the use of regional and population specific air pollution exposures and health data.

Notwithstanding these modelling limitations, the current health evidence does not identify a threshold for effect for many air pollutants. Consequently, any reduction in ambient air pollution exposure is expected to reduce risks of adverse health effects and have a beneficial impact on population health.

Benefits associated with the environment and spill cleanup

As previously discussed, if released into the water, HFO would cause significant damage to the environment and the marine ecosystem. For Indigenous peoples living around Canadian Arctic waters, these damages would threaten their traditional activities.

Compared with HFO, distillate fuels with lower viscosity and sulphur content (e.g. MDO) are more biodegradable. Therefore, all other factors being equal (e.g. weather condition, spill response time, etc.), spills from distillate fuels in Arctic waters would cause less damage, as they allow the environment to recover faster. A study^{footnote 23} commissioned by the Arctic Council in 2011 highlighted that nearly all of HFO remained on the water surface 20 days after the release, while distillate oils (e.g. diesel oil) fully dissipated from the surface three days after the release. When spilled in water, distillate fuels do not emulsify; in contrast, HFO would emulsify to the maximum water content, resulting in a significant increase in the spill volume. Given that natural conditions in the Arctic waters are challenging to allow for oil spill responses, the proposed Regulations would reduce the impact of an oil spill in Arctic waters, as well as time and resources required from parties (e.g. response organizations) involved in oil response.

Historical data indicated that no HFO spills have occurred in Canadian Arctic waters to date, whether HFO was used and carried as fuel by vessels or carried as cargo by vessels. While the proposed Regulations would not affect the probability of an oil spill, it is expected that the likelihood of an HFO spill in Canadian Arctic waters would be low. The 2018 Assessment of Oil Spill Risks in Arctic Waters report^{footnote 24} concluded that the probability of a pollutant release in Canadian Arctic waters from a vessel powered by HFO in any given year is expected to be less than 0.33%.^{footnote 25} A pollutant release is considered as discharge of harmful substances, such as oils (including lubricants, and any type of oils carried as cargo) or chemicals, and is much broader than an HFO spill from fuel storage tanks (bunkers) as covered by this proposal.

Although an HFO spill in Canadian Arctic waters is unprecedented, it is anticipated that the proposed Regulations would reduce oil spill cleanup costs in case an HFO oil spill occurs. A review of the economic literature on oil spills outside polar waters concluded that the average cleanup cost for spills involving HFO (or its variants) is significantly higher than that for distillate fuels: the cleanup cost of a VLSFO spill typically ranges from $28.89 to $39.27 per litre,^{footnote 26} and that of a diesel oil spill is approximately $5.20 per litre (in 2023 Can$).^{footnote 27} Cleanup costs for spills in Arctic waters are expected to be higher given the challenging conditions and response time. If 50% of fuel for vessel operation were spilled in Arctic waters from affected vessels, equivalent to 265 tonnes for cargo and 534 tonnes for bulk carrier vessels, the minimum cleanup cost savings would be between $6.9 million to $9.9 million should the spill involve a cargo vessel, and between $13.9 million and $20 million should the spill involve a bulk carrier.

Furthermore, the proposed Regulations would result in broader environmental and socio-economic benefits for communities in the Canadian Arctic region. Based on Etkin (2004),^{footnote 28} the unit environmental and socio-economic cost of a VLSFO oil spill is estimated to be $92.92 per litre, and that for a distillate oil spill is $53.82 per litre (undiscounted, 2023 Can$). For the above-mentioned size of oil spill, the proposed Regulations would result in the environmental and socio-economic cost savings of $11.5 million involving a cargo vessel and $23.1 million involving a bulk carrier. As such, the total environmental, socio-economic impact and cleanup savings in the event of an incident are estimated to be ranging from $18.4 million to $21.4 million for cargo and $37.0 million to $43.1 million for bulk carriers. Considering the undiscounted net cost of $7.0 million period, the potential savings in the event of a single incident could surpass the overall cost, demonstrating that a single avoided incident could offset the entire outlay and result in lasting environmental and economic gains.

In addition to the analysis presented above, in the event of an oil or pollutant spill in Canadian waters, Canada, as a Member State of various international conventions developed by the IMO, enforces strict liability and insurance requirements for authorized representatives (vessel owners or operators). These conventions^{footnote 29} uphold the polluter-pays principle, holding the authorized representative liable for any damage caused, regardless of negligence or fault. Authorized representatives must maintain insurance to cover potential damages, and vessels are required to carry a certificate of insurance issued by an IMO Member State to demonstrate coverage. This applies to both Canadian-flagged and foreign-flagged vessels operating in Canadian waters, with the required insurance amount determined by the vessel’s gross tonnage and the type of cargo it carries.^{footnote 29}

Protection and indemnity (P&I) clubs are not-for-profit associations formed by authorized representatives who pool their resources to act as vessel insurers. Around 90% of the world’s oceangoing cargo and tanker vessels are covered by these clubs. Unlike typical private insurance equities, where an individual’s premiums may increase following an accident, P&I clubs ensure that premiums for individual members involved in an accident are not differentially impacted. Instead, all club members collectively contribute to cover the claims, reflecting the mutual support and shared responsibility inherent in these associations.

The ship liability regime in Canada is governed by the Marine Liability Act. Authorized representatives are responsible for costs up to the liability limit, which varies based on the vessel’s type and gross tonnage. In the event of a spill, if the costs are below the liability limit, the authorized representative covers the expenses paid to the CCG, which handles all Arctic cleanup operations. These costs are typically covered through the authorized representative’s affiliation with a P&I club. For costs under $10 million (US$), the directly affiliated chapter of the P&I club covers the expenses. For costs exceeding this amount but still within the liability limit, the remaining expenses are shared among all global P&I clubs.

Beyond the authorized representative and their insurance, Canada offers additional compensation for ship-source oil spills through the Ship-source Oil Pollution Fund, now known as the Ship and Rail Compensation Canada — Ship Fund. This fund, financed by the oil industry, provides compensation for any type of oil spill from any vessel, with no limit on the amount available for eligible claims. If cleanup costs exceed the liability limit, the Ship Fund can be utilized to cover the additional expenses.

Benefits associated with the AMPs

The proposed Regulations would introduce four new AMP provisions, intended to serve as a deterrent against non-compliance. The proposed Regulations would strengthen enforcement by ensuring that penalties are commensurate with the gravity and consequences of non-compliance.

The introduction of the AMPs enables TC to send a clear message regarding its commitment to support safe navigation and marine transportation, protect the marine environment, and meet international maritime obligations.

Cost-benefit statement^{footnote 30}

• Number of years: 10 (2027–2036)
• Price Year: 2023
• Present value base year: 2027
• Discount rate: 2%

Table 6: Summary of monetized costs (present value in millions)

Impacted stakeholder	Description of cost	2027	2029	2036	Total (present value)	Annualized value
Authorized representatives	Additional fuel cost	$0.5	$1.2	$1.1	$10.4	$1.1
	Cargo vessels	$0.5	$1.1	$1.0	$9.1	$1.0
	Bulk carriers	$0	$0.2	$0.2	$1.3	$0.1
Total cost		$0.5	$1.2	$1.1	$10.4	$1.1

Table 7: Summary of monetized benefits (present value in millions)

Impacted stakeholder	Description of benefits	2027	2029	2036	Total (present value)	Annualized value
Canadians	GHG reduction	$0.2	$0.5	$0.5	$4.3	$0.5
Total benefits		$0.2	$0.5	$0.5	$4.3	$0.5

Table 8: Summary of monetized costs and benefits (present value in millions)

Impact	2027	2029	2036	Total (present value)	Annualized value
Total cost	$0.5	$1.2	$1.1	$10.4	$1.1
Total benefit	$0.2	$0.5	$0.5	$4.3	$0.5
Net cost	$0.3	$0.7	$0.6	$6.1	$0.6

Qualitative impacts

Positive impacts

• Improved air quality and enhanced human health for Canadians living around the Arctic waters.
• Reduced environmental damage, as well as cleanup time and resources associated with HFO spills.
• Improved clarity and compliance by removing outdated provisions.
• The AMPs provision would promote regulatory conformity and serve as a deterrent to non-compliance.

Distributional analysis

While the above cost-benefit analysis focused on assessing direct impacts on affected stakeholders, this section discusses indirect impacts on northern and Indigenous communities, as well as the mining sector, as they would eventually bear additional costs incurred to affected authorized representatives.

Indirect impacts on northern and Indigenous communities

TC anticipates that the 16 affected cargo vessels that operate in the Canadian Arctic waters are for the purpose of community resupply. Canadians living around this region rely heavily on these vessels to receive essential goods. Based on the 2019 report prepared for TC, fuel costs accounted for 13% to 22% of the sealift cost, depending on whether these vessels operated on HFO or fuels with lower sulphur content. Therefore, it is reasonable to assume that authorized representatives of the 16 cargo vessels would pass additional costs to end consumers, primarily to Indigenous communities.

As previously discussed, there are about 16 186 northern and Indigenous households. If the total incremental cost of $9.1 million to be incurred by authorized representatives of cargo vessels were fully passed onto these households, then, on average, the expenditure per household over the analytical time frame would increase by $559.6 in total (or an annualized increase of $61.1). This increase in expenditure corresponds to approximately 0.05% of annual household income (see Table 2).

Indirect impact on the northern mining sector

In the 2019 report prepared for TC, it was identified that seven mines around the Canadian Arctic waters would be affected by the proposed Regulations, as bulk carriers played a major role in shipping their mining products. As previously discussed, the authorized representative of the affected bulk carriers would incur an annualized cost of $0.1 million, which is translated into an average annualized cost of $20,236 on each mine if such cost is fully absorbed by these mines. Based on publicly available information, the gross estimated annual revenue of these mines ranges between $263 million to $1.4 billion dollars per individual mine, depending on their operational capacity. While there is no public information on these specific mines’ annual profits, based on Statistics Canada’s mining principal statistics,^{footnote 31} it is estimated that the annual profit for these mines would range between $99.7 million and $478.9 million per individual mine.^{footnote 32} Therefore, the impact on the Northern mining sector associated with the proposed Regulations would be minimal.

Sensitivity analysis

VLSFO price

The analysis above uses the mid-point value of the estimated upper-bound and lower-bound projected prices for VLSFO. In this section, it is further examined how the estimated total cost and the net cost would be affected if the upper bound and lower bound VLSFO prices were used. The results are presented in Table 9 below.

Table 9: Total cost and net cost by VLSFO price (present value in millions)

Impact	Lower bound	Central scenario	Upper bound
Total cost	$10.1	$10.4	$10.6
Net cost	$5.9	$6.1	$6.3

Analytical time frame

A 10-year analytical time frame (from 2027 to 2036) was used for the central analysis. For the sensitivity analysis, Table 10 presents total cost, total benefits and the net cost for a 15- and a 20-year time frame (2027 to 2041 and 2027 to 2046).

Table 10: Total cost and net cost using different analytical time frames (present value in millions)

Impact	10 years (Central scenario)	15 years	20 years
Total benefit	$4.3	$6.7	$9.1
Total cost	$10.4	$15.7	$20.6
Net cost	$6.1	$9.0	$11.5

Discount rate

The central analysis applied a 2% discount rate, consistent with the rate used in the social cost of greenhouse gas emissions in Canada. Table 11 presents both the undiscounted results and the outcomes using alternative discount rates of 3% and 7%. In all cases, the social cost of carbon itself continues to be discounted to the year of emissions using the 2% rate.

Table 11: Discount rates (millions of dollars)

Impacted	0%	2% (Central scenario)	3%	7%
Total benefit	$4.7	$4.3	$4.1	$3.4
Total cost	$11.7	$10.4	$9.8	$7.9
Net cost	$7.0	$6.1	$5.7	$4.5

Small business lens

Analysis under the small business lens concluded that the proposed Regulations would not impact Canadian small businesses. All businesses subject to the compliance requirements exceed the thresholds for the definition of “small business” in the Policy on Limiting Regulatory Burden on Business.

One-for-one rule

The one-for-one rule does not apply, as there would be no incremental change in the administrative burden on business and no regulatory titles are repealed or introduced.

The proposed Regulations would not impose any new reporting requirements in Canadian polar waters for Canadian or foreign-flagged vessels. Vessels would continue to be required to report through the vessel traffic services zones, as identified in the Vessel Traffic Services Zones Regulations.

Regulatory cooperation and alignment

To enhance protections for the polar marine environment, the IMO adopted a prohibition on the use and carriage for use as fuel of HFO to mitigate the risk to polar waters from spills of HFOs. The prohibition came into force in all international Arctic waters on July 1, 2024, and all international Antarctic waters on August 1, 2011, as codified in Annex 1 of MARPOL, which covers the prevention of pollution by oil from operational measures as well as from accidental discharge. As MARPOL is a legally binding international treaty, and Canada is a signatory to MARPOL, Canada has an obligation to implement these standards within its Arctic and Antarctic waters.

Consequently, the proposal supports international regulatory cooperation by implementing these requirements. By incorporating these internationally agreed requirements into its domestic regulations, Canada would be aligning its regulatory framework with MARPOL, developed through consensus among IMO Member States. While the timing and manner of domestic implementation of IMO instruments are determined independently by each Member State in accordance with its legal and regulatory processes, Canada’s domestic incorporation of the prohibition reinforces its commitment to international marine environmental protection, supports effective enforcement within its jurisdiction, and ensures that Canadian requirements are consistent with the expectations established under international maritime law.

International obligations

The proposed Regulations would enable Canada to align with the Polar Code and meet its international obligation under the amendments to MARPOL that took effect in 2011 and to proceed to accept the amendments that took effect in 2024. This approach is consistent with Canada’s broader objective of advancing international regulatory cooperation through the domestic implementation of internationally agreed standards, while respecting the sovereignty of States in determining whether to accept amendments to MARPOL. It is not anticipated that there are any linkages to obligations under the World Trade Organization.

Effects on the environment

In accordance with the Cabinet Directive on Strategic Environmental and Economic Assessment, a preliminary scan concluded that a strategic environmental assessment was not required.

This assessment included consideration of the environmental, social, and economic implications of the international HFO prohibition in Arctic waters and outlined the benefits and impacts associated with the implementation of the HFO prohibition in Canadian Arctic waters. When spilled, HFO is more persistent in cold water than alternative fuels, leading to long-term impacts to marine and coastal ecosystems and the species that these environments support. As a result, the assessment concluded that prohibiting HFO in polar waters would have positive environmental benefits by reducing the impact of an oil spill on water quality and wildlife. However, the prohibition could also result in potential economic impacts for northern and Indigenous communities.

Gender-based analysis plus

The proposed Regulations would have a differential impact on northern and Indigenous peoples. The majority of the population of the Canadian Arctic identifies as Indigenous, Inuit, Innu and Cree. Many communities in the Canadian Arctic, particularly those populated by Indigenous peoples, are remote communities and are only accessible by air or water. These communities can be disproportionately impacted by air pollution from the use of high sulphur fuels like HFO. However, with the HFO prohibition, these air pollution impacts would be reduced, which could lead to positive health effects for the community. Note, the Antarctic was not considered in this analysis, as there are no communities in the Antarctic area.

Women are significantly under-represented in the maritime workforce and industry. Available statistics obtained through demographic surveys indicate that seafarers are predominantly male, with only 3% to 10% of seafarers in companies headquartered in Canada being female and an estimated 2% of the international maritime workforce made up of women. The IMO has recognized that there is a general shortage of skilled labour in the maritime industry and there are challenges attracting and retaining qualified seafarers, especially women. Canada is an active member of the IMO’s Gender Equality Network, which is making an effort to increase the representation of women and other underrepresented groups in the maritime sector by supporting technical training, creating a positive environment for career development opportunities, and establishing a Women in Maritime Association. The proposed Regulations are expected to disproportionately impact more men than women. However, the proposed Regulations are not expected to reinforce or exacerbate any existing disparity in the industry, as the requirements relate to minimizing the impacts of an HFO spill in polar waters. Data on differing demographic health effects for seafarers when exposed to HFO or MDO during refuelling was not available through TC’s research.

Implementation, compliance and enforcement, and service standards

Implementation

The proposed Regulations would come into force on the day on which they are published in the Canada Gazette, Part II. In line with MARPOL, vessels that are exempt from the international prohibition because of their protected fuel tanks would be able to continue to use and carry for use HFO as fuel until July 1, 2029.

Affected stakeholders have been complying with the HFO prohibition, which has been implemented through a series of interim orders. Notifications to stakeholders and TC’s MSIs about the proposed Regulations would be done by issuing a publication email notice through CMAC e-distribution, Ship Safety Bulletins and TC’s regular means of communication to marine stakeholders. TC would also share information with regional offices ahead of the coming into force date to ensure awareness.

The implementation of the proposed Regulations would be supported through work instructions, such as administrative procedures, for flag state inspectors that are found in the Marine Inspector Bookshelf (an electronic repository of reference material) and are communicated through internal notification procedures, such as Flag State Control. Flag State Control is responsible for ensuring Canadian-flagged vessels are inspected in accordance with Canadian regulations.

Compliance and enforcement

In order to obtain clearance into northern and Canadian Arctic waters, all vessels must report to the nearest vessel traffic services zone or the CCG Centre, as outlined in the Vessel Traffic Services Zones Regulations. Vessels would be required to complete a mandatory electronic form, which includes information on the vessel name, flag, current position, intended route, total amount of oil on board used as fuel or carried as cargo, persons and cargo on board and any defects or damages. TC’s MSIs can review the vessel’s most recently issued Bunker Delivery Note (BDN), which represents the fuel oil delivered on board. The MSI can use the vessel’s BDN to confirm the information reported to the nearest vessel traffic zone or CCG Centre for the applicable voyage through Canadian Arctic waters. MSIs can also conduct an in-use sample to determine the fuel oil in use at the time of sampling or an on-board sample to determine the fuel in the fuel oil tank that is intended to be used or carried for use. These samples would only be collected if there was suspected non-compliance. No additional training to MSIs or enforcement officers would be needed, nor additional inspection activities would be required, to obtain these samples, as MSIs or enforcement officers are currently collecting them to ensure compliance with the Global Sulphur Cap.

TC maintains Duty Officers available 24/7, tasked with monitoring Canadian Arctic vessel traffic and conducting compliance activities and taking the necessary steps for non-compliance. Any enforcement of the proposed Regulations would be made in accordance with TC’s policies and standards. TC’s MSI adhere to the principle of graduated escalation of enforcement responses for non-compliance with the CSA, 2001. For the most severe cases, the CSA, 2001 provides for maximum fines upon summary conviction of $1,000,000 or 18 months in prison, or both, for non-compliance with the regulations made under Part 9 of that Act, which would include the proposed Regulations.

Violations under the VPDCR are currently enforced through the Administrative Monetary Penalties and Notices (CSA 2001) Regulations (AMPNR). The proposed Regulations would designate four additional provisions as violations for which AMPs could be issued and would establish a range of penalties for each of them. Violations under the AMPNR for designated provisions under the proposed Regulations would range between $1,250 to $25,000 per violation. Besides AMPs, TC has other tools, such as warnings, prosecutions, or revocations to address non-compliance. In all cases, the enforcement response taken by TC would ensure both compliance and deterrence. Within Canadian waters, the Marine Liability Act (MLA) requires authorized representatives to carry mandatory liability insurance and contribute to Canada’s Ship Fund (formerly Ship-source Oil Pollution Fund), which pays contributions to the International Oil Pollution Compensation Fund (IOPF). These financial requirements function as a compliance and enforcement measure by ensuring that polluters have the resources to cover cleanup and damages from oil spills. If a polluter cannot meet its liability limits, the Ship Fund provides an additional means to compensate affected parties. This framework ensures that spill response costs are recovered even when the polluter is unable or unwilling to pay.

Transport Canada has a comprehensive framework to respond to and manage an oil spill, should one occur. Spills in Arctic waters require the coordination of federal, territorial, northern and Indigenous communities, as well as industry partners. Canada’s ship source oil spill prevention and response regime is built on the polluter pays principle. If there was a ship-source spill of HFO, the polluter would be accountable for the reasonable costs related to preventative measures, cleanup, and pollution damages. Should the polluter be unable to pay, the Ship Fund or IOPF would protect anyone affected from bearing the cost of damages, losses, and response efforts. The CCG is the lead federal agency responsible for overseeing the response to ship-source oil spills in Canadian waters, including the Arctic.

Contact

Elizabeth Werszko
Legislative, Regulatory, Policy and International Affairs - Environment
Marine Safety and Security
Transport Canada
Place de Ville, Tower C
330 Sparks Street
Ottawa, Ontario
K1A 0N5
Email: MSSRegulations-ReglementsSSM@tc.gc.ca

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council proposes to make the annexed Regulations Amending the Vessel Pollution and Dangerous Chemicals Regulations (Part 2, Division 1 — Oil) and the Administrative Monetary Penalties and Notices (CSA 2001) Regulations under paragraph 35(1)(d)^{footnote a}, section 190^{footnote b} and paragraphs 244(f)^{footnote c} and (h)^{footnote d} of the Canada Shipping Act, 2001^{footnote e}.

Interested persons may make representations concerning the proposed Regulations within 60 days after the date of publication of this notice. They are strongly encouraged to use the online commenting feature that is available on the Canada Gazette website but if they use email, mail or any other means, the representations should cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Elizabeth Werszko, Manager, Policy Advisor, Marine Safety and Security, Transport Canada, 330 Sparks Street, Mail Stop AMSR, Tower C, Place de Ville, Ottawa, Ontario K1A 0N5. Email: MSSRegulations-ReglementsSSM@tc.gc.ca

Ottawa, June 12, 2026

Janna Rinaldi
Assistant Clerk of the Privy Council

Regulations Amending the Vessel Pollution and Dangerous Chemicals Regulations (Part 2, Division 1 — Oil) and the Administrative Monetary Penalties and Notices (CSA 2001) Regulations

Amendments

1 (1) Subsection 46(3) of the Vessel Pollution and Dangerous Chemicals Regulations^{footnote 33} is replaced by the following:

Oil tankers of less than 5 000 gross tonnage

(3) The authorized representative of an oil tanker of less than 5 000 gross tonnage must ensure that it has a double hull or a double containment system that the Minister has determined is as effective as a double hull in preventing oil discharges.

(2) Subsections 46(5) and (6) of the Regulations are repealed.

2 The Regulations are amended by adding the following after section 47:

SUBDIVISION 7.1

Use and Carriage of Oil — Arctic Waters and Antarctic Area

Definition of arctic waters

47.1 (1) Despite the definition arctic waters in subsection 1(1), in this section, arctic waters has the same meaning as in regulation 46.2 of Annex I to MARPOL.

Arctic waters

(2) In arctic waters, the following vessels must not use or carry, except as cargo, an oil referred to in regulation 43.1.2 of Annex I to MARPOL:

• (a) Canadian vessels;
• (b) Canadian pleasure craft that are not Canadian vessels;
• (c) foreign vessels, if the arctic waters are waters under Canadian jurisdiction; and
• (d) foreign pleasure craft, if the arctic waters are waters under Canadian jurisdiction.

Non-application

(3) Subsection (2) does not apply in respect of

• (a) a vessel dedicated to oil spill preparedness and response;
• (b) until June 30, 2029, a ship delivered on or after 1 August 2010, as defined in regulation 1.28.9 of Annex I to MARPOL, that has an aggregate oil fuel capacity of 600 m3 or more;
• (c) until June 30, 2029, a Category A vessel or a Category B vessel, as those terms are defined in section 12 of the Arctic Shipping Safety and Pollution Prevention Regulations,
  • (i) that is constructed on or after January 1, 2017,
  • (ii) that has an aggregate oil fuel capacity of less than 600 m³, and
  • (iii) whose oil fuel tanks with a maximum individual capacity of more than 30 m³ are separated from the outer shell of the vessel by a distance of at least 0.76 m;
• (d) a vessel that is engaged in saving lives, securing the safety of a vessel or preventing the immediate loss of a vessel; or
• (e) a vessel whose oil fuel tanks or piping systems contain a residual amount of an oil referred to in regulation 43.1.2 of Annex I to MARPOL that the vessel previously used as fuel.

Authorized representative

(4) The authorized representative of a vessel in respect of which subsection (2) applies must ensure that the vessel complies with that subsection.

Definition of Antarctic area

47.2 (1) In this section, Antarctic area has the same meaning as in regulation 1.11.7 of Annex I to MARPOL.

Antarctic area

(2) In the Antarctic area, a Canadian vessel must not use or carry an oil referred to in regulations 43.1.1 to 43.1.3 of Annex I to MARPOL.

Non-application

(3) Subsection (2) does not apply in respect of

• (a) a vessel that is engaged in saving lives, securing the safety of a vessel or preventing the immediate loss of a vessel; or
• (b) a vessel whose tanks or piping systems contain a residual amount of an oil referred to in regulations 43.1.1 to 43.1.3 of Annex I to MARPOL.

Authorized representative

(4) The authorized representative of a vessel in respect of which subsection (2) applies must ensure that the vessel complies with that subsection.

Related Amendment to the Administrative Monetary Penalties and Notices (CSA 2001) Regulations

3 Part 13 of the schedule to the Administrative Monetary Penalties and Notices (CSA 2001) Regulations^{footnote 34} is amended by adding the following after item 75:

Item	Column 1 Provision of the Vessel Pollution and Dangerous Chemicals Regulations	Column 2 Range of Penalties ($)	Column 3 Separate Violation for Each Day
75.1	Subsection 47.1(2)	1,250 to 25,000
75.2	Subsection 47.1(4)	1,250 to 25,000
75.3	Subsection 47.2(2)	1,250 to 25,000
75.4	Subsection 47.2(4)	1,250 to 25,000

Coming into Force

4 These Regulations come into force on the day on which they are published in the Canada Gazette, Part II.

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