Canada Gazette, Part I, Volume 146, Number 49: Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations

December 8, 2012

Statutory authority

Canadian Environmental Protection Act, 1999

Sponsoring department

Department of the Environment

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

1. Executive summary

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 is aligned with 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 final Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (see footnote 5) (hereinafter referred to as the current Regulations) covering new 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 vehicles for the 2016 model year will be about 25% lower than the vehicles that were sold in Canada in 2008. 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, EC released a Consultation Document (see footnote 9) related to the development of the proposed Regulations. The Document described the key elements being considered for inclusion in the proposed Regulations and sought early input from interested parties, for a 30-day period.

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, 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. Issue

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. The 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.

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 passenger cars and light-duty trucks. The proposed 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

Proposed Regulations

The Government of Canada is proposing to establish more stringent GHG emission standards for light-duty vehicles of model years 2017 to 2025, in alignment with the U.S. EPA standards. Accordingly, EC has proposed to incorporate 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 proposed Regulations would build on the expected GHG emission reductions from the current Regulations. The latter Regulations, for the first time, established progressively more stringent GHG emission standards for new passenger automobiles and light trucks in Canada for the 2011–2016 model years. The proposed 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 proposed Regulations would 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 proposed Regulations would continue to apply to companies that manufacture or import new light-duty vehicles into Canada for the purpose of sale to the first retail purchaser.

As of the coming into force of the proposed Regulations, companies would have the option of excluding emergency vehicles (see footnote 20) from calculations of both the fleet average CO₂e standards and fleet average carbon-related emission values. These vehicles would also not be subject to the prescribed emission standards for nitrous oxide (N₂O) and methane (CH₄). This option would be 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 (see footnote 21) 2017, any company that manufactures or imports fewer than 750 vehicles per year, calculated as a three-year rolling average, would not be subject to the fleet average CO₂e emission standards. This would also apply to new small volume companies that manufacture or import fewer than 750 vehicles per year in their first and second model years in the Canadian market. If a company’s three-year rolling average exceeds the prescribed 750-vehicle limit, that company would become 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 would become 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 manufactured or imported fewer than 750 vehicles in its first model year in the Canadian market, but manufactured or imported more than 750 in its second model year, it would be required to comply with the CO₂e emission standards in that second model year.

Currently, the companies that comprise this category are importers of high-performance vehicles in a niche market. While these vehicles generally 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. EC 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 would continue to be subject to the prescribed emission standards for N₂O and CH₄, which are not as directly tied to fuel consumption as CO₂ emissions.

GHG emission standards

Under the proposed Regulations, each company would be required to comply with unique fleet average CO₂e emission standards based on the mix of passenger automobiles and light trucks 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 proposed CO₂e emission target values for vehicles of a given footprint would be reduced on average by 5% per year, initially referenced to the model year 2016 standard and continuing through model year 2025. In recognition that large light trucks face more significant CO₂e emission reduction challenges than passenger automobiles and small light trucks due to the utilitarian function they serve in the transportation system, the proposed CO₂e emission target values for light trucks would 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 would 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 would 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 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 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 undertake 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 account of 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. Should the mid-term evaluation lead to changes to the U.S. EPA regulations, EC intends to undertake formal consultations with provincial and territorial governments and stakeholders to discuss whether any change to Canada’s Regulations is warranted for model years 2022 to 2025. EC also intends to undertake a review of the impacts associated with any proposed new standard resulting from the U.S. mid-term evaluation in order to inform the path forward.

As is the case with the current Regulations, the proposed Regulations would 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 potentials than CO₂; therefore, they also require control limits. The proposed Regulations would allow companies to elect to comply with the standards in each model year in one of three ways, by

• demonstrating in its end of model year report that all new light-duty vehicles in its fleets emit less than the prescribed separate standards for N₂O and CH₄;
• including, as CO₂e, all N₂O and CH₄ emissions from the light-duty vehicles in its fleets when calculating its carbon-related exhaust emission values for submission in its end of model year report; or
• reporting, for individual model types, N₂O and/or CH₄ emission values that are higher than the prescribed standards and, subsequently:
  • (a) calculating an associated CO₂e deficit that accounts for the difference between the higher emission value(s) and the prescribed standards; and
  • (b) including the result(s) in the calculation of its carbon-related exhaust emission values.

Compliance flexibility

The proposed Regulations would provide companies with flexibility to design cost-effective compliance strategies. For example, the GHG emission credit system included in the current Regulations would continue, providing 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, it is expected that the following vehicle emission allowances that are included in the current Regulations would continue to apply; however, the methodology for quantifying them would be updated to align it with the associated U.S. methodologies:

• Vehicle emission allowances for air-conditioning improvements, including refrigerant leakage reduction and system efficiency improvements
• In order to determine eligibility for its air conditioning efficiency credits, the recent amendments implemented by the U.S. EPA to its light-duty vehicle GHG emission standards allow companies to elect, for model years 2014 to 2016, to follow a new test procedure: AC17. (see footnote 22) If this test procedure is not used, the company must use the prescribed Air Conditioning Idle Test Procedure to determine eligibility. Starting in model year 2017, the AC17 test procedure must be used by companies to determine eligibility for these credits; and
• The current Regulations allow companies to elect to calculate an allowance for improving air conditioning system efficiency — the methodology for this calculation is incorporated by reference to the U.S. Code of Federal Regulations (CFR).
• Vehicle emission allowances for innovative technologies whose GHG-reducing impacts are not captured under prescribed city/highway emission tests:
• As of the coming into force of the proposed Regulations, any companies electing to calculate allowances for innovative technologies would be required to provide evidence of the U.S. EPA decision to accept the company’s test methodology as legitimately representing the GHG emissions reduction associated with the technology in question; and
• Starting in model year 2014, the proposed Regulations would allow companies to elect to calculate allowances for innovative technologies by referencing prescribed values (grams of carbon dioxide equivalent per mile) associated with certain common innovative technologies incorporated by reference to the U.S. regulations. The maximum allowance that can be calculated by each company would be constrained by the same maximum credit limitation prescribed in the U.S. regulations.

The proposed Regulations would 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 would 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 proposed Regulations would 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 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 per mile value must be used to represent the portion of driving for which electricity is solely used to propel the vehicles. The cumulative number of vehicles to which a company may apply the 0 grams per mile value is limited to prescribed volume limits up to model year 2016. Companies may also, for the purpose of calculating its fleet average carbon-related exhaust emission values, elect to multiply the total number of any such vehicles in its fleets by a factor of 1.2.

The proposed Regulations would continue to allow companies to use the 0 grams per mile value for these vehicles. There would be no cumulative volume limits applicable to fleets of model years 2017 to 2021. Cumulative volume limits would apply to the total number of these vehicles to which the 0 grams per mile value could be used in model years 2022 to 2025. The proposed Regulations would require companies that exceed the prescribed cumulative volume limits for advanced technology vehicles to measure and report the carbon-related exhaust emission value 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

In order to incentivize the deployment of advanced technology vehicles, the proposed Regulations would allow companies to elect to multiply the total number of electric vehicles, PHEVs, fuel cell vehicles, natural gas dual fuel vehicles, and dedicated natural gas vehicles in its fleets by a prescribed factor for model years 2017 to 2021. 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, would be 2.0 in 2017, phasing down to 1.5 in 2021; the prescribed factor for PHEVs, natural gas dual fuel vehicles and dedicated natural gas vehicles would be 1.6 in 2017, phasing down to 1.3 in 2021. Starting in model year 2017, the prescribed factor for PHEVs would only be available for use with those 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.

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	2.0	1.60
2018	2.0	1.60
2019	2.0	1.60
2020	1.75	1.45
2021	1.5	1.30

Vehicle emission adjustments for the use of hybrid technologies on full-size pick-up trucks

The proposed Regulations would allow, as of model year 2017, companies to elect to calculate an allowance associated with the presence of hybrid technology on model types that meet the definition of full-size pick-up trucks. However, such a choice could only be made if that technology is present on a percentage of that company’s full-size pick-up truck fleet that is equal to or greater than the prescribed penetration rate associated with that model year (see Table 2). The penetration rate would depend on the model year in question and the level of hybridization (i.e. mild (see footnote 23) or strong (see footnote 24) hybrid gasoline-electric vehicle) 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 proposed Regulations would 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 could 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 would depend on the model year in question as shown in Table 2.

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

Model Year	Minimum Company % of Full-size Pick-ups
	Mild Hybrid Gasoline-electric Vehicle	Strong Hybrid Gasoline-electric Vehicle	Emission Reduction Performance
2017	20%	10%	15%
2018	30%		20%
2019	55%		28%
2020	70%		35%
2021	80%		40%

The proposed Regulations would 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 could 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 passenger automobile and light trucks 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 that the proposed fleet average GHG emission standards for model years 2017 to 2025 are sufficiently stringent to similarly challenge intermediate volume companies, the proposed Regulations would extend compliance flexibility to these companies. Any intermediate volume companies that were eligible to use temporary optional fleets for model year 2016 would be 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 would have to comply with the prescribed standard associated with the model year in question. Any company that elects to use the alternative schedule would 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

Emission credit system

The current Regulations prescribe a lifetime of five model years for all obtained credits, after which the credits would expire. In recognition of the stringent nature of the proposed GHG emission standards for model years 2017 to 2025, as of the coming into force of the proposed Regulations, the lifetime of any early action credits obtained in model year 2010 and credits obtained for model years 2011 to 2015 would be extended such that they could be used to offset any deficits through model year 2021. From model year 2016, any credits obtained would be 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:

Where

• A is the fuel economy level of each model type;
• B is the number of vehicles of the model type in question in the fleet; and
• C is the total number of vehicles in the fleet.

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:

Where

• A is the fuel economy level of each model type;
• B is the number of vehicles of the model type in question in the fleet; and
• C is the total number of vehicles in the fleet.

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 report-ed 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 proposed Regulations would prescribe a limit on the total number of obtained model year 2011 credits that each company could 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. 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.

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, EC has decided that, as of the coming into force of the proposed Regulations, companies would no longer be required to submit an annual preliminary model year report.

With regard to the end of model year report, the proposed Regulations would 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 proposed Regulations would incorporate all of the same test methods and procedures as used in the United States. This would provide clear direction to regulated companies and allow 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, thus maintaining the status quo in Canada, would create regulatory misalignment between Canada and the United States. This misalignment would result in fewer environmental and consumers’ benefits, and a likely increase in administrative (see footnote 27) burden for companies that have to meet different standards in each country, than would occur in a scenario of continued regulatory alignment.

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 passenger cars and light-duty trucks. This scenario would create regulatory uncertainty, with reduced expected benefits for both consumers and the environment.

Regulatory approach

The Government of Canada has a policy of regulatory alignment with the United States, and has committed to reducing GHG emissions within Canada using a sector-by-sector regulatory approach. 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 Canada–United States approach to regulating GHG emissions from vehicles 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 not only provides regulatory certainty, but also 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 proposed 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 proposed Regulations are those which accrue from the incremental changes from the baseline 2016 (see footnote 28) standards (in the current Regulations) compared to the 2017–2025 model year vehicle standards (in the new proposed 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 29) This analysis assumes a maximum vehicle lifetime of 26 years for cars and 31 years for light-duty trucks, declining 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 proposed Regulations would impose costs on industry, consumers and Government, the benefits from reduced GHG emissions, coupled with substantial fuel savings and additional driving per vehicle, will result in a significant net benefit over the lifetime of 2017 to 2025 model year light-duty vehicles. (see footnote 30)

The present value of all benefits included in the analysis is estimated to be approximately $41.9 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 $30.7 billion. Overall, the total benefits exceed total costs by a ratio of nearly four to one.

Significant global environmental benefits are revealed in the analysis, with the reduction in GHG emissions estimated to be 162 Mt CO₂e over the lifetime of 2017–2025 model year vehicle fleets, leading to a present value of $3.9 billion, using a social cost of carbon (SCC) present value (in 2012) of $28 per tonne CO₂e (in 2011 dollars).

Approach to benefit and cost estimates

The costs of the proposed Regulations have been estimated using the output from the Optimization Model for Reducing Emissions of Greenhouse Gases from Automobiles (OMEGA), (see footnote 31) originally developed by the U.S. EPA. Canadian data was applied to this output in order to estimate the impacts of the 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 proposed 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 $37.9 billion; $33.2 billion of these benefits result from fuel savings, $3.3 billion from the value of additional driving, and $1.4 billion from fewer refuelling trips. In addition, the benefits of reduced GHG emissions resulting from the proposed Regulations are estimated to be $3.9 billion. Total benefits from the proposed Regulations are estimated to be $41.9 billion. Both costs and benefits are increased due to the rebound effect, (see footnote 32) 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 proposed Regulations and continued application of the current Regulations at the 2016 model year standard for 2017–2025 model year vehicles. For each manufacturer, the forecast includes the fuel consumption / 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 proposed 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 two to four years for model year 2017 to 2025 vehicles.

The proposed regulatory standards respond to the observation that 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 be modified for 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 proposed Canadian Regulations with no spill-over effects from the proposed U.S. regulations. This is the same approach that was used for the analysis of the Passenger Automobile and Light Truck Greenhouse Gas Emission 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 that which minimizes 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 and fuel to the output from OMEGA, in order to calculate overall impacts including emissions, fuel consumption and other benefits. Once the Canadian variables were combined with the OMEGA output, an analysis was conducted to demonstrate the overall fuel consumption, GHG emission and cost impacts for all 2017–2025 model-year vehicles sold in Canada.

Rebound effect

For drivers, the proposed Regulations are expected to generate fuel savings, some of which would be directed to additional driving. The increment of 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. 2012–16 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 proposed model year 2017–25 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 policy is 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 demanded as a result of a price change. Since additional kilometres travelled will become cheaper, Canadians will drive more.

The total benefit from an amount 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. (see footnote 34)

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, $13.85 wage rate per hour as a proxy for time value, with 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 proposed 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 $1.4 billion.

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. To convert emissions to fuel consumption (L/100 km) the carbon content of the fuel (g/L) is used to determine the volume of fuel associated with the emission rate. The conversion of “lab-tested” fuel consumption into “on-road” fuel consumption is obtained through a series of calculations. (see footnote 37) An adjustment is made for the energy density ratio of Indolene (testing fuel) and retail gasoline. An additional adjustment is 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 proposed Regulations would 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 EC 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 EC’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 one view of potential yearly sales forecasts of vehicles from 2017 to 2025 in Canada.

Canadian light-duty vehicle sales forecast

Sales	MY 2017	MY 2018	MY 2019	MY 2020	MY 2021	MY 2022	MY 2023	MY 2024	MY 2025	Combined MYs 2017–2025
Vehicle sales (thousands)	1 619	1 629	1 649	1 659	1 669	1 680	1 690	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 output files to evaluate the per-vehicle costs and GHG emission performance associated with industry compliance with the proposed Regulations.

The final rulemaking for new standards in the United States for GHG emissions from new light-duty vehicles of model years 2017 through 2025, with which the proposed Regulations are aligning, reflects a policy change which is anticipated to result in a US$100 reduction in per-vehicle technology costs. The impact of these technology cost changes is not reflected in this Regulatory Impact Analysis Statement (RIAS), but will be addressed fully in the RIAS published in the Canada Gazette, Part Ⅱ.

Benefits

Benefits to consumers

The proposed 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 refuelling time and additional driving due to the increased distance travelled per litre of fuel. Vehicles will be more fuel efficient due to the proposed Regulations and can drive further with the same volume of fuel and require less frequent refuelling. Drivers also have the option of driving further for the same fuel cost, due to that increased fuel efficiency.

Over the lifetime operation of all 2017 to 2025 model year vehicles, consumers can expect to receive $33.2 billion in pre-tax fuel savings.

• A model year 2017 vehicle subject to the proposed Regulations is expected to recoup the incremental fuel saving technology costs after just over two years of driving.
• A model year 2025 vehicle subject to the proposed Regulations is expected to recoup the incremental fuel saving technology costs after just over three years of driving.

Total benefits to consumers, including pre-tax fuel savings, reduced refuelling time and additional driving resulting from increased fuel economy, are estimated to be $37.9 billion.

Benefits to the environment

The SCC is used in the modelling of the cost-benefit analysis of environmental regulations in a 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 EC 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 $28.44/tonne of CO₂ in 2012 up to $61.85 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 (IAMs), which calculates SCC values at different points in time. Table 4 below contains the average annual growth rates of SCC estimates between 2010 and 2050 coming from the work of the Interagency Working Group.

Environment Canada’s review also concludes that a value of $112.37/tonne in 2012 up to $243.96 in 2056 should be considered in our analysis, which would reflect a 95th percentile 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 $112.37 per tonne does not, however, reflect the extreme end of SCC estimates, as some studies have produced values exceeding $1,000 per tonne 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. EC 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 proposed Regulations in terms of reductions in vehicle GHG emissions, as presented in Table 4. The proposed Regulations are estimated to result in a lifetime model-year reduction of 3.2 Mt beginning in model year (MY) 2017 and increasing each year to 33.2 Mt for MY 2025. Thus, as the proposed Regulations come into full effect over the MY 2017–2025 period, they will result in a cumulative lifetime GHG emission reduction of 162 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 $3.9 billion.

For MY 2026 and subsequent model years, the Regulations will remain in full effect; thus, the lifetime reductions that would be observed under a regulatory scenario will likely be similar to the MY 2025 level of 33.2 Mt for each subsequent MY, assuming similar sales and other modelling parameters. However, 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 Regulations and could not therefore be fully attributed to the Regulations.

Total benefits

Combined benefits to consumers and benefits to Canadians are estimated to be $41.9 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 would need to redesign and apply technologies to their vehicles in order to comply with the proposed Regulations and will pass along those costs directly to consumers in the form of an increased purchase price, relative to model year 2016 light-duty vehicles. Due to alignment of the proposed Regulations with U.S. regulations, those technology costs are expected to be similar.

Costs to consumers

The proposed Regulations are expected to result in greater technology costs for vehicles to meet the new and increasingly stringent standards in each model year. For the purpose of this analysis, it is expected that manufacturers will pass most or 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 $10.2 billion (see footnote 44) for all model year 2017 to 2025 vehicles sold in Canada.

These costs are incremental to the baseline so, for example, technology costs add $195 million (present value) to the costs of the model year 2017 fleet, and add $2.4 billion (present value) to the costs of the model year 2025 fleet.

The incremental technology costs for model year 2017 are expected to be $127 for cars and $162 for light trucks, increasing to $1,856 for cars and $2,453 for light trucks in model year 2025 in order to meet the increasingly stringent standards of the proposed Regulations. In reality, relative changes in vehicle prices and performance may 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 would result from the regulatory proposal 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 45) as the cost of driving decreases, which could lead to more accidents, congestion, noise, etc. This assessment is supported by the U.S. EPA preliminary 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 proposed 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 costs are estimated to cost Canadians $941 million over the lifetime driving of all model year 2017 to 2025 vehicles, with $22 million attributed to the 2017 model year, rising to $185 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 proposed Regulations is expected to remain at the same levels as those required to support the current regulatory program for model years 2011–2016. These combined costs are expected to be $1.6 million in 2017, declining to $800,000 in 2025 with an overall cost of $9 million for model years 2017 to 2025 combined.

Total costs

Combined costs to consumers and costs to 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 proposed Regulations are expected to result in net benefits for each model year, beginning with a $739 million net benefit for the lifetime of model year 2017 vehicles and $5.5 billion for model year 2025 vehicles, totalling $30.7 billion in net benefits over the lifetime operation of all 2017 to 2025 vehicles in Canada.

Benefit-to-cost ratio: Overall, it is expected that the proposed Regulations will result in a benefit-to-cost ratio of nearly four to one over the lifetime of combined model years 2017 to 2025.

Consumer net benefits: The proposed Regulations are expected to increase new vehicle prices by an average of approximately $141 (2012CAN$) for the 2017 model year over 2016 model year prices, and $2,095 for the 2025 model year, again over 2016 model year prices, reflecting the stringent new regulatory standards. These costs would be offset by fuel cost savings, additional driving and reduced refuelling time due to the increasingly stringent standards of the proposed Regulations. Preliminary estimates indicate that the increased vehicle price could be recovered in two to five years strictly as a result of fuel savings. EC expects the overall lifetime net benefit to vehicle owners (consumers) resulting from the proposed Regulations to be greater than $28.3 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 proposed emissions standards. Preliminary estimates prepared by EC suggest that the proposed Regulations are expected to reduce GHG emissions by 162 Mt over the lifetime operation of 2017 to 2025 model year vehicles.

Fuel savings: Estimates by EC indicate that the proposed Regulations could save 1.3 billion litres of fuel over the lifetime operation of model year 2017 light-duty vehicles in Canada, leading to monetary savings of about $764 million. Overall, the estimates suggest that 66 billion litres of fuel would be saved in Canada over the lifetime operation (see footnote 46) of the 2017–2025 cohort of regulated vehicles. These estimated pre-tax fuel savings are valued at $33.2 billion.

Table 4: Summary of main results (2011CAN$ millions, discounted to 2012 using 3% discount rate)

Incremental costs and benefits	MY 2017	MY 2018	MY 2019	MY 2020	MY 2021
A. Quantified impacts ($) Benefits to consumers
Pre-tax fuel savings	764	1,557	2,328	3,057	3,779
Reduced refuelling time	31	63	95	125	156
Additional driving	82	165	243	316	386
Total consumer benefits	877	1,784	2,666	3,498	4,321
Benefits to Canadians
Reduction in GHGs (SCC at $28/tonne)	80	174	265	354	444
Total benefits	957	1,959	2,931	3,851	4,764
Costs to consumers
Technology costs	195	380	560	730	891
Administrative costs (savings) (see footnote 47)	(0.07)	(0.07)	(0.06)	(0.06)	(0.06)
Costs to Canadians
Noise, accidents, and congestion	22	44	65	85	105
Costs to Government
Compliance promotion, enforcement, regulatory administration, vehicle emission testing	1.6	1.2	1.0	0.9	0.9
Total costs	218.1	425.2	626.7	816.4	997.8
Net benefits (SCC at $28/tonne)	739	1,533	2,304	3,035	3,767
Net benefits (alternate SCC at $112/tonne)	978	2,051	3,092	4,085	5,084
Benefit-to-cost ratio (SCC at $28/tonne)	4.4	4.6	4.7	4.7	4.8
B. Quantified impacts, non-monetized — e.g. from a risk assessment (see footnote 48)
Reduction in greenhouse gases (Mt of CO2e)zzz	3.2	6.9	10.7	14.4	18.2
Fuel savings (billions of litres of gasoline)	1.3	2.8	4.2	5.7	7.2z

Incremental costs and benefits	MY 2022	MY 2023	MY 2024	MY 2025	Combined MYs 2017– 2025
A. Quantified impacts ($) Benefits to consumers
Pre-tax fuel savings	4,440	5,095	5,744	6,438	33,202
Reduced refuelling time	185	215	245	277	1,391
Additional driving	448	509	568	631	3,348
Total consumer benefits	5,074	5,819	6,557	7,346	37,942
Benefits to Canadians
Reduction in GHGs (SCC at $28/tonne)	524	605	688	779	3,913
Total benefits	5,597	6,425	7,246	8,125	41,854
Costs to consumers
Technology costs	1,298	1,686	2,055	2,426	10,221
Administrative costs (savings) (see footnote 49)	(0.06)	(0.06)	(0.06)	(0.05)	(0.55)
Costs to Canadians
Noise, accidents, and congestion	125	145	164	185	941
Costs to Government
Compliance promotion, enforcement, regulatory administration, vehicle emission testing	0.9	0.8	0.8	0.8	9.0
Total costs	1,424.1	1,831.3	2,220.0	2,612.0	11,171.5
Net benefits (SCC at $28/tonne)	4,173	4,593	5,026	5,513	30,683
Net benefits (alternate SCC at $112/tonne)	5,727	6,388	7,065	7,820	42,289
Benefit-to-cost ratio (SCC at $28/tonne)	3.9	3.5	3.3	3.1	3.7
B. Quantified impacts, non-monetized — e.g. from a risk assessment (see footnote 50)
Reduction in greenhouse gases (Mt of CO2e)	21.7	25.3	29.0	33.2	162
Fuel savings (billions of litres of gasoline)	8.8	10.4	12.0	13.9	66
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 proposed Regulations. Overall, the health benefits associated with the proposed 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 proposed Regulations. The impacts of the proposed 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 (2011CAN$

Payback	MY 2017	MY 2018	MY 2019	MY 2020	MY 2021
Cars
Technology cost/car	$127.42	$254.84	$382.26	$509.69	$637.11
Break even (years)	3.9	3.8	3.7	3.7	3.6
Trucks
Technology cost/truck	$162.49	$324.99	$487.48	$649.97	$812.47
Break even (years)	1.4	1.3	1.3	1.3	1.3
Average vehicle
Technology cost/vehicle	$141.45	$282.90	$424.35	$565.80	$707.25
Break even (years)	2.2	2.1	2.0	2.0	2.0

Table 5: Average incremental technology cost versus fuel savings per vehicle, by model year (2011CAN$

Payback	MY 2017	MY 2018	MY 2019	MY 2020	MY 2021
Cars
Technology cost/car	$127.42	$254.84	$382.26	$509.69	$637.11
Break even (years)	3.9	3.8	3.7	3.7	3.6
Trucks
Technology cost/truck	$162.49	$324.99	$487.48	$649.97	$812.47
Break even (years)	1.4	1.3	1.3	1.3	1.3
Average vehicle
Technology cost/vehicle	$141.45	$282.90	$424.35	$565.80	$707.25
Break even (years)	2.2	2.1	2.0	2.0	2.0

Table 6: Summary metrics (2011CAN$)

Metrics	MY 2017	MY 2018	MY 2019	MY 2020	MY 2021	MY 2022	MY 2023	MY 2024	MY 2025	Combined MYs 2017– 2025
Benefit- to-cost ratio — discounted at 3% (SCC at $28/tonne) (see footnote 51)	4.4	4.6	4.7	4.7	4.8	3.9	3.5	3.3	3.1	3.7
CO2 damages avoided (Mt CO2e, discounted at 3%)	2.8	6.1	9.3	12.4	15.5	18.3	21.1	24.0	27.2	136.4
Present value of the socio-economic costs which equal total costs minus non-GHG benefits (in millions of 2011CAN$)										-26,770
Present value of the socio-economic cost per tonne of CO2 damages avoided ($/tonne)										-196

Table 7: Sensitivity analysis, net benefits (2011CAN$ billions, discounted to 2012)

Sensitivity variables	Net Benefit
	Lower	Central	Higher
Sensitivity to technology costs (-30%, central, +30%)	33.7	30.7	27.6
Sensitivity to discount rates (7%, 3%, undiscounted)	14.9	30.7	55.0

Emissions of criteria air contaminants

The use of the vehicles that would be subject to the proposed Regulations will also generate emissions changes of criteria air contaminants (CACs), (see footnote 52) including particulate matter (PM_2.5), nitrogen oxide (NO_x), 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 PM_2.5 and ozone) impact both human health and the environment.

Criteria air contaminants are not controlled by the proposed Regulations; however, light-duty vehicle emissions of NO_x, VOC, CO, and PM_2.5 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 proposed Regulations due to an increase in overall vehicle-kilometres travelled.

The proposed Regulations are expected to result in small but gradually increasing emissions of VOCs and NO_x 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 proposed Regulations would lead to a decrease in overall fuel consumption by the regulated vehicles, it is anticipated that emissions of SO₂ would also decrease. Overall, it is expected that the decrease in SO₂ emissions and the increase in primary PM_2.5 emissions will result in a small net decrease (e.g. less than 0.003µg/m³ reduction of annual PM_2.5 average for year 2030) in ambient PM_2.5 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 proposed Regulations are expected to result in small health benefits as a result of the small reductions in ambient PM_2.5 concentrations. The health impacts from ozone are expected to be negligible. Overall, the health benefits associated with the proposed Regulations are expected to be positive but small.

8. Small business lens

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

• (a) purchase vehicles outside of Canada and import them into Canada for use or resale;
• (b) sell used vehicles; or
• (c) sell vehicles that do not meet the definitions of “passenger automobile” or “light truck,” as prescribed in the Regulations.

All of the companies to which the current Regulations apply — and to which the proposed Regulations would continue to apply — are Canadian branches of multinational corporations. Below is a comprehensive list of all companies to which the model year 2011 regulatory requirements applied:

• Aston Martin Lagonda Limited
• BMW Canada Inc.
• Chrysler Canada Inc.
• Ferrari North America, Inc.
• Ford Motor Company of Canada, Limited
• General Motors of Canada Limited
• Honda Canada Inc.
• Hyundai Auto Canada
• Jaguar Canada
• Kia Canada Inc.
• Land Rover Canada
• Lotus Cars USA Inc.
• Maserati North America, Inc.
• Mazda Canada Inc.
• Mercedes-Benz Canada Inc.
• Mitsubishi Motor Sales of Canada, Inc.
• Nissan Canada Inc.
• Porsche Cars Canada Ltd.
• Subaru Canada, Inc.
• Suzuki Canada Inc.
• Toyota Canada Inc.
• Volkswagen Group Canada
• Volvo Cars of Canada Corp.

Most of these companies are Canadian subsidiaries of multinational automobile manufacturers, which do not manufacture automobiles in Canada but import small volumes of vehicles into Canada and are not considered to be “small businesses.” Therefore, the regulated community is not expected to include small businesses. Nevertheless, the proposed Regulations would 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 proposed Regulations would continue not to apply the fleet average CO₂e emission standards to those companies that manufacture or import, on average, fewer than 750 new light-duty vehicles per year.

9. “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

• restrict the growth of administrative burden by ensuring that new administrative burden on business introduced by a regulatory change (IN) is offset by an equal decrease in administrative burden on business from the existing stock of regulations (OUT); and
• control the number of regulations by repealing at least one existing regulation every time a new one imposing administrative burden on business is introduced.

The administrative changes that will be implemented through the proposed Regulations will result in a net decrease in regulatory burden; therefore, the proposal is considered an “OUT” under the rule. Reductions in burden will be achieved primarily by removing requirements related to the submission of Vehicle Identification Numbers (VINs) and dates of importation in the importation declarations and reducing the frequency of submission of importation declarations.

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$59,000, or CAN$2,600 per business. (see footnote 53)

10. Consultation

The consultation process

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, EC released a consultation document (see footnote 54) 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 EC’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 have been held with representatives of the Canadian auto industry, provincial governments, environmental groups and other interested parties to discuss the intended regulatory approach.

In response to the consultation document, the Department received eight written submissions from the following groups: company associations/representatives (3), light-duty vehicle importers (3), and non-governmental organizations (2). Following the conclusion of the 30-day comment period, the Department received a written submission from a provincial government. This submission has also been taken into account.

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.

A workshop titled “Light-duty Vehicle Greenhouse Gas Emission Regulations,” was hosted by EC in February 2012. Attendees at this workshop included representatives from the Canadian auto industry, some provincial governments, environmental nongovernmental organizations and a representative of the U.S. EPA. This workshop provided a status update on the regulatory work related to light-duty vehicle GHG emissions in Canada and the United States, as well as presentations on advanced vehicle technology in Canada.

The following paragraphs summarize the key issues raised by interested parties and EC’s analysis, which informed the development of the proposed Regulations. All comments received during the regulatory development process have been taken into account as a collective. The proposed Regulations have been designed to balance the views of stakeholders with the Government of Canada’s environmental and socio-economic policy objectives.

U.S. mid-term evaluation

The U.S. EPA’s light-duty vehicle GHG emission regulations for model years 2017 to 2025 include a formal mid-term evaluation of its prescribed standards for model years 2022 through 2025 to determine if they are still appropriate. Depending on the outcome of this review, which has a statutory deadline of April 1, 2018, the EPA Administrator can either adjust the stringency of the standards or maintain them at the level recently finalized. Auto industry stakeholders highlighted the importance of the proposed Regulations linking to the U.S. mid-term evaluation in order to ensure continued alignment with the United States and long-term regulatory certainty should the EPA Administrator adjust the stringency of the standards. An environmental non-governmental organization recognized the need for regulatory review if such a review is in the public interest; however, it recommended that EC’s Regulations not specify a mid-term evaluation provision.

Environment Canada agrees that there are benefits to providing long-term regulatory certainty to Canada’s auto industry to ensure that Canada continues to benefit from the environmental and economic benefits of regulatory alignment. The Government of Canada is proposing to regulate GHG emissions from light-duty vehicles over the entire period from model year 2017 to 2025, in alignment with the U.S. EPA standards. Accordingly, EC has proposed to incorporate the U.S. EPA regulatory standards by reference (i.e. as amended from time to time) for model years 2017 to 2025 as the most efficient means of maintaining harmonized standards in Canada. Nonetheless, should the U.S. mid-term evaluation lead to changes to the U.S. EPA regulations, EC intends to undertake formal consultations with provincial and territorial governments and stakeholders to discuss whether any change to Canada’s regulatory approach is warranted for model years 2022 to 2025. EC also intends to undertake a review of costs and benefits resulting from the impacts associated with any proposed new standard resulting from the U.S. mid-term evaluation in order to inform the path forward. Similarly, the U.S. EPA standard for model year 2025 would continue to apply to all future model years. Should there be changes to the U.S. EPA regulations for model year 2026 and later, EC would also conduct consultations and reviews in order to inform the path forward for those standards, as well as assess the costs and benefits of potential change in standards.

Maintaining alignment with the United States while identifying Canadian unique specifications within the Regulations

Some stakeholders reiterated their support for Canada to maintain regulatory alignment with the United States, while seeking recognition that some aspects of the U.S. regulations are inherently based on aspects of the U.S. light-duty vehicle market, which may not be directly applicable in the Canadian context and may make the standards more difficult to comply with. For example, comments received cited the historically more measured pace of advanced technology deployment in Canada compared to that in the United States as a rationale for considering the development of less-stringent emission standards in Canada.

The Government of Canada’s policy of aligning with the United States with regard to GHG emission regulations for light-duty vehicles does not pre-empt Canada-specific regulatory requirements, where warranted. An example of a Canada-specific regulatory requirement in the current Regulations is the option for companies to elect to use a volume multiplier for advanced technology vehicles to provide additional incentive for electric vehicles. This requirement was justified on the basis that Canada’s national electricity grid generally produces less GHG emissions than does that of the United States.

The companies to which the proposed Regulations would apply are diverse, each with a unique mix of product offerings, designed to appeal to a wide range of consumer preferences in a highly competitive market. The Government of Canada accepts that regulating such a complex market with a single suite of requirements has the possibility of impacting the products of certain companies more than others. For example, a company that focused on offering fuel-efficient, low GHG-emitting vehicles prior to the implementation of the current Regulations may have a temporary advantage over one that did not, given the regulatory framework that has been established.

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 per year, the Canadian market is not a smaller replica of the U.S. market. Further, the differences between the two markets — and the companies that operate within them — have historically fluctuated in response to non-regulated factors (e.g. the price of fuel, currency exchange rate, purchase incentives, level of disposable income) and none of the current differences should be considered as invariable constants.

In developing the proposed Regulations, regulators considered Canada-unique approaches to regulatory requirements; however, EC was not provided with evidence of sufficient detail to justify any such approaches. The proposed Regulations are designed to align with those of the U.S. EPA to the extent permitted by the authorities of CEPA 1999. EC believes that the proposed Regulations provide considerable compliance flexibility that can address any differences between the Canadian and U.S. markets.

Compliance flexibilities and credit trading

Auto industry representatives recommended continuing with the compliance flexibilities and credit trading available within the current Regulations for model years 2011–2016.

The proposed Regulations would continue to offer flexibility to companies to achieve overall compliance with GHG emission standards. The proposed Regulations would modify certain existing flexibilities and introduce new flexibilities, as discussed below.

To provide additional flexibility, the proposed Regulations would extend the time limit of early action credits obtained in model year 2010 and credits obtained in model years 2011 through 2015 such that companies could use them to offset deficits in future model years through to 2021. Any credits obtained in model years 2016 and later would be subject to a five-year time limit, after which they would expire.

Other flexibilities that would be continued or introduced for model years 2017 and beyond include allowances for

• improvements to air conditioning system efficiency;
• reductions of air conditioning system leakage;
• use of hybrid technology on full-size pickup trucks;
• full-size pickup trucks that perform better than the associated carbon dioxide target value; and
• emission adjustments for advanced technology vehicles, alcohol dual fuel vehicles, and natural gas dual fuel vehicles.

Provisions for small-volume manufacturers

Auto industry representatives recommended that the proposed Regulations for model years 2017 and beyond, either continue to exempt small-volume manufacturers, as was done in the current Regulations, or develop a system to define company-by-company emission standards for those qualifying as small-volume manufacturers. The rationale for this recommendation was based on the following reasons: limited ability to optimize the efficiency of these vehicles designed for a niche market; limited technical and financial resources; limited production volumes; longer production life cycle; few car lines, often with similar emission characteristics; and limited availability of suppliers.

Environment Canada agrees with this rationale for providing additional compliance flexibility to these small-volume manufacturers. Under the current Regulations, any company that manufactured or imported fewer than 750 passenger automobiles and light trucks in either 2008 or 2009 and manufactured or imported fewer than 750 vehicles per year over the most recent three consecutive model years is not subject to the fleet average CO₂e emission standards.

Starting with model year 2017, a company that is new to the Canadian market and that keeps a three-year rolling average below 750 vehicles manufactured or imported is not subject to the fleet average CO₂e emission standards — the condition related to volumes of vehicles in 2008 or 2009 would no longer apply. These provisions apply to those new small-volume companies that did not manufacture or import light-duty vehicles in Canada at the time of the current Regulations coming into force. These flexibilities would allow for new small-volume manufacturers entering the Canadian market to benefit from this compliance flexibility.

Fines for non-compliance

A comment received from a light-duty vehicle importer and echoed by a provincial government was that the proposed Regulations should include a system under which those companies that cannot comply with the emission standards in a given model year would be permitted to pay a fine in lieu of offsetting this deficit by using the available emission credit system.

Under the current Regulations, as of model year 2012, companies must, if they are unable to offset a model year emission deficit by obtaining their own emission credits in either past or future model years through their own actions, obtain credits through transactions with other regulated manufacturers and importers of new light-duty vehicles. These emission credit provisions are designed to function as a closed system, whereby any deficits incurred are offset by credits obtained in respect of the same emission standards. A closed system ensures that the Regulations provide the intended environmental benefits in the form of overall reduced GHG emissions.

Under the proposed Regulations, this approach would be continued. Non-compliance with fleet average emission standards for the 2012 and later model years would be addressed pursuant to CEPA’s Compliance and Enforcement Policy, an approach that would be more consistent with that of the U.S. EPA, which does not authorize vehicle manufacturers to pay fines in lieu of meeting emission standards.

GHG emission standards for light trucks

Two light-duty vehicle importers questioned the different treatment of passenger automobiles and light trucks, where the rate of stringency increases for the GHG emission standards for light trucks would be less than that for passenger automobiles during model years 2017 to 2021. Concerns were raised that requiring fewer GHG reductions and, as a result, providing extra credits for light trucks would lead to a narrowing of the price gap between passenger automobiles and light trucks. In the view of the commenters, this would incentivize a fleet distribution toward lower passenger automobile sales and higher light truck sales.

Environment Canada believes that light trucks, particularly large light trucks, are designed to serve a more utilitarian function (e.g. towing, hauling) than typical passenger automobiles. Manufacturers and importers of such vehicles face a challenge to achieving 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 proposed carbon dioxide emission target values for light trucks would decrease in model years 2017 to 2021 would be, on average, 3.5% per year — a lower average annual rate than that for passenger automobiles.

In recognition that this challenge is predominantly associated with large light trucks, the carbon dioxide emission target values would be designed in a manner such that the rate of annual target value reduction for small light trucks (see footnote 55) in model years 2017 through 2021 would be higher than 3.5% (approximately 4.6% per year), while the annual rate of reduction for large light trucks (see footnote 56) over the same time period would be lower than 3.5% (approximately 0.8% per year). For model years 2022 through 2025, the average annual rate of reduction for the carbon dioxide emission target values for all light trucks would be 5% per year.

Compliance with nitrous oxide (N₂O) and methane (CH₄) emission standards

A company association and a light-duty vehicle importer noted that the U.S. EPA, in its final rule for Heavy-Duty GHG Emission Regulations for model years 2014 to 2018, amended the provisions regarding its light-duty vehicle emission standards for N₂O and CH₄. (see footnote 57) These amendments provide companies with the option to satisfy these provisions by certifying vehicle test groups to emission levels higher (i.e. less stringent) than the prescribed standards if the higher emissions are accounted for through the calculation of CO₂e emission deficits, which must be included in calculations of fleet-average emission performance.

In order to maintain alignment with the U.S. EPA in this regard, the proposed Regulations would allow companies to report emission levels for N₂O and/or CH₄ that are higher than the prescribed standards for these substances if the company accounts for the difference between the reported levels for the model type and the prescribed standards by calculating a carbon dioxide equivalent emission deficit and including it in its calculation of its fleet-average carbon-related exhaust emission value.

Reporting and compliance infrastructure

Auto industry representatives recommended that any outstanding work on establishing the electronic reporting system required to support the submission of companies’ end-of-model-year reports for the current Regulations be finalized before any future regulations are introduced.

The Vehicle and Engine Emissions Reporting Registry (VEERR) has been established to accommodate the annual reporting requirements for the current Regulations, providing a single window of reporting for automobile manufacturers to EC. The VEERR will also be used to support the proposed Regulations, as regulatees will be familiar with this system, providing further certainty to industry on the reporting requirements and reducing any administrative burden.

Preliminary report

Auto industry representatives suggested that Canada’s annual reporting dates should be at least 30 days after the corresponding U.S. required reporting dates. Under the current Regulations, while final reports are required 30 days after the U.S. reporting dates, preliminary reports are required before the U.S. preliminary report.

Environment Canada agrees that the reporting date for the preliminary report under the current Regulations is not ideal, given the later timing of the U.S. reporting date and the fact that one of the major benefits of regulatory alignment is the ability to prepare and submit similar data in each country. EC considered modifications to the preliminary report provisions to improve its operation; however, it also reviewed all administrative provisions of the current Regulations, including the preliminary report, in the context of the Government of Canada’s “One-for-One” Rule.

As a result of this review, as of the coming into force of the proposed Regulations, companies would no longer be required to submit an annual preliminary model year report, which would noticeably decrease their administrative burden. Companies would still be required to submit an annual end-of-model-year report to enable EC to assess individual company compliance with the Regulations.

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 58)

12. Rationale

The proposed Regulations would 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 proposed Regulations would 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 would require 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 $33.2 billion over the lifetime operation of model year 2017 to 2025 vehicles. Additional benefits include reduced refuelling time and additional driving, valued at $4.7 billion. Overall, a benefit-to-cost ratio of nearly four to one supports the rationale of the proposed Regulations.

It is assumed that manufacturers would meet the proposed 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 Regulations may be somewhat overestimated. For example, while passenger automobile and light truck trading 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. Most recently, Mexico released proposed fuel economy/GHG regulations for light-duty vehicles that will be harmonized with existing 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 model years 2011–2016 are being implemented and enforced in a similar manner, and the proposed Regulations for model years 2017 and beyond would follow the same approach. Manufacturers and importers of new light-duty vehicles would be responsible for ensuring that their products comply with the proposed Regulations and would be required to produce and maintain evidence of such conformity. The program would include

• Authorizing and monitoring the use of the national emissions mark;
• Reviewing company evidence of conformity;
• Monitoring data submission for compliance with the applicable GHG emission standards for light-duty vehicles and the banking or trading of emission credits;
• Registering company notices of defects affecting emission controls;
• Inspections of test vehicles and their emission-related components, and laboratory emissions tests on a sample of new vehicles that are representative of products offered for sale in Canada; and
• Laboratory emissions tests on a sample of typical in-use vehicles.

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 proposed Regulations, EC would 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 proposed Regulations would be made under CEPA 1999, enforcement officers would, when verifying compliance with the proposed 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 EC 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:

• Nature of the alleged violation: This includes consideration of the damage, the intent of the alleged violator, whether it is a repeat violation, and whether an attempt has been made to conceal information or otherwise subvert the objectives and requirements of the Act.
• Effectiveness in achieving the desired result with the alleged violator: The desired result is compliance within the shortest possible time and with no further repetition of the violation. Factors to be considered include the alleged violator’s history of compliance with the Act, willingness to cooperate with enforcement officers, and evidence of corrective action already taken.
• Consistency: Enforcement officers will consider how similar situations have been handled in determining the measures to be taken to enforce the Act.

Environment Canada would monitor the GHG emission performance of light-duty vehicles and their fleets and compliance with the proposed Regulations. In the situation where a vehicle is found to exceed the applicable limit prescribed in the proposed Regulations, the normal course of events would be 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 would 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 proposed Regulations, in its administration of the regulatory program, EC would provide these services in a timely manner:

• Reviewing applications and preparing authorizations to use the national emissions mark; and
• Assessing requests for exemptions from the proposed Regulations.

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 proposed Regulations and establishes indicators to assess the performance of the proposed Regulations in achieving these outcomes. The PMEP package would be composed of three documents:

• the PMEP, which details the regulatory evaluation process;
• the logic model, which provides a simplified visual walkthrough of the regulatory evaluation process; and
• the table of indicators, which lists clear performance indicators and associated targets, where applicable, in order to track the progress of each outcome of the proposed Regulations.

The three documents complement each other and allow the reader to gain a clear understanding of the outcomes of the proposed 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 proposed Regulations. These outcomes would include the following:

• Upon publication of the proposed Regulations, the regulated community will become aware of the proposed Regulations and, when standards applicable to the additional model years take effect, the regulated community will start importing or manufacturing vehicles and engines that comply with the standards and meet the reporting requirements, when applicable (immediate outcome); and
• As fuel-saving technologies enter the market, owners and operators of light-duty vehicles will experience fuel savings (intermediate outcome), which directly translates into GHG emission reductions and economic benefits (final outcome).

As a key feature of the proposed Regulations, companies will be subject to progressively more stringent standards during the 2017–2025 model year period. Also, the proposed Regulations only target new vehicles. Existing vehicles are not subject to the proposed 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, were 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 proposed 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 proposed Regulations in reaching the intended targets. These performance indicators would 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 proposed Regulations would 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

PROPOSED REGULATORY TEXT

Notice is given, pursuant to subsection 332(1) (see footnote a) of the Canadian Environmental Protection Act, 1999 (see footnote b), that the Governor in Council, pursuant to sections 160 and 162 of that Act, proposes to make the annexed Regulations Amending the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations.

Interested persons may, within 75 days after the date of publication of this notice, file with the Minister of the Environment comments with respect to the proposed Regulations or, within 60 days after the date of publication of this notice, file with that Minister a notice of objection requesting that a board of review be established under section 333 of that Act and stating the reasons for the objection. All comments and notices must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Mark Cauchi, Director, Transportation Division, Environmental Stewardship Branch, Department of the Environment, Gatineau, Quebec K1A 0H3 (fax: 819-953-7815; email: mark.cauchi@ec.gc.ca).

A person who provides information to the Minister of the Environment may submit with the information a request for confidentiality under section 313 of that Act.

Ottawa, November 22, 2012

JURICA ČAPKUN
Assistant Clerk of the Privy Council

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

AMENDMENTS

1. (1) The definition “curb weight” in subsection 1(1) of the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations (see footnote 59) 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.

(2) 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.

“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:

• (a) a minimum cargo box width of 121.9 cm (48 inches) as measured at the cargo box’s narrowest point between the wheelhouses;
• (b) a minimum cargo box length of 152.4 cm (60 inches), which length corresponds to the lesser of the cargo box length at the top of the body and the cargo box length at the floor; and
• (c) a minimum towing capability of 2 267 kg (5,000 pounds) or a minimum payload capability of 771 kg (1,700 pounds).

“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”, in respect of a full size pick-up truck, 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.

“minimum payload capability”
« charge utile minimale »

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

“minimum towing capability”
« capacité de remorquage minimale »

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

“natural gas vehicle”
« véhicule au gaz naturel »

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

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

“strong hybrid electric technology”, in respect of a full size pick-up truck, means a technology that provides 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.

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

CFR

(4) For the purposes of these Regulations, except paragraph 39(2)(c), a reference in the CFR to a “test group” is to be read as a reference to a “model type”.

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

Exception

(2) Subsection (1) does not apply to any company that, on September 23, 2010, is 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 and 13 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. 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:

• (a) the standards for nitrous oxide (N₂O) and methane (CH₄) set out in section 1818(f)(1) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR;
• (b) the standards for nitrous oxide (N₂O) set out in section 1818(f)(1) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR and the alternative standards for methane (CH₄) determined in accordance with section 1818(f)(3) of that subpart;
• (c) the alternative standards for nitrous oxide (N₂O) determined in accordance with section 1818(f)(3) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR and the standards for methane (CH₄) set out in section 1818(f)(1) of that subpart; or
• (d) the alternative standards for nitrous oxide (N₂O) and methane (CH₄) determined in accordance with section 1818(f)(3) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR.

5. 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.

6. (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 for 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

• (a) the average number of passenger automobiles and light trucks of the three consecutive model years preceding the model year in question that are manufactured or imported by the company for sale in Canada is less than 750; and
• (b) the company submits a declaration as set out in section 35.

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 35.1 and

• (a) in the case of the first model year for which the company manufactures or imports passenger automobiles or light trucks for sale in Canada, the company manufactures or imports in total less than 750 passenger automobiles and light trucks;
• (b) in the case of the second model year for which the company manufactures or imports passenger automobiles or light trucks for sale in Canada, the company manufactures or imports in total less than 750 passenger automobiles and light trucks;
• (c) in the case of the third model year for which the company manufactures or imports passenger automobiles or light trucks for sale in Canada, the company manufactures or imports in total less than 750 passenger automobiles and light trucks; and
• (d) in the case of any subsequent model year, the average number of passenger automobiles and light trucks of the three consecutive model years preceding the model year that are manufactured or imported by the company for sale in Canada is less than 750.

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

Conditions

(2) If the average number of passenger automobiles and light trucks of the three consecutive model years preceding any model year that are manufactured or imported by a company for sale in Canada is equal to or greater than 750 — other than by reason of the fact that the company has purchased 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:

7. 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) and in subsections 17(6) and (7) and 18(1) to (3), (4.2), (7) to (10.1) and (12), 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 a calculation in paragraph 17(4)(b) or (5)(b) or in subsection 17(6) or (7) or 18(1) to (3), (4.2), (7) to (10.1) or (12) results in a number that is not a whole number, the number must be rounded to the nearest tenth of a unit.

8. (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:

where

A is the CO₂ emission target value for each group of passenger automobiles or light trucks, determined in accordance with subsection (4), (5), (6) or (7), as the case may be, and expressed in grams of CO₂ per mile;

B is the number of passenger automobiles or light trucks in the group in question; and

C is the total number of passenger automobiles or light trucks in the fleet.

(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.

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

Fleet average CO₂ equivalent emission value

18. (1) 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

D is the fleet average carbon-related exhaust emission value for each fleet, calculated in accordance with subsections (2) or (3), subject to subsections (5) and (6);

E is the allowance for the reduction of air conditioning refrigerant leakage, calculated in accordance with subsection (7);

F is the allowance for the improvement of air conditioning system efficiency, calculated in accordance with subsection (8);

G is the allowance for the use of innovative technologies that result in a measurable CO₂ emission reduction, calculated in accordance with subsections (8.1) and (9); and

H is the allowance for certain light trucks, calculated in accordance with subsection (10.1).

(2) Subsection 18(3) of the Regulations is replaced by the following:

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

(3) Subject to subsections (11) and (11.1), the fleet average carbon-related exhaust emission value for each of its fleets of the 2012 model year and subsequent model years and, for the purposes of section 29, for each of its fleets of the 2008 to 2010 model years is calculated using the following formula:

where

A is the following carbon-related exhaust emission value for each model type and includes, if an election is made under subsection 10(2), the exhaust emission for nitrous oxide (N₂O) and methane (CH₄):

• (a) in the case of electric vehicles and fuel cell vehicles, 0 grams of CO₂ equivalent per mile,
• (b) in the case of plug-in hybrid electric vehicles, the value determined in accordance with section 113(n)(2) of Title 40, chapter I, part 600, subpart B, of the CFR, for the model year in question, taking into account subsection 19(2), and expressed in grams of CO₂ equivalent per mile, or
• (c) in all other cases, the value determined in accordance with section 510(j)(2) of Title 40, chapter I, part 600, subpart F, of the CFR, for the model year in question, taking into account subsection 19(2), and expressed in grams of CO₂ equivalent per mile;

B is the number of vehicles of the model type in question in the fleet; and

C is the total number of vehicles in the fleet.

(3) Section 18 of the Regulations is amended by adding the following after subsection (4):

Multiplier for certain vehicles

(4.1) Subject to subsection (4.2), when calculating the fleet average carbon-related exhaust emission value in accordance with subsections (2) and (3) for fleets of the 2017 to 2021 model years, a company may, for the purposes of amounts B and C in subsections (2) and (3), 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 the election and indicates the number of credits obtained as a result of the election 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, Natural Gas Vehicle and Natural Gas Dual-Fuel Vehicle Multiplier
1.	2017	2.0	1.6
2.	2018	2.0	1.6
3.	2019	2.0	1.6
4.	2020	1.75	1.45
5.	2021	1.5	1.3

Requirement — plug-in hybrid electric vehicles

(4.2) A company may make an election under subsection (4.1) in respect of a plug-in hybrid electric vehicle of the 2017 to 2021 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.

(4) Subsections 18(6) to (11) of the Regulations are replaced by the following:

Alternative value

(6) 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.

Allowance for reduction of air conditioning refrigerant leakage

(7) 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:

where

A is the CO₂ equivalent leakage reduction for each air conditioning system in the fleet that incorporates those technologies, determined in accordance with section 1867 of Title 40, chapter I, subchapter C, Part 86, of the CFR and expressed in grams of CO₂ equivalent per mile;

B is the total number of vehicles in the fleet that are equipped with the air conditioning system; and

C is the total number of vehicles in the fleet.

Allowance for improvement of air conditioning system efficiency

(8) 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:

where

A is the air conditioning efficiency allowance for each air conditioning system in the fleet that incorporates those technologies, determined in accordance with the provisions relating to credits in sections 165, 167 and 1868 of Title 40, chapter I, subchapter C, Part 86, of the CFR and expressed in grams of CO₂ per mile;

B is the total number of vehicles in the fleet that are equipped with the air conditioning system; and

C is the total number of vehicles in the fleet.

Allowance for certain innovative technologies

(8.1) 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 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) of Title 40, chapter I, subchapter C, Part 86, of the CFR:

where

A is the allowance for each of those technologies used in the fleet, determined in accordance with section 1869(b) of Title 40, chapter I, subchapter C, Part 86, of the CFR and expressed in grams of CO₂ per mile, with the maximum allowable decrease referred to in section 1869(b)(2) of that Part applying, with the necessary adaptations for its application in the Canadian context;

B is the total number of vehicles in the fleet that are equipped with the innovative technology; and

C is the total number of vehicles in the fleet.

Alternative procedure

(8.2) Instead of determining the allowance for each innovative technology used in the fleet in accordance with the description of A in subsection (8.1), a company may

• (a) determine that allowance in accordance with the provisions for the 5-cycle methodology set out in section 1869(c) of Title 40, chapter I, subchapter C, Part 86, of the CFR, expressed in grams of CO₂ per mile; or
• (b) use the credit value approved by the EPA for that technology under section 1869(e) of Title 40, chapter I, subchapter C, Part 86, of the CFR, expressed in grams of CO₂ per mile, if the company provides the Minister with evidence of that approval in its end of model year report.

Allowance for innovative technologies

(9) 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 (8.1) — that result in a measurable CO₂ emission reduction:

where

A is the allowance for each innovative technology used in the fleet, determined in accordance with the provisions for the 5-cycle methodology set out in section 1869(c) of Title 40, chapter I, subchapter C, Part 86, of the CFR and expressed in grams of CO₂ per mile;

B is the total number of vehicles in the fleet that are equipped with the innovative technology; and

C is the total number of vehicles in the fleet.

Alternative procedure for 5-cycle methodology

(10) If the 5-cycle methodology referred to in subsection (9) 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 (9), use the credit value approved by the EPA for that technology under section 1869(e) of Title 40, chapter I, subchapter C, Part 86, of the CFR, expressed in grams of CO₂ per mile, if the company provides the Minister with evidence of that approval in its end of model year report.

Allowance for certain full size pick-up trucks

(10.1) For fleets of light trucks of the 2017 to 2025 model years, a company may elect to calculate, using the following formula, either an allowance for the presence, in its fleet, of full size pick-up trucks equipped with hybrid electric technologies or an allowance for the presence, in its fleet, of full size pick-up trucks that achieve carbon-related exhaust emission values below the applicable target value, if the percentage of full size pick-up trucks that are equipped with hybrid electric technologies or that achieve carbon-related exhaust emission values below the applicable target value is equal to or greater than the percentage set out in section 1870(a) or (b), as the case may be, of Title 40, chapter I, subchapter C, Part 86, of the CFR:

where

A is either the allowance for the presence of full size pick-up trucks that are equipped with hybrid electric technologies or the allowance for the presence of full size pick-up trucks that achieve carbon-related exhaust emission values below the applicable target value, determined in accordance with the provisions relating to credits in section 1870(a) or (b), as the case may be, of Title 40, chapter I, subchapter C, Part 86, of the CFR, and expressed in grams of CO₂ per mile;

B is the total number of full size pick-up trucks in the fleet that are equipped with hybrid electric technologies or that achieve carbon-related exhaust emission values below the applicable target value; and

C is the total number of vehicles in the fleet.

Application — hybrid electric technologies

(10.2) The allowance referred to in subsection (10.1) for the presence, in a fleet of light trucks, of full size pick-up trucks equipped with hybrid electric technologies applies only to those equipped with a mild hybrid electric technology and those equipped with a strong hybrid electric technology.

Election

(10.3) A company that elects to multiply the number of advanced technology vehicles in its fleet in accordance with subsection (4.1) must not use the allowance set out in subsection (10.1) for the same vehicle.

Limits — until 2016 model year

(11) For the purposes of subsection (3), 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 (12) for all the advanced technology 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:

• (a) 30,000 vehicles, in the case of a company that manufactured or imported less than 3,750 advanced technology vehicles of the 2012 model year for sale in Canada and that has already included 30,000 advanced technology vehicles in its fleets of the 2011 to 2016 model years, or in its fleets of the 2008 to 2016 model years, if the company obtained early action credits in respect of its fleets of the 2008 to 2010 model years; or
• (b) 45,000 vehicles, in the case of a company that manufactured or imported 3,750 or more advanced technology vehicles of the 2012 model year for sale in Canada and that has already included 45,000 advanced technology vehicles in its fleets of the 2011 to 2016 model years, or in its fleets of the 2008 to 2016 model years, if the company obtained early action credits in respect of its fleets of the 2008 to 2010 model years.

Limits — 2022 to 2025 model years

(11.1) For the purposes of subsection (3), 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 (12) for all the advanced technology vehicles in its fleets of the 2022 to 2025 model years that are in excess of the following applicable maximum number:

• (a) 30,000 vehicles, if the company manufactured or imported less than 45,000 advanced technology vehicles of the 2019 to 2021 model years for sale in Canada; or
• (b) 90,000 vehicles, if the company manufactured or imported 45,000 or more advanced technology vehicles of the 2019 to 2021 model years for sale in Canada.

Advanced technology vehicles in excess of maximum number

(12) For the advanced technology vehicles that are in excess of the applicable maximum number, a company must determine the carbon-related exhaust emission value in accordance with section 113(n) of Title 40, chapter I, part 600, subpart B, of the CFR.

10. 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 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 provides the Minister with evidence of their issuance by the EPA in its end of model year report.

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.

11. (1) The portion of subsection 20(3) of the Regulations before the equation 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:

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

Alternative standard — nitrous oxide

(3.1) For each model type 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 model type to the number of credits or deficits calculated in accordance with subsection (3) for the fleet to which the model type belongs:

298 × A × (B − C) × D

1 000 000

where

A is the total number of passenger automobiles or light trucks of the model type;

B is the exhaust emission standard for nitrous oxide (N₂O) set out in section 1818(f)(1) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR, for the applicable model year, expressed in grams per mile;

C is the alternative exhaust emission standard for nitrous oxide (N₂O) to which the company has elected to certify the model type, expressed in grams per mile; and

D is the assumed total mileage of the vehicles in question, namely,

• (a) 195,264 miles for a fleet of passenger automobiles, or
• (b) 225,865 miles for a fleet of light trucks.

Alternative standard — methane

(3.2) For each model type 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 model type to the number of credits or deficits calculated in accordance with subsection (3) for the fleet to which the model type belongs:

25 × A × (B − C) × D

1 000 000

where

A is the total number of passenger automobiles or light trucks of the model type;

B is the exhaust emission standard for methane (CH₄) set out in section 1818(f)(1) of Title 40, chapter I, subchapter C, part 86, subpart S, of the CFR, for the applicable model year, expressed in grams per mile;

C is the alternative exhaust emission standard for methane (CH₄) to which the company has elected to certify the model type, expressed in grams per mile; and

D is the assumed total mileage of the vehicles in question, namely,

• (a) 195,264 miles for a fleet of passenger automobiles, or
• (b) 225,865 miles for a fleet of light trucks.

(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) Subject to subsection (7), 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.

Time limit — credits obtained as a result of the election under section 28.1

(7) Credits obtained for a fleet of passenger automobiles or light trucks as a result of an election made under section 28.1 may be used in respect of any fleet of passenger automobiles or light trucks of the 2017 to 2020 model years, after which the credits are no longer valid.

12. (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.

13. 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:

where

B_{No ATV} is the number of vehicles of the model type in question in the fleet, excluding advanced technology vehicles;

A_{No ATV} is the fuel economy level for each model type, excluding advanced technology vehicles, expressed in miles per gallon, determined for the 2011 model year in accordance with section 510(c)(2) of Title 40, chapter I, part 600, subpart F, of the CFR, taking into account subsection 19(2);

A_ATV is the carbon-related exhaust emission value for each model type of advanced technology vehicles, expressed in grams of CO₂ equivalent per mile, determined for the 2011 model year in accordance with section 113(n) of Title 40, chapter I, part 600, subpart B, of the CFR, taking into account subsection 19(2);

B_ATV is the number of advanced technology vehicles of the model type in question in the fleet;

C is the total number of vehicles in the fleet; and

X is the number of credits obtained in respect of fleets of the 2011 model year that have been used by a company to offset a deficit incurred in respect of a fleet of passenger automobiles or light trucks or a temporary optional fleet of passenger automobiles or light trucks of all model years preceding the model year in question.

Advanced technology

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

Representative data

(3) When a company determines the value in accordance with the description of A_NoATV and A_ATV 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.

14. 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 referred to in subsection 24(1) 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 to replace the CO₂ emission target value applicable to a given group of passenger automobiles or light trucks under section 17 with the following:

• (a) in the case of a fleet of passenger automobiles or light trucks of the 2017 or 2018 model year, the CO₂ emission target value that would be applicable to that group under section 17 if the passenger automobiles or light trucks included in that group were of the 2016 model year;
• (b) in the case of a fleet of passenger automobiles or light trucks of the 2019 model year, the CO₂ emission target value that would be applicable to that group under section 17 if the passenger automobiles or light trucks included in that group were of the 2018 model year; or
• (c) in the case of a fleet of passenger automobiles or light trucks of the 2020 model year, the CO₂ emission target value set that would be applicable to that group under section 17 if the passenger automobiles or light trucks included in that group were of the 2019 model year.

15. 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.

16. Section 32 of the Regulations is repealed.

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

• (b.1) if applicable, a statement that the company has elected to exclude emergency vehicles from its fleets of passenger automobiles and light trucks;

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

• (d) the CO₂ emission target value for each group, calculated for the purposes of section 17, and the values and data used in the calculation of that value;

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

• (i) the carbon-related exhaust emission value for each model type, calculated in accordance with subsection 18(3), and the values and data used in the calculation of that value;
• (i.1) if applicable, evidence demonstrating that the alternative value for the weighting factor “F” referred to in subsection 18(6) is more representative of the company’s fleet;

(4) Subparagraph 33(2)(l)(ii) of the Regulations is replaced by the following:

• (ii) the CO2 equivalent leakage reduction, determined in accordance with that subsection, and the values and data used in the calculation of the reduction, and

(5) Subparagraph 33(2)(m)(ii) of the Regulations is replaced by the following:

• (ii) the air conditioning efficiency allowance, determined in accordance with that subsection, and the values and data used in the calculation of the allowance, and

(6) Subsection 33(2) of the Regulations is amended by adding the following after paragraph (m):

• (m.1) if the company calculates an allowance referred to in subsection 18(8.1), the value of the allowance for the fleet and, for each innovative technology,
  • (i) a description of the technology,
  • (ii) the allowance for that technology, calculated in accordance with subsection 18(8.1) or (8.2), and the values and data used in the calculation of the allowance and, if applicable, evidence of the EPA approval referred to in paragraph 18(8.2)(b), and
  • (iii) the total number of vehicles in the fleet that are equipped with the technology;

(7) Subparagraph 33(2)(n)(ii) of the Regulations is replaced by the following:

• (ii) the allowance for that technology, calculated in accordance with subsection 18(9) or (10), and the values and data used in the calculation of the allowance, and, if applicable, evidence of the EPA approval referred to in subsection 18(10), and

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

• (o) if applicable, evidence of the issuance by the EPA of the clarifications or additional information referred to in subsection 19(1);

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

• (i.1) the company has elected to exclude emergency vehicles from its temporary optional fleets,

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

• (c) the CO₂ emission target value for each group, calculated for the purposes of section 17, and the values and data used in the calculation of that value;

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

• (h) the carbon-related exhaust emission value for each model type, calculated in accordance with subsection 18(3), and the values and data used in the calculation of that value;

(12) Subparagraph 33(3)(j)(ii) of the Regulations is replaced by the following:

• (ii) the CO2 equivalent leakage reduction, determined in accordance with that subsection, and the values and data used in the calculation of the reduction, and

(13) Subparagraph 33(3)(k)(ii) of the Regulations is replaced by the following:

• (ii) the air conditioning efficiency allowance, determined in accordance with that subsection, and the values and data used in the calculation of the allowance, and

(14) Subparagraph 33(3)(l)(ii) of the Regulations is replaced by the following:

• (ii) the allowance for that technology, determined in accordance with subsection 18(9) or (10), and the values and data used in the calculation of the allowance, and

18. Subsection 35(1) of the Regulations is replaced by the following:

Low volume manufacturers or importers

35. (1) A company referred to in subsection 14(1) must submit to the Minister a declaration signed by a person who is authorized to act on behalf of the company no later than the first of the following dates:

• (a) 30 days before the day on which the first vehicle of the model year was offered for sale following the last of the three model years for which the average was calculated; and
• (b) December 31 of the calendar year preceding the calendar year corresponding to the vehicle’s model year.

19. The Regulations are amended by adding the following after section 35:

New companies

35.1 (1) A company referred to in subsection 14(1.1) must submit to the Minister a declaration signed by a person who is authorized to act on behalf of the company no later than the first of the following dates:

• (a) 30 days before the day on which the first vehicle was offered for sale; and
• (b) December 31 of the calendar year preceding the calendar year corresponding to the vehicle’s model year.

Contents of declaration

(2) The declaration must contain the total number of passenger vehicles and light trucks manufactured or imported for sale in Canada for each of the last three consecutive model years preceding the day on which the declaration is submitted.

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

• (d) the values and data used in calculating the fleet average CO₂ equivalent emission value, including information relating to the calculation of allowances; and
• (e) the values used to calculate the CO₂ emission credits, the credits obtained in respect of a temporary optional fleet and the early action credits.

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

• (f) the applicable carbon-related exhaust emission value and the values and data used in calculating that value; and

21. 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:

• (a) subsection 27(1);
• (b) subsection 28(1); and
• (c) subparagraph 33(3)(a)(iii).

COMING INTO FORCE

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

[49-1-o]