Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations

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.)

Executive summary

Issue: As a result of human activities, predominantly the combustion of fossil fuels, the atmospheric concentrations of greenhouse gases (GHGs) have increased substantially since the onset of the industrial revolution. In view of the historical emissions of GHGs from anthropogenic sources, and the quantity of emissions expected in the near future, GHGs, as significant air pollutants, are expected to remain a key contributor to climate change. Transportation is one of the largest sources of GHG emissions in Canada, accounting for about 28% of total emissions in 2009. Heavy-duty vehicles accounted for around 7% of total GHG emissions or 24% of transportation emissions. Accordingly, taking action to reduce emissions from new on-road heavy-duty vehicles is an essential element of the Government’s strategy to reduce air pollutants and GHG emissions to protect the environment and the health of Canadians. Description: The objective of the proposed Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (the proposed Regulations) is to reduce GHG emissions by establishing mandatory GHG emission standards for new on-road heavy-duty vehicles and engines that are aligned with U.S. national standards. The development of common North American standards will provide a level playing field that will lead North American manufacturers to produce more advanced vehicles, which enhances their competitiveness. The proposed Regulations would apply to companies manufacturing and importing new on-road heavy-duty vehicles and engines of the 2014 and later model years for the purpose of sale in Canada. They would apply to the whole range of new on-road heavy-duty vehicles from full-size pickup trucks and vans to tractors and buses, as well as a wide variety of vocational vehicles such as freight, delivery, service, cement, and dump trucks. The proposed Regulations would also include provisions that establish compliance flexibilities which include a carbon dioxide (CO 2 ) emission credit system for generating, banking and trading emission credits. Flexibilities also include additional credits for hybrid vehicles and electric vehicles, as well as for innovative technologies to reduce GHG emissions. Companies would also be required to submit annual reports and maintain records relating to the GHG emission performance of their vehicles and fleets. Cost-benefit statement: The proposed Regulations are estimated to result in a reduction of approximately 19.0 megatonnes (Mt) of carbon dioxide equivalent (CO 2 e) in GHG emissions over the lifetime of vehicles produced in the model years 2014–2018 (MY2014–2018) cohort. The present value of the cost of the proposed Regulations is estimated at $0.8 billion, largely due to the additional vehicle technology costs required by the proposed Regulations. The total benefits are estimated at $5.0 billion, due to the avoided social cost of carbon, and fuel savings ($4.5 billion). Over the lifetime of vehicles produced in MY2014–2018, the present value of the net benefit of the proposed Regulations is estimated at $4.2 billion. Business and consumer impacts: Although owners and operators of heavy-duty vehicles would not be subject to the proposed Regulations, they are expected to face higher purchase prices for new heavy-duty vehicles. The technologies embodied in the vehicles in order to comply with the proposed Regulations would bring fuel savings that would outweigh the costs of these technologies. These available technologies were carefully selected to ensure broad industry support through the adoption of safe and currently available “off-the-shelf” technologies. The technology improvements will enhance the competitiveness of heavy-duty vehicles manufacturers; the increased fuel efficiencies of the vehicles are also expected to make the trucking industry more competitive. Despite their benefits, and while there will likely be some vehicle technology improvement, it is not expected that those technologies would be introduced to the same extent in the market place in the absence of regulations. Domestic and international coordination and cooperation: Consultations were conducted with industry, provincial and territorial governments, other federal government departments and environmental non-governmental organizations (ENGOs). Environment Canada and Transport Canada co-hosted three consultation group meetings that included representatives from the above-mentioned stakeholders. Environment Canada also released two consultation documents. Comments received during consultation served to inform the development of the proposed Regulations. In addition, Environment Canada has conducted joint testing and research with the United States Environmental Protection Agency (U.S. EPA) to support the development of common standards. Performance measurement and evaluation plan: The Performance Measurement and Evaluation Plan (PMEP) describes the desired outcomes of the proposed Regulations, such as GHG emissions reductions, and establishes indicators to measure and evaluate the performance of the proposed Regulations in achieving these outcomes. The measurement and evaluation will be tracked on a yearly basis, with a five-year compilation assessment, and will be based on the information and data submitted in accordance with the reporting requirements and records of the companies.

1. Issue

As a result of human activities, predominantly the combustion of fossil fuels, the atmospheric concentrations of greenhouse gases (GHGs) have increased substantially since the onset of the industrial revolution. In view of the historical emissions of GHGs from anthropogenic sources, and the quantity of emissions expected in the near future, GHGs are expected to remain a key contributor to climate change.

Across Canada we are witnessing the negative impacts of a changing climate first-hand. For example, a warming climate has been linked to the melting of permafrost in the north that has destabilized the foundations of homes and schools. While the specific impacts vary by region, all of Canada’s provinces and territories are experiencing the effects of a changing climate. (see footnote 1)

While Canada accounts for just 2% of global GHG emissions, its per capita emissions are among the highest in the world and continue to increase. In 2009, GHG emissions in Canada totalled 690 megatonnes (Mt) as shown in Table 1 below:

Table 1: Canada’s GHG emissions

Source (Mt) 2005 2009 Total 731 690 Transportation 193 190 Heavy-duty vehicles 44 45

Source: National Inventory report: 1990–2009

As this table indicates, the transportation sector (air, marine, rail, road and other modes) is a significant source of GHG emissions in Canada, accounting for 28% of total emissions in 2009. Within this sector, heavy-duty vehicles account for nearly 24% of GHG emissions, or approximately 7% of total emissions in Canada. (see footnote 2) Emissions in the overall transportation sector fell by about 3 Mt from 2005 to 2009, although heavy-duty vehicle emissions rose by about 1 Mt.

Accordingly, taking action to reduce GHG emissions from new on-road heavy-duty vehicles and their engines is an essential element of the Government of Canada’s strategy to reduce GHG emissions to protect the environment and the health of Canadians. Carbon dioxide (CO 2 ) is the predominant GHG emitted by motor vehicles and is directly related to the amount of fuel that is consumed by vehicles. Vehicles also emit other GHGs, including tailpipe emissions of methane (CH 4 ) and nitrous oxide (N 2 O), and hydrofluorocarbons (HFCs) through the leakage of air conditioning system refrigerant, gases which all have higher global warming potential than CO 2 . Reductions of those emissions are not related to or do not significantly contribute to fuel savings.

2. Objectives

2.1. GHG reductions

The Government of Canada is committed to reducing Canada’s total GHG emissions to 17% below its 2005 levels by 2020 (i.e. from 731 to 607 Mt) — a target that is identified in the Copenhagen Accord and the Cancun Agreements. By establishing mandatory GHG emission standards for new on-road heavy-duty vehicles and engines beginning in 2014, Canada will move closer to its Copenhagen 2020 target.

The implementation of a comprehensive set of national standards reflecting a common North American approach for regulating GHG emissions from new on-road heavy-duty vehicles and engines would lead to environmental improvements for Canadians and provide regulatory certainty for Canadian manufacturers. Aligning Canadian standards with new U.S. regulations would also set a North American level playing field in the transportation sector.

The proposed Regulations will require manufacturers selling heavy-duty vehicles and engines in Canada to deploy emission reduction technologies, which will benefit both the environment and Canadians.

2.2. Regulatory burden

The proposed Regulations are designed to achieve the objectives above while minimizing the regulatory compliance burden of regulated Canadian industries through the alignment of heavy-duty vehicle regulations in Canada and in the United States. The reporting requirements were designed to assess the performance of the proposed Regulations against the targets established in the Performance Measurement and Evaluation Plan (see section 15) while minimizing the reporting burden of industry. The proposed Regulations would also allow regulatees to use the same GHG emissions model (GEM) as regulatees in the United States will use. This GEM is an accurate and cost-effective tool to assess compliance in either country.

3. Description

3.1. Key elements of the proposed Regulations

The proposed Regulations would introduce progressively more stringent GHG emission standards for new on-road heavy-duty vehicles and engines that would align with the national GHG emission standards and test procedures of the United States Environmental Protection Agency (U.S. EPA) for the 2014 model year and subsequent model years. The proposed Regulations would apply to companies manufacturing and importing new on-road heavy-duty vehicles and engines for the purpose of sale in Canada.

3.2. Prescribed regulatory classes

The proposed Regulations would reduce greenhouse gas emissions from the whole range of new on-road heavy-duty vehicles, from full-size pickup trucks and vans to tractors, from a wide variety of vocational vehicles such as school, transit and intercity buses to freight, delivery, service, cement, garbage and dump trucks.

The new Regulations would be aimed at all on-road vehicles with a gross vehicle weight rating of more than 3 856 kg (8 500 lb.), except those vehicles that are subject to the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations. Trailers would not be subject to the proposed Regulations.

The proposed Regulations would recognize the utility of vehicles and introduce GHG emission standards that would apply to the three prescribed regulatory classes of heavy-duty vehicles. Under the proposed Regulations, the full-size pickup trucks and vans would be regulated as “Class 2B and Class 3 heavy-duty vehicles,” and combination tractors as “tractors.” All other heavy-duty vehicles not covered by the two previously mentioned prescribed regulatory classes would be regulated as “vocational vehicles,” which include buses. Furthermore, the proposed Regulations would establish a prescribed regulatory class for heavy-duty engines designed to be used in a vocational vehicle or a tractor.

3.3. Emission standards for CO 2 , N 2 O and CH 4

The standards in the proposed Regulations would address emissions of CO 2 , N 2 O and CH 4 from heavy-duty vehicles and engines. The proposed Regulations would also include measures to require reductions in leakage of the hydrofluorocarbon refrigerant used in cabin air-conditioning systems.

For Class 2B and Class 3 heavy-duty vehicles, the proposed Regulations would include emission standards for CO 2 , N 2 O and CH 4 . In regards to CO 2 emissions, the standard would be a fleet average CO 2 emission standard for all vehicles of a company’s fleet.

In regard to vocational vehicles and tractors, the proposed Regulations would include heavy-duty engine standards for CO 2 , N 2 O and CH 4 , and also separate vehicle standards for CO 2 .

The proposed standards are structured not to constrain the size and power of heavy-duty vehicles, recognizing that these vehicles are designed to perform work. The proposed standards would be expressed in grams per unit of work, therefore allowing a more powerful vehicle to proportionally emit more GHGs than a less powerful vehicle.

3.4. Compliance assessment and computer simulation model

For standards applicable to Class 2B and Class 3 heavy-duty vehicles, regulatees would measure the vehicle performance using prescribed test cycles on a chassis dynamometer, similarly to existing procedures for light-duty vehicles under the current Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations.

The performance of engines installed on vocational vehicles and tractors would be measured using prescribed test cycles on an engine dynamometer, i.e. the same ones used to measure criteria air contaminants under the On-Road Vehicle and Engine Emission Regulations.

Compliance with the vehicle standards for vocational vehicles and tractors would be assessed using a computer simulation model. This model is readily available at no charge and would assess the emission reductions of a vehicle equipped with one or more non-engine-related technologies, such as aerodynamic fairings, low rolling resistance tires, a speed limiter, weight reduction technologies, and idle reduction technology. The simulation model will also assign to vehicles a pre-determined payload and engine size. As a result, Canadian manufacturers will not be disadvantaged compared to U.S. manufacturers due to the higher average payloads in Canada.

3.5. CO 2 emission credit system

The proposed Regulations would include a system of emission credits to help meet overall environmental objectives in a manner that provides the regulated industry with compliance flexibility. The CO 2 emission credit system would allow companies to generate, bank and trade emission credits. Under this system, companies would be allowed to manufacture or import vehicles and engines with emission levels worse than the applicable emission standard, and others performing better than the standard, provided that their average fleet emission level does not exceed the applicable emission standard.

Credits would be obtained by companies whose average fleet emission levels fall below the applicable standard, while deficits would be incurred by companies whose fleet emissions exceed the applicable standard. Credits may be applied by a company to offset a past deficit for up to three model years prior to the year in which the credits were earned, or may be banked to offset a future deficit for up to five model years after the year in which the credits were obtained. Credits may also be transferred to another company. A company would calculate emission credits and deficits in units of megagrams of CO 2 , for each of its heavy-duty vehicle or engine fleets and averaging sets of a given model year.

3.6. Additional emission credits

The proposed Regulations would allow companies that incorporate certain technologies that provide improvements in reducing CO 2 e emissions to be eligible for additional emission credits when participating in the credit system.

Companies that manufacture or import, prior to the coming into force of the applicable standards, heavy-duty vehicles or engines that have emissions that are below the proposed required emissions standards would also have the possibility to generate early action credits.

The methods to calculate the additional credits would be aligned with those of the United States. A company would not be allowed to obtain additional credits more than once for the same type of GHG emission reduction technology.

3.7. Annual reporting requirements

Beginning with the 2014 model year, companies would be required to submit to the Minister an annual preliminary report for their Class 2B and Class 3 heavy-duty vehicles and an annual end of year model report for all their heavy-duty vehicles and engines.

The report would include, for each type of vehicle or engine of a prescribed regulatory class, all necessary information for the calculation of the company’s credits or deficits. This would include, amongst others, information such as the applicable emission standards, emission values or rates, and family emission limits.

3.8. Other administrative provisions

Several administrative provisions would be aligned with those under existing related regulations under the Canadian Environmental Protection Act, 1999 (CEPA 1999), including provisions respecting the national emissions mark, maintenance and submission of records, the cost for test vehicles, application for exemptions and notices of defect. The proposed Regulations would introduce requirements for vocational vehicles and tractors manufactured in stages, in line with similar requirements of the Motor Vehicle Safety Regulations under the Motor Vehicle Safety Act, governed by Transport Canada.

4. Sector profile

4.1. Heavy-duty vehicle manufacturing and importing

The proposed Regulations have divided these vehicles into three different categories: Class 2B and Class 3 heavy-duty vehicles (full-size pick-up trucks and vans), vocational vehicles, and tractors. Heavy-duty vehicles have a gross vehicle weight rating (GVWR) greater than 3 856 kg (8 500 lb.) and span several GVWR classes: tractors (often called combination tractors) are contained mainly within classes 7 and 8, and vocational vehicles span from class 2B through class 8. Vocational vehicles also comprise a range of vehicle types, including various types of buses.

There are currently only two Canadian manufacturers of heavy-duty trucks, Hino and Paccar, which produce approximately 6 400 vehicles annually that are primarily exported to the United States. There is little to no manufacturing of heavy-duty engines in Canada. There are some Canadian body manufacturers that produce finished vocational vehicles. Canadian bus manufacturers hold an important share of the North American market. Notably, MCI in Manitoba and Prevost in Quebec produce intercity buses; New Flyer, Nova Bus, and Orion produce transit buses; and Girardin Minibus produces school buses and smaller buses. All of these manufacturers sell in both American and Canadian markets.

4.2. Statistics of manufacturing and trade

The Canadian industry, classified in national statistics as Heavy-duty Truck Manufacturing in the North American Industry Classification System (NAICS 33612), includes producers of complete heavy-duty vehicles and chassis, which are either tractors or vocational vehicles under the proposed Regulations. Output of the industry has fallen sharply in the recent recession: from 11 321 vehicles in 2009 to 5 630 in 2010. (see footnote 3) Most of the vehicles produced are exported to the United States: over 90% in 2009, and about 80% in 2010. The decline in output reflects a reduction in total vehicles purchased in the United States in consequence of reduced economic activity. The industry defined as Motor Vehicle Body Manufacturing (NAICS 336211) included 197 Canadian establishments producing vocational vehicles in 2009.

In 2009, these two heavy-duty vehicle manufacturing industries together generated approximately $3.6 billion in gross revenue and $1.2 billion in gross domestic product; and employed over 10 500 workers. Of total revenue, some $2.1 billion was from exports, including $2.0 billion from the United States. Imports of heavy-duty vehicles and engines totalled $3.3 billion in the same year, of which $2.8 billion was from the United States. (see footnote 4)

4.3. Truck carriers

In 2009, there were some 750 000 heavy-duty trucks of GVWR over 4 536 kg in operation in Canada (Canadian Vehicle Survey, 2009). There were approximately 435 000 medium heavy-duty trucks below 14 970 kg GVWR and 314 000 heavier heavy-duty trucks. The medium heavy-duty truck usage was 8.2 billion vehicle-kilometres, an average of 18 900 km per truck, while the heavy heavy-duty truck usage totalled 21.2 billion vehicle-kilometres, an average of 67 500 km per vehicle. There were 194 000 trucks described as “for-hire,” only 26% of the total fleet, but responsible for 46% of total vehicle-kilometres. A further 128 000 trucks were owned by owner-operators, responsible for 21% of total vehicle-kilometres. Such trucks are usually contracted to a larger carrier or company. Some 319 000 vehicles were used in “private trucking,” the term used to describe trucks that are not for hire, but are used to carry the owners’ goods, including trucks owned by major manufacturers and retailers to transport the goods they own, and also trucks owned by farmers or tradesmen, for example. Such trucks were 43% of the fleet, but were used for only 23% of total vehicle-kilometres, at an average of only 21 000 km per vehicle.

Table 2: Heavy-duty truck use in Canada in 2009

Ownership/

Use Vehicles

(thousands) Vehicle-

kilometres

(billions) Medium Heavy Total Proportion Medium Heavy Total Proportion For-hire 51.8 142.5 194.3 0.259 1.1 12.6 13.7 0.464 Owner-operator 63.3 64.2 127.6 0.170 1.8 4.5 6.3 0.221 Private 240.0 79.0 319.0 0.426 3.9 2.7 6.7 0.227 Other 79.5 28.5 108.0 0.144 1.4 1.4 2.8 0.095 Total 434.6 314.2 748.8 1.000 8.2 21.2 29.5 1.000

Ownership/

Use Kilometre/vehicle Medium Heavy Total For-hire 22 236 88 421 70 510 Owner-operator 28 436 70 093 49 373 Private 19 250 34 177 21 003 Other 17 610 49 123 25 926 Total 18 868 67 473 39 391

Source: Canadian Vehicle Survey, 2009, Statistics Canada

4.4. Trade by transport mode

Table 3 shows preliminary 2010 values of Canada’s merchandise trade with the United States and Mexico, combining imports and exports. Trucking is responsible for the largest proportion of North American merchandise trade by value — 57% in 2010.

Table 3: Total North American merchandise trade by transport mode

Mode Trade 2010

(millions of U.S. dollars) Road 298,832 Rail 87,151 Pipeline and other 71,652 Air 29,267 Marine 27,305 Total 514,208

Source: North American Transportation Statistics Database

In 2008, employment in the for-hire trucking industry in Canada was estimated at 415 000. It included 182 000 full- and part-time employees of the medium and large for-hire carriers with annual operating revenues of $1 million or more; 26 000 employees of small for-hire carriers with annual operating revenues between $30,000 and $1 million; 104 000 owner-operators with annual operating revenues of $30,000 or more; and 103 000 delivery drivers. Of this total for-hire trucking employment, 36% was in Ontario, 20% in Quebec and 27% in the Prairie provinces, with smaller proportions in the other provinces and territories.

4.5. Bus carriers

Bus carrier companies operate in several sub-markets or sub-industries. A total of 1 371 companies earned service revenues of $6.4 billion, and received an additional $7.2 billion in Government contributions, primarily for urban transit services. Urban transit services earned 53% of total industry revenues excluding those contributions, and school bus services earned another 23%. Scheduled intercity, charter and shuttle services together earned 16% of total revenues.

5. Background on policy development

5.1. National context

In 2009, the Government of Canada committed in the Copenhagen Accord and the Cancun Agreements to reducing, by 2020, total GHG emissions by 17% from 2005 levels, a target that is aligned with that of the United States. An important step toward meeting that goal included the 2010 publication in the Canada Gazette, Part Ⅱ, of the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations that are aligned with those of the United States.

On May 21, 2010, the Government of Canada and the Government of the United States each announced the development of new regulations to limit GHG emissions from new on-road heavy-duty vehicles. Canada announced that the proposed Regulations would be made under CEPA 1999 and in alignment with those of the United States. On October 25, 2010, the Government of Canada released an initial consultation document describing the key elements being considered in the development of Canadian regulations to seek stakeholder views early in the process.

On August 9, 2011, Environment Canada published a second and more detailed consultation document to provide an additional opportunity for stakeholders to provide comments and to participate in the regulatory development process.

5.2. Canada’s collaboration with the U.S. EPA

Environment Canada, in partnership with Canada’s National Research Council, has conducted joint aerodynamic testing and research with the U.S. EPA as well as heavy-duty vehicle emissions testing at Environment Canada facilities to support regulatory development. This collaboration is taking place under the Canada-U.S. Air Quality Committee and builds on the joint work with the United States on the development and implementation of GHG emission standards for vehicles. This collaboration served to inform the development of the proposed Regulations in Canada.

5.3. Actions in other Canadian jurisdictions

Provinces and territories have not indicated any intention to regulate GHG emissions from new on-road heavy-duty vehicles. Furthermore, provincial environment ministries have communicated strong support for federal Canadian regulations aligned with those of the United Stated.

The provincial and territorial governments set requirements for in-use vehicles including tractor-trailer weights and trailer dimensions. All provinces will continue to be consulted to ensure a consistent pan-Canadian approach to regulating on-road heavy-duty vehicle emissions.

5.4. Actions in international jurisdictions

5.4.1. United States

On November 30, 2010, the National Highway Traffic Safety Administration (NHTSA) and the U.S. EPA jointly published a Proposed Rule describing a set of complementary new proposed regulations for heavy-duty vehicles and engines for model years 2014 and later. On September 15, 2011, the Final Rule was published in the U.S. Federal Register. The U.S. rules establish coordinated federal regulations to address the closely intertwined issues of energy efficiency and climate change under a joint Heavy-Duty National Program. In this joint rulemaking, the NHTSA implements fuel economy standards under the Energy Independence and Security Actof 2007, while the U.S. EPA regulations under the Clean Air Act implement the GHG emission standards for heavy-duty vehicles.

The U.S. National Program is based on a common set of principles, which includes, as stated in the Final Rule: (see footnote 5) “increased use of existing technologies to achieve significant GHG emissions and fuel consumption reductions; a program that starts in 2014 and is fully phased in by 2018; a program that works towards harmonization of methods for determining a vehicle’s GHG and fuel efficiency, recognizing the global nature of the issues and the industry; standards that recognize the commercial needs of the trucking industry; and incentives leading to the early introduction of advanced technologies.”

In 2004, the U.S. EPA launched SmartWay, a voluntary program that encourages the trucking sector to identify strategies and technologies for reducing fuel consumption and CO 2 e emissions and allows companies to be SmartWay certified.

The SmartWay program has allowed the U.S. EPA to work closely with heavy-duty vehicle manufacturers and fleet operators in evaluating numerous technologies and developing test procedures that achieve fuel and CO 2 e reductions. The experience and knowledge acquired with SmartWay served in developing the Heavy-Duty National Program of the GHG regulations of the United States.

5.4.2. California

The California Air Resources Board adopted a GHG emission regulation for heavy-duty vehicles in 2008. This regulation is to reduce GHG by improving the fuel efficiency of heavy-duty vehicles through aerodynamic enhancement of vehicles and the use of low rolling resistance tires. This regulation covers tractors that pull a 53-foot or longer box-type semi-trailer, as well as covering the trailers themselves, and applies to the users of these tractor-trailer vehicles.

Since January 1, 2010, 2011 and later model year sleeper-cab heavy-duty tractors pulling a 53-foot or longer box-type trailer operating on a highway within California must be U.S. EPA Certified SmartWay, which requires certified aerodynamic equipment and low rolling resistance tires. As for day-cab tractors, the regulation requires that they be equipped with SmartWay verified low rolling resistance tires. The California regulation also requires that existing tractors, mainly all 2010 model year and older sleeper-cab and day-cab tractors, be equipped with SmartWay verified low rolling resistance tires starting in January 2012. The regulation also includes similar requirements for 53-foot or longer box-type trailers.

5.4.3. Other international regulatory actions to reduce GHGs/fuel consumption of vehicles

Other international jurisdictions have established or are developing regulatory regimes that directly or indirectly serve to reduce GHG emissions from new heavy-duty vehicles.

Japan has implemented the Top-Runner Program, which identifies and designates as the “top-runner” the most fuel-efficient vehicle in each weight range. The program has the objective to improve the fleet average fuel-efficiency of all vehicles in a particular weight range to match that of its top-runner. In the case of heavy-duty vehicles, the most fuel-efficient vehicle of model year 2002 (excluding hybrids) was set as the baseline and regulation would start with model year 2015.

The European Commission is currently developing a new certification procedure and a strategy targeting fuel consumption and CO 2 e emissions from heavy-duty vehicles. Simulation modelling is being considered. A draft regulation is expected to be completed during 2012. It is expected that mandatory reporting would be effective in 2013–2014 and that possible regulation would be in a 2018–2020 timeframe.

6. Regulatory and non-regulatory options considered

6.1. Status quo approach

Currently, there is no federal requirement in Canada to reduce GHG emissions from new on-road heavy-duty vehicles. Heavy-duty vehicles are an important contributor to overall emissions and reducing GHGs from these vehicles is a key element in meeting the Government’s climate change goals. Maintaining the status quo would make it more difficult for Canada to achieve this goal, while preventing Canadians from benefiting from the associated environmental improvements. Therefore, for the Government of Canada, maintaining the status quo is not an appropriate option for reducing GHG emissions from new heavy-duty vehicles in Canada.

6.2. Voluntary approach

New regulations in the United States will require manufacturers to adopt more GHG-reducing technologies in new heavy-duty vehicles sold in the United States beginning in 2014. However, because of the highly customized nature of the heavy-duty vehicle industry, manufacturers may choose not to install those technologies in vehicles sold in Canada. Therefore, while a voluntary program can result in some emission reductions, it would not necessarily amount to the same emission reductions as a regulatory regime.

6.3. Regulatory approach

Given the importance of addressing climate change, most industrialized countries are moving to establish regulated requirements for the control of fuel consumption and/or GHG reductions from new vehicles. The implementation of a comprehensive set of national standards reflecting a common North American approach for regulating GHG emissions from new on-road heavy-duty vehicles and engines would lead to environmental improvements for Canadians, and provide regulatory certainty for Canadian manufacturers. Aligning Canadian standards with U.S. standards would also set a North American level playing field in the transportation sector.

6.3.1. Regulations under the Motor Vehicle Fuel Consumption Standards Act

The Government of Canada has previously considered reducing GHG emissions through the adoption of vehicle fuel consumption standards under the Motor Vehicle Fuel Consumption Standards Act (MVFCSA). When the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations were developed in 2010, it was determined that significant amendments were required to the MVFCSA in order to be able to put in place regulations that would align with the U.S. fuel economy standards. Therefore, the approach of proceeding with Canadian fuel consumption regulations under the MVFCSA was then excluded in favour of regulating under CEPA 1999.

6.3.2. Regulations under CEPA 1999

CEPA 1999 enables the implementation of innovative compliance flexibilities such as a system for the banking and trading of emission credits to help meet overall environmental objectives in a manner that provides the regulated industry with maximum compliance flexibility.

This approach is also consistent with the existing use of CEPA 1999 to establish standards limiting smog-forming air pollutant emissions from new vehicles and engines, as well as to regulate GHG emissions from light-duty vehicles under the Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations.

The Government of Canada has determined that establishing regulated heavy-duty vehicle GHG emission standards under CEPA 1999 represents the best option to introduce these proposed Regulations and to align Canada’s requirements with the national regulated standards of the United States.

7. Benefits and costs

The proposed Regulations are estimated to result in a reduction of approximately 19.0 Mt of CO 2 e in GHG emissions over the lifetime of new on-road heavy-duty vehicles sold between 2014 and 2018 (MY2014–2018), the period during which the proposed Regulations first come into effect (2014) and then are gradually phased into full effect (2015 to 2018). The proposed Regulations are also expected to reduce fuel consumption by 7.2 billion litres over the lifetime of the MY2014–2018 fleet.

Over the lifetime of MY2014–2018 vehicles, the present value of the cost of the proposed Regulations is estimated at $0.8 billion, largely due to the additional vehicle technology costs required by the proposed Regulations. The total benefits are estimated at $5.0 billion, due to the value of GHG reductions ($0.5 billion) and fuel savings ($4.5 billion). Over the lifetime of MY2014–2018 vehicles, the present value of the net benefit of the proposed Regulations is estimated at $4.2 billion. The detailed analysis of benefits and costs is presented below.

7.1. Analytical framework

The approach to cost-benefit analysis identifies, quantifies and monetizes, to the extent possible, the incremental costs and benefits of the proposed Regulations. The cost-benefit analysis framework applied to this study incorporates the following elements:

Incremental impacts: Impacts due to the proposed Regulations are analyzed in terms of changes to vehicle technologies, emissions, and associated costs and benefits in the regulatory scenario compared to the business-as-usual (BAU) scenario. The two scenarios are presented in detail below. The incremental impacts are the differences between the estimated levels of technologies and emissions in the two scenarios, and the differences between the associated costs and benefits in the two scenarios. These differences (incremental impacts) are thus attributed to the proposed Regulations.

Timeframe: The analysis considers new heavy-duty vehicles sold between 2014 and 2018 (MY2014–2018), the period during which the proposed Regulations first come into effect (2014) and then are gradually phased into full effect (2015 to 2018). The analysis assumes that new vehicles survive for up to 30 years. This timeframe is consistent with other analyses, and with Canadian data that shows that few vehicles survive beyond 30 years. Thus the overall timeframe for the analysis is 35 years (2014 to 2048), the total lifespan of the MY2014–2018 new vehicle fleet. The impact of vehicles sold after 2018 is not considered in this analysis, but is expected to be similar to the impact for MY2018.

Costs and benefits have been estimated in monetary terms to the extent possible and are expressed in 2010 Canadian dollars. Whenever this was not possible, due either to lack of appropriate data or difficulties in valuing certain components, incremental impacts were evaluated in qualitative terms. Table 4 summarizes the benefits and costs which were evaluated quantitatively.

Table 4: Monetized benefits and costs

Benefits Costs Pre-tax fuel savings

Avoided GHG damages Technology costs

Noise, accidents, congestion

Government administration

Discount rate: A social discount rate of 3% is used in the analysis for estimating the present value (2011 base year) of the costs and benefits under the central analysis. This level is within the range prescribed by the Treasury Board Secretariat’s cost-benefit analysis (CBA) guidelines. This is consistent with discount rates used for other GHG related measures in Canada, as well as those used by the U.S. EPA.

7.2. Key data and information

To assess the impact of the proposed Regulations, it was necessary to obtain Canadian estimates of future vehicle sales, fuel prices and monetary values for GHG reductions; to identify the technologies that manufacturers would likely adopt, and the costs they would incur in order to comply with the proposed Regulations; and then to model future vehicle emissions, fuel consumption and distance travelled, with and without the proposed Regulations. These key sources of data and information are described below.

7.2.1. Canadian sales forecast

For years 2011 through 2018, a vehicle sales forecast from DesRosiers Automotive Consultants (DAC) was used in the analysis. For the purpose of this study, all historical (calendar year 2005 through year-to-date June 2010) medium and heavy-duty vehicle data was provided by R. L. Polk (Polk). Using the Polk data file, DAC developed aggregate medium and heavy-duty historical registration data and forecast data using proprietary DAC forecasting methodologies and input from industry representatives. This study required an in-depth review of core Canadian economic variables. A database containing historical and forecast economic factors from calendar year 2000 through 2018 was provided by Environment Canada’s Energy-Economy-Environment Model for Canada (E3MC) in March of 2011. DAC also considered provincial economic forecast data from Informetrica Limited (March 14, 2011), BMO Capital Markets Economics (March 14, 2011) and TD Economics (March 2011). The overall results of the DAC sales report are displayed below, with historical trends shown from 2000 to 2010, and projected trends shown from 2011 to 2018, based on DAC analysis and forecasts:

Figure 1: Sales forecast for Canadian medium and heavy-duty vehicles

The analysis of the proposed Regulations incorporates the same detailed DAC sales estimates, for each vehicle regulatory class, into the modelling of vehicle population growth from 2010 to 2018 for both the BAU and policy scenarios. DAC estimated total sales per calendar year, which are used as a proxy for model year sales in this analysis.

7.2.2. Canadian vehicle emissions modelling

Estimates of Canadian vehicle emissions were developed using methods aligned with those initially developed by the U.S. EPA, together with key Canadian data to reflect the impact of the proposed Regulations. The emissions selected were those linked to climate change, air quality and human health, such as greenhouse gases (GHGs) and criteria air contaminants (CACs). The primary modelling tool used to calculate vehicle emissions was the Motor Vehicle Emissions Simulator (MOVES), which is the U.S. EPA’s official mobile source emission inventory model for heavy-duty vehicles. Key data for Canadian heavy-duty vehicle populations and distance travelled were then incorporated into the most current version of MOVES (MOVES2010a) in order to produce an analysis for Canada of the impacts of the proposed Regulations. Vehicle data collected by gross vehicle weight rating (GVWR) was mapped into MOVES2010a and then categorized according to the vehicle classifications in the proposed Regulations, as described in this RIAS and as shown in figure 2.

Figure 2: GVWR, MOVES and RIAS classes for this analysis

Canadian vehicle populations were estimated for all calendar years 2005 through 2050. For the purposes of this analysis, data purchased from Polk and Co. on the heavy-duty fleet in Canada for calendar years 2005 through 2010, were used by Environment Canada to develop vehicle population and age estimates for those years. After 2010, future vehicle populations are forecasted based on new vehicle sales and the number, age and estimated survival rates of existing vehicles. For years 2011 through to 2018, the DesRosiers sales forecast were used, as discussed above. For years 2019 and beyond, the default MOVES sales rates were used in the absence of Canada specific sales rates beyond 2018. Comprehensive validated survival estimates for Canadian heavy-duty vehicles were not available for this analysis. Instead, MOVES default vehicle survival rate estimates were generally used. These MOVES survival rate estimates appear similar to available Canadian data for vehicles less than 30 years old, but appear to underestimate survival for Canadian vehicles aged 30 years or more. Therefore, an adjustment was made in MOVES for the survival rate of vehicles aged 30 years or more, to make this rate more consistent with available Canadian data.

Along with vehicle populations, vehicle distance travelled is also important in overall emissions estimation for Canada. Estimates of Canadian vehicle kilometres travelled (VKT) and kilometre accumulation rates (KAR) were developed for all calendar years from 2005 through 2050. KAR is the product of VKT divided by the number of vehicles (the population). In 2010, Environment Canada contracted Stewart-Brown Associates (SBA) to generate KARs from inspection and maintenance (I/M) program data in Canada. Specifically, this was the Drive Clean program in Ontario, and the AirCare program in British Columbia. KARs generated in this manner from Ontario and British Columbia were then applied to Canada as a whole. This baseline Canadian KAR data was used to generate Canadian VKT estimates for each vehicle type and age, for all calendar years 2005 through 2010. Then the default MOVES growth rates were used to estimate VKT for the Canadian fleet for the calendar years 2011 to 2050.

7.2.3. The social cost of carbon (SCC)

The estimated value of avoided damages from GHG reductions is based on the climate change damages avoided at the global level. These damages are usually referred to as the social cost of carbon (SCC). Estimates of the SCC between and within countries vary widely due to challenges in predicting future emissions, climate change, damages and determining the appropriate weight to place on future costs relative to near-term costs (discount rate).

Social cost of carbon values used in this assessment draw on ongoing work being undertaken by Environment Canada (see footnote 6) 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 greenhouse gas 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 7) are that it is reasonable to estimate SCC values at $26/tonne of CO 2 in 2010, increasing at a given percentage each year associated with the expected growth in damages. (see footnote 8) Environment Canada’s review also concludes that a value of $104/tonne in 2010 should be considered, reflecting arguments raised by Weitzman (2011) (see footnote 9) and Pindyck (2011) (see footnote 10) regarding the treatment of right-skewed probability distributions of the SCC in cost-benefit analyses. (see footnote 11) 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 $104 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.

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

Figure 3: SCC estimates (2010 CAN$/tonne)

7.2.4. Fuel prices

Fuel price forecasts for both gasoline and diesel were adopted from Environment Canada’s E3MC model for the period of 2010 to 2035. The E3MC model is an end-use model that incorporates the National Energy Board’s (NEB) forecast for West Texas Intermediate crude oil price as reported in the NEB’s Energy Supply and Demand Projections to 2035 — Market Energy Assessment. (see footnote 12) The E3MC model uses this data to generate fuel price forecasts which are primarily based on consumer-choice modelling and historical relationships between macroeconomic and fuel price variables. Fuel prices beyond 2035 were projected based on the E3MC model average growth rate of fuel prices for the years 2020 to 2035. Uncertainty regarding these future fuel price forecasts was also considered in a sensitivity analysis.

Pre-tax fuel prices were used in the analysis as taxes are not generally considered in cost-benefit analyses given that they are a transfer rather than an economic cost. Post-tax gasoline and diesel price forecasts were used in a separate payback analysis. Due to regional variations in fuel taxes, post-tax fuel prices were calculated by weighting fuel sales by regional populations and then adding regional taxes accordingly.

Figure 4: Gas and diesel prices (2010 CAN$/L)

7.2.5. Vehicle technologies that reduce GHG emissions

Information on vehicle technologies, costs and adoption rates was obtained from the U.S. EPA’s regulatory impact analysis of its Final Rulemaking to Establish Greenhouse Gas Emission Standards for Medium- and Heavy-Duty Engines and Vehicles. (see footnote 13)

The technologies considered in this analysis are those most likely to be adopted during the period of the analysis (MY2014–2018) in response to the proposed Regulations, having been developed and being available to some extent already, and already shown by the U.S. EPA to be cost-effective. Table 5 below presents a list of technologies that manufacturers are likely to choose in order to comply with the proposed Regulations.

Table 5: Potential key technologies

Combination trucks Engine improvements, more use of low rolling resistance tires, mass reduction, improved aerodynamics, increased use of auxiliary power units, reduced air conditioning leakage Vocational vehicles Engine improvements, more use of low rolling resistance tires Heavy-duty

pick-ups and trucks Engine improvements, more use of low rolling resistance tires, mass reduction, improved transmissions, reduced accessory loads

7.2.6. Key assumptions

Under the business-as-usual scenario, technology choices for MY2014–2018 remain the same as for MY2010. This assumption is further discussed in section 7.3.1 and in the “Rationale” section, and is evaluated in the “Sensitivity analysis” section.

Under the policy scenario, all technology manufacturing costs will be passed onto vehicle purchasers, who will recoup these costs through fuel savings achieved by the technologies adopted to meet the proposed Regulations. This assumption is evaluated in the payback analysis section.

7.3. Analytical scenarios

This analysis considers two scenarios: a business-as-usual (BAU) scenario, which assumes the proposed Regulations are not implemented, and a regulatory scenario, which assumes the proposed Regulations are implemented. These two scenarios are based on the same volume of forecasted vehicle sales between 2014 and 2018. The differences between the scenarios are considered in terms of the estimated changes in vehicle technology choices in the regulatory scenario, and the impacts of these changes on vehicle costs, distance travelled, fuel consumption and emissions.

The analysis assumes that these technology changes will only occur in response to the proposed Regulations; thus, the BAU rate of technology change is zero. This assumption may underestimate any “natural” technology changes that could occur throughout the North American market due to normal technological development in the absence of any regulations, or “complementary” technology changes that might occur in Canada either in response to similar regulations in the United States or in anticipation of the proposed Regulations in Canada. These alternate rates of technology change are difficult to estimate, but are considered in a sensitivity analysis. Whatever the proportion of technology change attributable to the proposed Regulations, the entirety of the changes shown in the analysis is expected to occur, and the analysis can be interpreted to identify the entire costs that Canadians can expect to bear and the benefits they can expect to receive over the lifetimes of MY2014–2018 vehicles.

7.3.1. Business-as-usual scenario

The business-as-usual scenario assumes that the proposed Regulations are not implemented and that vehicle technologies which affect GHG emissions will remain unchanged over the sales period of the analysis. The analysis considers projected vehicle sales for 2014 to 2018 and estimates the impacts of these new vehicles in terms of distance travelled, fuel consumption and emissions, given that technologies will remain constant.

7.3.2. Regulatory scenario

The regulatory scenario assumes that certain GHG emission-reducing technologies will be chosen to comply with the proposed Regulations. These are assumed to be already existing technologies, so manufacturers can choose among available technologies and increase their usage in new vehicles in order to comply with the proposed Regulations. Given that technologies will change in this scenario, the analysis considers the same BAU projected vehicle sales for 2014 to 2018, and estimates the incremental impacts of the technical modifications to these vehicles in terms of changes in vehicle costs, distance travelled, fuel consumption and emissions.

7.4. Costs

7.4.1. Vehicle technology costs

The proposed Regulations align with the proposed national GHG emission standards of the U.S. EPA for the 2014 and later model years, in order to provide manufacturers with a common set of vehicle GHG emission standards. Therefore, the analysis of the proposed Canadian Regulations assumes that manufacturers will likely adopt similar technologies to meet these proposed common emission standards.

The U.S. EPA selected likely technology choices from existing technologies based on engineering analyses, estimated increased adoption rates for these technologies in order to comply with the proposed U.S. EPA standards, and then estimated the redesign and application costs per vehicle for those technology packages.

The U.S. EPA assessment of technologies that would be available for each of the engine classes and sub-categories of vehicles and the estimates of their effectiveness and costs were guided by published research and independent summary assessments. They first estimated the baseline emissions and fuel consumption rates for each of the regulated subcategories of engines and vehicles. It was assumed that these rates would remain unchanged in the absence of the standards. Then, for each subcategory of engine, they identified technologies which could be applied practically and cost-effectively. Effectiveness and costs of each technology were estimated and applied independently, then applied in combination. The availability and increase in penetration rates of technologies were assessed together with effectiveness and costs for each model year from 2014 to 2018. Costs were initially estimated as the direct costs to manufacturers of materials, components and assembly, to which some addition was required to represent development costs, the contribution of the manufacturer’s corporate resources and costs of distribution.

Given the integration of the North-American vehicle manufacturing sector and the alignment of the proposed Canadian Regulations with the U.S. EPA standards, the same U.S. EPA-estimated vehicle technology choices and adoption rates, and the same proportional costs per vehicle, adjusted for exchange rates, were used as in the U.S. EPA analysis. The resulting estimates of the present value of the costs of the technologies required to meet the proposed Regulations are presented in Table 6.

Table 6: Summary of technology costs, by model year, in millions of 2010 CAN$

value MY2014 MY2015 MY2016 MY2017 MY2018 Combined MYs 2014–18 Present value of technology costs 138 133 135 138 151 695

MY = lifetime (30 years) impacts for each year of vehicle sales. Present value in 2010 CAN$, using a 3% discount rate.

The proposed Regulations would also include a system of CO 2 e emission credits to help meet overall environmental objectives in a manner that provides the regulated industry with compliance flexibility. As use of these credits is difficult to predict with any precision, the analysis did not model the benefits of these compliance flexibilities. It is therefore reasonable to conclude that the costs of vehicle technology may be somewhat overestimated.

The analysis of the proposed Regulations assumes that manufacturers will pass the GHG emission-reducing vehicle technology costs to their purchasers. Because these technologies are estimated to also generate substantial fuel savings for vehicle owners and operators, the proposed Regulations are assumed not to impact on the volume of new heavy-duty vehicle sales. No other potential operating cost impacts of new technologies (e.g. maintenance and repairs) were considered in the analysis, as any such incremental costs are expected to be quite small in relation to expected fuel savings.

7.4.2. Government costs

Costs of the Regulations to the Government of Canada fall into three principal categories: compliance promotion costs, enforcement costs, and regulatory program costs. The estimates of these are described below:

Compliance promotion: The overall present value of costs over the 2014–2018 period is estimated at approximately $100,000. Compliance promotion activities include information sessions for manufacturers and importers on the main requirements of the Regulations, in particular new emission standards and report submission. In subsequent years, the annual costs will be $20,000 (undiscounted) per year, and the compliance promotion activities would be adjusted according to the regulated community compliance level and to the compliance strategy.

Enforcement: The present value of overall costs over the 2014–2018 period is estimated at approximately $500,000 and will be used for inspections (which includes operation and maintenance costs, transportation and sampling costs), investigations, measures to deal with alleged violations (including warnings, environmental protection compliance orders and injunctions) and prosecutions.

Regulatory administration: The present value of overall costs over the 2014–2018 period is estimated at approximately $8 million. These costs include amendments to the Regulations, regulatory administration and verification testing, and also include salaries, operation and maintenance. Regulatory administration would be used to develop and maintain a reporting system to compile data submitted by companies related to their fleet emissions and related credits or deficits for each model year fleet. The costs for verification testing would be used to deliver and administer the testing and emissions verification program, including associated laboratory costs and vehicle and engine acquisition. These costs also include an upgrade to the testing facilities and associated equipment to accommodate heavy-duty vehicle and engine testing.

The present value of the costs related to these three categories are estimated to total $8.6 million over the 2014–2018 period in this analysis, and are presented in Table 7.

Table 7: Incremental cost to Government, 2014–2018, in millions of 2010 CAN$

values 2014 2015 2016 2017 2018 5-Year Total Present value of compliance promotion costs 0.035 0.017 0.017 0.016 0.016 0.100 Present value of enforcement costs 0.113 0.110 0.107 0.104 0.101 0.534 Present value of regulatory program costs 1.684 1.584 1.546 1.582 1.536 7.932 Total 1.833 1.711 1.670 1.701 1.652 8.566

Due to rounding, some of the totals may not match. Present value in 2010 CAN$, using a 3% discount rate.

7.4.3. Accidents, congestion and noise

As fuel savings lower vehicle operating costs, it is assumed that there will be some increase in vehicle distance travelled, which could lead to more accidents, congestion and noise. This analysis assumes that heavy-duty vehicle owners consider these savings within the total cost of vehicle operation. The increase in vehicle distance travelled in response to lower vehicle operating costs is referred to as the “rebound” effect, and is measured here in vehicle-kilometres travelled (VKT).

For heavy-duty vehicles, the U.S. EPA estimated the net rebound rate to be small overall and to vary by vehicle type: an approximate 0.5% to 1.5% increase in annual VKT per vehicle in response to total vehicle operating cost savings due to fuel savings. The Canadian analysis used the same rebound rates as the U.S. EPA, and applied them to annual Canadian fleet estimates of baseline VKT from MOVES in order to estimate the increase in VKT attributable to the rebound effect.

There are no identified Canadian estimates of heavy-duty vehicle costs per kilometre for accidents, congestion and noise. For Class 2B and Class 3 heavy-duty vehicles, this analysis used Canadian estimates for light-duty pickup trucks and vans. This is the same approach used by the U.S. EPA. The Canadian estimates for these vehicles are 46% lower than the U.S. EPA’s estimates. This analysis applied the U.S. EPA’s estimates per kilometre for heavy-duty vocational vehicles and tractors, assuming that Canadian estimates would also be 46% lower than the U.S. EPA’s estimates for the same heavy-duty vehicle classes. These per-kilometre cost estimates for accidents, congestion and noise were then applied to the Canadian VKT rebound estimates in order to obtain estimates of the overall value of accidents, congestion and noise for each vehicle class in this analysis. The results are presented below.

Table 8: Summary of costs of additional noise, accidents, and congestion, by model year, in millions of 2010 CAN$

value MY2014 MY2015 MY2016 MY2017 MY2018 Combined MYs 2014–18 Present value of noise, accidents, and congestion 26 25 25 24 23 123

MY= lifetime (30 years) impacts for each year of vehicle sales. Present value in 2010 CAN$, using a 3% discount rate.

7.5. Benefits

7.5.1. GHG emissions reductions

The MOVES emissions model was used to estimate the impact of the proposed Regulations in terms of reductions in vehicle GHG emissions, as presented in Table 9 below. The proposed Regulations are estimated to result in a lifetime model-year reduction of 2.9 Mt beginning in MY2014 and increasing each year to 5.3 Mt for MY2018. Thus, as the proposed Regulations come into full effect over the MY2014–2018 period, they will result in a cumulative lifetime GHG emission reduction of 19 Mt arising from new vehicles entering the market in these five years.

For MY2019 and subsequent model years, the proposed Regulations would remain in full effect, and thus the lifetime reductions that would be observed under a regulatory scenario would likely be similar to the MY2018 level of 5.3 Mt for each subsequent MY, assuming similar sales and other modelling parameters. However, looking beyond MY2018, it also becomes more likely that some of these GHG emission reductions would have occurred even in the absence of the proposed Regulations and could not therefore be fully attributed to the proposed Regulations.

7.5.2. Value of avoided GHG emission damages

The estimated value of avoided damages from GHG reductions is based on the climate change damages avoided at the global level. Based on an estimated SCC of $26/tonne, the present value of incremental GHG emission reductions under the proposed Regulations is estimated to be over $0.5 billion over the lifespan of the MY2014–2018 new vehicle fleet. Under the $104/tonne SCC estimate, the present value of incremental GHG emission reductions would be estimated at over $1.8 billion for the 2014–2018 model year vehicles.

Table 9: Summary of GHG benefits, by model year, in millions of 2010 CAN$

values MY2014 MY2015 MY2016 MY2017 MY2018 Combined MYs 2014–18 Reduction in

GHG emissions — undiscounted

(Mt CO 2 e) 2.9 3.0 3.2 4.6 5.3 19.0 Present value of

the reduction in GHG emissions

(SCC at $26/tonne) 73 74 80 115 130 472 Present value of

the reduction in GHG emissions

(SCC at $104/tonne) 283 288 311 445 503 1,831

MY= lifetime (30 years) impacts for each year of vehicle sales. Due to rounding, some of the totals may not match. Present value in 2010 CAN$, using a 3% discount rate.

7.5.3. Fuel savings benefits

Manufacturers are expected to meet the requirements of the proposed Regulations by adopting vehicle technologies that reduce GHG emissions. Most of these technologies (e.g. low rolling resistance tires and improved aerodynamics) will achieve these GHG emission reductions by improving vehicle energy efficiency. MOVES was used to estimate vehicle energy efficiency improvements due to vehicle technology improvements, and then these energy savings were converted to fuel savings using standard metrics. Thus these technologies are expected to reduce fuel consumption by 7.2 billion litres (undiscounted) over the lifetime of the MY2014–2018 fleet, as presented in Table 10 below.

Based on projected fuel prices, the benefits to vehicle owners arising from these fuel reductions are estimated to be $4.5 billion in fuel savings, and these cumulative savings are estimated to outweigh the technology costs ($0.7 billion) by a ratio of more than 6:1 over the lifetime of the MY2014–2018 fleet. Fuel prices are calculated pre-tax, so vehicle owners could expect higher savings than those resulting from this analysis. A post-tax payback analysis for vehicle owners is also presented in section 11.

Fuel savings are also expected to reduce the frequency of refuelling, which is a time-saving benefit for vehicle operators. The analysis used refuelling fill rates to calculate the total time saved due to reduced fuel consumption. The value of these time savings was calculated using an estimated mean wage rate for a typical truck driver ($23.33 per hour in 2010 CAN$). (see footnote 14) Using these values, the benefits of refuelling time savings due to the proposed Regulations are expected to be $34 million over the lifetime of the MY2014–2018 fleet, as presented in Table 10.

Table 10: Summary of fuel-related benefits, by model year, in millions of 2010 CAN$

values MY2014 MY2015 MY2016 MY2017 MY2018 Combined MYs 2014–18 Fuel savings — undiscounted (million litres) 1,080 1,111 1,215 1,758 2,015 7,179 Present value of fuel savings 716 718 764 1,079 1,204 4,481 Present value of reduced refuelling time 5 5 6 8 10 34 Present value of the sum of fuel benefits 720 723 770 1,088 1,214 4,515

MY = lifetime (30 years) impacts for each year of vehicle sales. Due to rounding, some of the totals may not match. Fuel savings are pre-tax. Present value in 2010 CAN$, using a 3% discount rate.

8. Non-quantified impacts

8.1. Fuel savings impacts on upstream petroleum sector

Canada is a small open economy and a price-taker in the world petroleum market. The estimated reduction in domestic fuel consumption resulting from the proposed Regulations would therefore not be expected to impact on the price of petroleum. Reduced domestic fuel consumption from any fuel savings resulting from the proposed Regulations would therefore be expected to be redirected from domestic consumption to increased exports, with no incremental impact on the upstream petroleum sector.

8.2. Criteria air contaminant impacts

The proposed Regulations are also expected to impact on CACs such as CO, NO x , PM 2.5 , SO x and VOC. Overall it is expected that vehicle emissions of most CACs will decrease slightly in response to the proposed Regulations, primarily due to anticipated fuel savings. Conversely, it is anticipated that emissions of PM 2.5 will rise slightly, primarily due to the expected increased use of diesel-powered auxiliary power units as a fuel saving measure for extended idling in tractors. The net impact of these changes in emissions of CACs on air quality, and the resulting impacts on human health are expected to be very minor. Given the small scale of the expected CAC emissions and the challenges in estimating their value, these impacts have not been quantified.

8.3. Regulatory certainty and reduced compliance costs for manufacturers

The proposed Regulations are designed to align with similar regulations being introduced in the United States in 2014. The heavy-duty vehicle manufacturing sectors in Canada and the United States are highly integrated, so there are several benefits to regulatory alignment between the two countries. First, responding to new United States regulations with proposed Regulations in Canada provides a degree of regulatory certainty for Canadian manufacturers, which should facilitate their investment decision-making.

Then, by aligning regulations, as opposed to establishing different regulatory requirements than the United States, the proposed Regulations will further benefit Canadian companies subject to these regulations. Canadian companies manufacturing and/or importing into Canada vehicles that are concurrently sold in the United States can use U.S. information and data, such as emission tests results, to demonstrate compliance with the proposed standards. This significantly reduces the companies’ compliance assessment and administrative costs. Aligned regulations would also set a North American level playing field in the transportation sector by preventing any manufacturer from producing less expensive and higher emitting vehicles, and therefore putting other manufacturers in a competitive disadvantage. These benefits have been assessed qualitatively, as there are no available quantified estimates of the benefits of regulatory alignment.

9. Summary of costs and benefits

Over the lifetime of MY2014–2018 vehicles, the present value of the cost of the proposed Regulations is estimated at $0.8 billion, largely due to the additional vehicle technology costs required by the proposed Regulations. The total benefits for MY2014–2018 are estimated at $5.0 billion, due to the value of GHG reductions ($0.5 billion) and fuel savings ($4.5 billion). Over the lifetime of MY2014–2018 vehicles, the present value of the net benefits of the proposed Regulations is estimated at $4.2 billion. The results of the cost-benefit analysis of the proposed Regulations are presented in Table 11.

Table 11: Summary of main results, by model year, in millions of 2010 CAN$

Incremental

costs and benefits

(millions of dollars) MY2014 MY2015 MY2016 MY2017 MY2018 Combined MYs 2014–18 Monetized costs A. Sector costs Present value of the technology costs 138 133 135 138 151 695 B. Societal costs Present value of the noise, accidents and congestion 26 25 25 24 23 123 Present value of the government administration costs 2 2 2 2 2 9 Sum of costs 166 160 162 164 175 827 Monetized benefits A. Sector benefits Present value of the pre-tax fuel savings 716 718 764 1,079 1,204 4,481 Present value of the reduced refuelling time 5 5 6 8 10 34 B. Societal benefits Present value of reduction in GHG emissions (SCC at $26/tonne) 73 74 80 115 130 472 Sum of benefits 793 798 850 1,202 1,344 4,987 NET BENEFIT — with SCC at $26/tonne 627 638 688 1,039 1,168 4,160 NET BENEFIT — with alternate SCC at $104/tonne 837 852 919 1,369 1,542 5,519 Qualitative and non-monetized impacts Positive regulatory alignment impacts

No net critical air contaminants impacts

No net upstream fuel impacts

MY = lifetime (30 years) impacts for each year of vehicle sales. Present value in 2010 CAN$, using a 3% discount rate. Due to rounding, some of the totals may not match.

The analysis indicates that in the first years of the proposed Regulations (MY2014–16), the lifetime costs will range from $160 to $166 million, the lifetime benefits will range from $793 to $850 million, and the lifetime net benefits will range from $627 to $688 million. These values reflect the impacts of the initial levels of compliance standards in the proposed Regulations, and the level of vehicles sales over this period. For MY2017–18, the proposed Regulations introduce higher compliance standards, resulting in higher costs ($164 to $175 million), higher benefits ($1,202 to $1,344 million) and higher net benefits ($1,039 to $1,168 million).

For MY2019 and subsequent model years, the proposed Regulations maintain the MY2018 compliance standards, and, all else being equal, results would be expected to be similar to those for MY2018, given similar volumes of annual vehicle sales.

Table 12: Summary metrics

description MY2014 MY2015 MY2016 MY2017 MY2018 Combined MYs 2014–18 Benefit to cost ratio — discounted at 3% (SCC at $26/tonne) 4.8 5.0 5.2 7.4 7.7 6.0 Fuel savings — undiscounted (million litres) 1,080 1,111 1,215 1,758 2,015 7,179 Reduction in GHG emissions — undiscounted

(Mt CO 2 e) 2.9 3.0 3.2 4.6 5.3 19.0 Present value of CO 2 damages avoided (Mt CO 2 e) 2.7 2.7 2.9 4.2 4.7 17.2 Present value of the socio-economic costs which equal total costs minus non-GHG benefits (in millions of 2010 CAN$) –3,688 Present value of the socio-economic cost per tonne of CO 2 damages avoided ($/tonne) –215

MY = lifetime (30 years) impacts for each year of vehicle sales. CO 2 damages are grown at 2% per year to reflect the growth in climate change damages over time as emissions cumulate in the atmosphere. Present value uses a 3% discount rate. Due to rounding, some of the totals may not match.

For the proposed Regulations, the benefit to cost ratio is estimated to be 6 to 1 for the overall MY2014–2018 fleet of new heavy-duty vehicles. The benefit to cost ratio also increases from 4.8 to 1 for MY2014 to 7.7 to 1 for MY2018. This trend reflects the positive impact of fully implementing the proposed Regulations.

Over the lifetime of the MY2014–2018 fleet, the proposed Regulations are expected to reduce fuel consumption by 7.2 billion litres, and reduce GHG emissions (CO 2 e) by 19.0 Mt.

In order to allow a comparison of social cost-effectiveness with other government climate change measures, we present the socio-economic cost per tonne of CO 2 emissions avoided. This ratio is calculated by subtracting the present value of the sum of all non-GHG benefits from the present value of the costs of the proposed Regulations, and then dividing by the present value of the tonnes of CO 2 emissions avoided. This ratio measures the lifetime socio-economic costs of reducing GHG emissions if the proposed Regulations are implemented over the MY2014–2018 analysis period, on a per tonne basis. For the proposed Regulations, the ratio of –$215/tonne is negative, indicating that the carbon emission reduction under the proposed Regulations would result in a net benefit rather than net cost.

10. Sensitivity analysis

A sensitivity analysis was done to consider the impact of uncertainty in key variables (i.e. changes in estimated sales, technology costs, fuel prices and discount rates). The sensitivity analysis shows that the results are robust in terms of demonstrating positive net benefits for the proposed Regulations across a broad range of plausible values for variables and assumptions.

Table 13: Results of sensitivity analysis

SENSITIVITY VARIABLES NET BENEFIT Lower Central Higher 1. Sensitivity to sales forecasts: (-30%, central, +30%) 2,909 4,160 5,411 2. Sensitivity to technology costs: (+30%, central, -30%) 3,966 4,160 4,354 3. Sensitivity to fuel prices: (-30%, central, +30%) 2,816 4,160 5,504 4. Sensitivity to discount rates: (7%, 3%, undiscounted) 2,669 4,160 6,307

All values are in millions of 2010 CAN$, using a 3% discount rate except where otherwise indicated.

A sensitivity analysis was also done to consider the impact of the assumption in the business-as-usual scenario (BAU) regarding the rate of technology change in the absence of the proposed Regulations. Throughout the regulatory analysis, it is assumed that this rate is zero. This sensitivity analysis shows, however, that by assuming instead that some technology change would occur even in the absence of the proposed Regulations, costs and benefits attributable to the Regulations would be reduced proportionately.

Table 14: BAU sensitivity analysis

BAU rate of technology adoption 0% 25% 50% Costs 827 623 418 Benefits 4,987 3,740 2,494 Net benefit 4,160 3,118 2,076 Rate of technology adoption attributable to the Regulations 100% 75% 50%

All figures are in million 2010CAN$, using a 3% discount rate.

The regulatory analysis provides information to the public and stakeholders about the costs they can expect to bear and the benefits they can expect to receive over the lifetime of new heavy-duty vehicles sold with more GHG emission reducing technologies. It is unclear whether some or many of the technologies would be adopted in the absence of the proposed Regulations. To the extent that they would, the costs and the benefits attributed to the proposed Regulations would be overstated. The sensitivity analysis shows that even if the BAU rate of technology adoption was as high as 50%, the proposed Regulations would still result in a positive net benefit.

11. Distributional impacts

The automotive manufacturing sector is concentrated within Ontario and Quebec, with other plants in Manitoba, Saskatchewan, Alberta, and British Columbia. (see footnote 15) The compliance costs of the proposed Regulations are estimated to increase the production cost of vehicles for manufacturers by more than $130 million per year. These costs are expected to be distributed according to the future purchases and use of these regulated heavy-duty vehicles, and it is not expected that there will be significantly disproportionate impacts on any region within Canada.

The proposed Regulations will require manufacturers to comply by adopting more GHG emission reducing technologies in new vehicles. The analysis of the proposed Regulations assumes that manufacturers will generally be able to pass on all GHG emission reducing technology costs to vehicle purchasers, because these purchase costs can be shown to be quickly recouped through fuel savings. All new heavy-duty vehicle purchasers are assumed to be businesses, not consumers, given that heavy-duty vehicles are generally designed for commercial use. Businesses are expected to evaluate costs and benefits in terms of the expected payback on investment costs.

A simple payback analysis of MY2018 vehicle costs (Table 15) shows that average first-year fuel savings (including taxes) for owners and operators are expected to be greater than the manufacturer’s average costs for adding new technologies. For all three heavy-duty vehicle regulatory classes, the payback period is less than one year.

Table 15: Average technology costs per new vehicle and fuel savings

MY2018 HD Pickups

and Trucks Vocation Vehicles Combination Tractors Technology costs per new vehicle 1,071 455 6,476 First-year fuel savings per new vehicle 2,269 1,200 9,636 Net first-year savings 1,198 745 3,160

Fuel prices are post-tax, by MY2018 vehicle class. All figures are in 2010 CAN$.

Technology costs are the average cost for vehicles in their respective RIAS class.

12. Rationale

The proposed Regulations are intended to reduce GHG emissions by requiring manufacturers to increasingly adopt emission-reducing technologies. The analysis shows that if manufacturers comply, then GHG emission reductions will be achieved and there will also be a large net economic benefit, due primarily to fuel savings. In perfect markets, such fuel savings would be enough to motivate reductions in GHG emissions even in the absence of the proposed Regulations. Accordingly, it may be reasonably asked why the proposed Regulations would be necessary in order to achieve these cost-effective results. To try to understand this issue, the U.S. EPA surveyed published literature and held discussions with numerous truck market participants. From these sources, five categories of possible explanations were derived.

First, comprehensive and reliable information on the effectiveness and efficiency of new technologies is not always available. Thus buyers may understandably be reluctant to spend additional money to purchase vehicles equipped with these new technologies.

Second, although it seems reasonable to assume that people are willing to pay more for better vehicles, new or used, it is not clear whether buyers of used vehicles can tell which are the better vehicles. As a result, the purchasers of original equipment may expect the resale market to provide inadequate compensation for the new technologies, even when those technologies would reduce costs for resale buyers.

Third, if for some reason a truck purchaser will not be directly responsible for future fuel costs, or the individual who will be responsible for fuel costs does not decide which truck characteristics to purchase, then those price signals (higher vehicle prices offset by lower fuel costs) may not be transmitted effectively, and incentives can be described as “split.”

Fourth, there may be uncertainty about future fuel prices. When purchasers have less than perfect foresight about future operating expenses, they may implicitly apply much higher discount rates to future potential fuel savings, due to their uncertainty.

Fifth, transaction costs of changing to new technologies may slow or prevent their adoption. If a conservative approach to new technologies leads truck buyers to adopt new technologies slowly, then successful new technologies are likely to be adopted over time without market intervention, but with potentially significant delays in achieving fuel saving and environmental benefits.

It is unclear whether some or many of the technologies would be adopted in the absence of the proposed Regulations. There is, however, highly imperfect information in the original and resale markets, split incentives, uncertainty about future fuel prices, and adjustment and transaction costs. These market failures would limit the adoption of these technologies in the absence of the proposed Regulations. Therefore, regulations that force the adoption of these technologies can bring net benefits to Canadians, as demonstrated in the summary cost-benefit table for the proposed Regulations (Table 11).

13. Consultation

13.1. The consultation process

On May 21, 2010, the Minister of the Environment and the U.S. President announced their respective intent to regulate GHG emissions from new on-road heavy-duty vehicles. The Minister of the Environment’s announcement specified that Canada’s regulations would be developed under CEPA 1999 and would be aligned with those of the United States.

In order to inform the development of the regulations, Environment Canada co-hosted with Transport Canada a number of stakeholder working group meetings comprised of industry representatives (manufacturers, carriers and other vehicle owners and operators), environmental non-governmental organizations, provinces and territories, as well as other federal departments such as Natural Resources Canada and Industry Canada.

The working group met twice in 2010, in August and November, and then on September 21, 2011, to present and discuss publicly released consultation documents, as described below, and to provide an update on the development of the regulations.

On October 25, 2010, the Government of Canada released an initial consultation document describing the key elements being considered in the development of Canadian regulations aligned with those of the United States. The document was distributed to key stakeholders, provinces and territories and also published on Environment Canada’s CEPA Registry Web site to make it broadly available to all interested parties. The purpose of the document was to seek early stakeholder views for the development of the proposed Regulations and provide for a 30-day comment period.

On August 9, 2011, Environment Canada published a second and more detailed consultation document with a 30-day comment period to provide an additional opportunity for stakeholders to comment and to participate in the regulatory process.

In response to the consultation, the Department received 10 written submissions from a range of stakeholders, mostly industry stakeholders. The Department also collected the views of stakeholders during the stakeholder consultation working group meetings.

While stakeholders generally expressed broad support for national GHG emission regulations for new vehicles aligned with U.S. national standards, some industry stakeholders raised a certain number of issues. Those and the manner in which they were considered are summarized in the following sections.

13.2. GHG-reducing technologies

Some commented on the fact that Canada could go beyond the U.S. regulations by accepting additional technologies, such as automatic transmissions, that could be used to comply with the standards and that were not considered under the U.S. regulations.

Environment Canada is proposing performance-based standards that will provide manufacturers and importers with the flexibility to choose the most cost-effective technologies to comply with the proposed Regulations. While Environment Canada recognizes the potential value-added of additional technologies, the Department is proposing the same suite of technologies as is the United States, which does not include automatic transmissions. Credits can be obtained for hybrid, electric and fuel cell vehicles, as well as other technologies, referred to as “innovative technologies,” which provide emission reductions that cannot be measured by the prescribed test procedures.

There were also comments on whether Environment Canada should conduct an analysis of the current use of GHG-reducing technologies in Canada to inform the development of Canadian standards.

Environment Canada conducted an analysis of the Canadian fleet in light of the structure of the final U.S. regulations. The analysis identified that the proposed Regulations would take into consideration the range of applications of heavy-duty vehicles and engines with emission standards for vehicles expressed as grams of GHG emissions per unit of work. The same range of applications also exists in the United States and aligning Canadian methods of calculating emissions addresses any potential specificities of the Canadian trucking fleet.

13.3. Low-volume importers

Some stakeholders raised potential issues for companies importing small numbers of vehicles and engines, which, they indicate, makes it more difficult to meet the standards even with the available flexibilities to average, bank and trade emission credits.

Environment Canada acknowledges that there are a number of companies in Canada importing very small numbers of vehicles and engines. In those cases, Environment Canada determined that the available flexibilities would not be sufficient.

The United States addressed this issue via small business legislation. Environment Canada is proposing a CO 2 e exemption for companies importing or manufacturing less than 100 vocational vehicles and tractors, and is seeking comments on the threshold. For engines, Environment Canada is proposing to allow companies to import engines that have CO 2 emission levels that are greater than the applicable emission standard without having to demonstrate compliance using the CO 2 emission credit system in Canada, provided that these engines are covered by a U.S. EPA certificate and are concurrently sold in greater number in the United States than in Canada.

13.4. Low rolling resistance tires

A number of stakeholders commented on the use of low rolling resistance tires as a possible technology to comply with the proposed standards. Anecdotal evidence was provided that those tires may have poor performance or reliability, especially in winter conditions.

Currently available data indicates that low rolling resistance tires have the same range of winter performance as conventional tires. There are also no data suggesting that low rolling resistance tires pose any additional safety risk than conventional tires.

The U.S. preamble of its regulations reports the same conclusion. Transport Canada, whose mandate includes vehicle safety, is proactively undertaking additional tests to measure the safety performance of low rolling resistance tires and will, in consultation with Environment Canada, undertake safety activities, if required.

13.5. Applicable regulated entities

As it relates to the import of engines, some engine manufacturers and importers expressed the desire to have the engine manufacturer be the responsible regulatee even in cases where the importer on record is not the manufacturer.

Environment Canada recognizes that many importers are importing engines built by a different company, which could be perceived as placing undue burden on the importer if the latter is responsible under the Regulations. However, the proposed Regulations are developed under the authorities of Part 7, Division 5, of CEPA 1999, which applies to all importers of engines, regardless of who manufactured the engine, or where it was manufactured.

13.6. Less stringent payload restrictions

Some stakeholders commented on the fact that provinces have less stringent payload restrictions for tractor trailers compared to the U.S. interstate limit, and asked if this should be taken into consideration in the development of the Regulations.

Environment Canada is proposing standards structured in a way as not to constrain the size and power of heavy-duty vehicles. The proposed standards are expressed in grams per unit of work, therefore allowing a more powerful vehicle to proportionally emit more GHG emissions compared to a less powerful vehicle. Moreover, compliance with the proposed tractor standards will be assessed with a simulation model that uses a fixed payload. As a result, Canadian manufacturers will not be disadvantaged compared to U.S. manufacturers due to potentially higher average payloads in Canada.

14. Implementation, enforcement and service standards

14.1. 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 proposed Regulations would be implemented and enforced in a similar manner. Manufacturers and importers 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 will 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 heavy-duty vehicles and engines and the banking or trading of emission credits;

Registering company notices of defects affecting emission controls;

Inspections of test vehicles and engines and their emission-related components;

Laboratory emissions tests on a sample of new vehicles and engines 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 sharing information to increase program efficiency and effectiveness.

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

14.2. Enforcement

Since the proposed Regulations would be made under CEPA 1999, enforcement officers will, 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 Policy explains when Environment Canada will resort to civil suits by the Crown for costs 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.

: 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 violator’s history of compliance with the Act, willingness to cooperate with enforcement officers, and evidence of corrective action already taken.

: The desired result is compliance within the shortest possible time and with no further repetition of the violation. Factors to be considered include the 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 will monitor the GHG emission performance of heavy-duty vehicles and engines and their fleets and compliance with the proposed Regulations. In the situation where a vehicle or engine is found to exceed applicable standards or exceed the family emission limit specified by the company, 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 enforcement to consider actions in accordance with its Compliance and Enforcement Policy for CEPA 1999.

14.3. Service standards

For the proposed Regulations, in its administration of the regulatory program, Environment Canada 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 for 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 develop a technical guidance document describing the required evidence of conformity and the procedures to be followed when submitting required documentation.

15. 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 is 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.

15.1. Outcomes

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

Upon publication of the proposed Regulations, the regulated community will become aware of the proposed Regulations, start importing or manufacturing vehicles and engines that comply with the standards and meet the reporting requirements, when applicable (immediate outcome).

Then, as fuel-saving technologies enter the market, owners and operators of heavy-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 2014 to 2018 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.

15.2. Performance indicators and evaluation

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 starting in 2020 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 heavy-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 are available in the PMEP table of indicators, and make direct references to the outcomes listed in the logic model.

16. 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: Mark.Cauchi@ec.gc.ca



Yves Bourassa

Acting 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: yves.bourassa@ec.gc.ca

PROPOSED REGULATORY TEXT

Notice is hereby 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 Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations.

Interested persons may, within 60 days after the date of publication of this notice, file with the Minister of the Environment comments with respect to the proposed Regulations or 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.

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

Ottawa, March 15, 2012

JURICA ČAPKUN

Assistant Clerk of the Privy Council

TABLE OF CONTENTS

(This table is not part of the Regulations.)

HEAVY-DUTY VEHICLE AND ENGINE GREENHOUSE

GAS EMISSION REGULATIONS

INTERPRETATION

1 Definitions

PURPOSE

2 Purpose

BACKGROUND

3 Background

MODEL YEAR

4 Model year

PRESCRIBED CLASSES OF VEHICLES AND ENGINES

5 Heavy-duty vehicles

NATIONAL EMISSIONS MARK

6 Application

7 National emissions mark

LABELLING

8 Non-EPA-certified engines

9 Non-EPA-certified vehicles

10 Requirements

VEHICLES MANUFACTURED IN STAGES

APPLICATION

11 Application

HEAVY-DUTY INCOMPLETE VEHICLE DOCUMENT OF A MANUFACTURER OR IMPORTER

12 Contents

HEAVY-DUTY INCOMPLETE VEHICLE INFORMATION LABEL OF A MANUFACTURER OR IMPORTER

13 Contents

HEAVY-DUTY INCOMPLETE VEHICLE DOCUMENT OF AN INTERMEDIATE MANUFACTURER

14 Delivery of a heavy-duty incomplete vehicle

HEAVY-DUTY INCOMPLETE VEHICLE INFORMATION LABEL OF AN INTERMEDIATE MANUFACTURER

15 Contents

FINAL-STAGE MANUFACTURER

16 Requirements

17 Addendum

ALTERED VEHICLES

18 Requirements

GREENHOUSE GAS EMISSION STANDARDS

GENERAL

Heavy-duty Vehicles of the 2014 Model Year

19 Exemption

Heavy-duty Vehicles and Engines Covered by an EPA Certificate

20 Conforming to EPA certificate

Emission Control Systems

21 On-Road Vehicle and Engine Emission Regulations

Adjustable Parameters

22 Definition

Air Conditioning Systems

23 HFC134a refrigerant

Small Volume Companies — Tractors and Vocational Vehicles

24 Exemption

Composition of Fleets

25 Definition of “fleet”

Grouping into Fleets

26 Election applicable to all vehicle