Canada Gazette, Part I, Volume 155, Number 22: ORDERS IN COUNCIL
May 29, 2021
DEPARTMENT OF THE ENVIRONMENT
CANADIAN ENVIRONMENTAL PROTECTION ACT, 1999
Order Approving the Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards)
P.C. 2021-401 May 14, 2021
His Excellency the Administrator of the Government of Canada in Council, on the recommendation of the Minister of the Environment, pursuant to subsection 163(3) of the Canadian Environmental Protection Act, 1999 footnote a, approves the Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards), made by the Minister of the Environment on May 3, 2021.
(This note is not part of the Order.)
Pursuant to subsection 163(3) of the Canadian Environmental Protection Act, 1999 (CEPA), this Order approves the Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards) [the third Interim Order], made by the Minister of the Environment (the Minister) on May 3, 2021. This third Interim Order issued by the Minister, and approved by the Administrator in Council, serves to extend for one year the suspension of the greenhouse gas (GHG) trailer emission standards found in the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations in Canada, until May 3, 2022.
The purpose of this third Interim Order is to extend the suspension of the application of the trailer GHG emission standards by up to another year in Canada to provide additional time for the outcome of the ongoing litigation before the court in the United States regarding the trailer standards to be known. The conclusion of the process in the United States will inform the next steps to be taken by the Department of the Environment (the Department) with respect to the trailer standards in Canada. The Department has completed an analysis of the trailer market in Canada related to implementing those standards in Canada without corresponding standards in the United States and, for the time being, recommends continuing suspending the application of the trailer standards in Canada.
The U.S. situation
On October 25, 2016, the United States Environmental Protection Agency (U.S. EPA) and the National Highway Traffic Safety Administration (NHTSA) published the final rule concerning a second phase of GHG emission and fuel efficiency standards for heavy-duty vehicles, engines and trailers (referred to as Phase 2). The Phase 2 standards, which increase in stringency up to model year 2027, build upon the existing standards that were established for model years 2014 to 2018. In addition, the U.S. Phase 2 final rule introduced new standards for trailers hauled by on-road transport tractors, as the design of trailers has an impact on the GHG emissions and fuel consumption of the vehicles hauling them.
In December 2016, the Truck Trailer Manufacturers Association (TTMA), which represents the trailer industry in the United States, filed a petition for the review of the U.S. EPA’s trailer standards in the U.S. Court of Appeals for the D.C. Circuit on the grounds that the agency lacked the authority to regulate trailers. Throughout 2017, the TTMA also sent Petitions for Reconsideration, made under the U.S. rulemaking process, asking that the U.S. EPA reconsider the implementation of the GHG emission standards for trailers scheduled to come into force in the United States on January 1, 2018.
In response to legal challenges and petitions filed by the U.S. trailer industry, on August 17, 2017, the U.S. EPA announced it would begin a rulemaking process to amend its Phase 2 trailer provisions. Further, on October 27, 2017, the U.S. Court of Appeals stayed the implementation of the U.S. EPA Phase 2 trailer provisions. As a result, the U.S. EPA is currently not implementing its Phase 2 trailer provisions and has not, so far, proposed amendments to its rule.
In December 2019, the California Air Resources Board published an advisory notice to suspend the enforcement of its GHG trailer standards until at least January 1, 2022, in light of the regulatory uncertainty of the current court case and legal stay on the U.S. EPA’s trailer standards. California was also planning to implement trailer standards aligned with the U.S. EPA’s in 2020, but delayed the decision.
In September 2020, as part of the court case, the U.S. Court also stayed the implementation of the NHTSA trailer fuel efficiency standards. The NHTSA standards, which were to come into effect in January 2021, also remain stayed in the United States and the matter is still before the court.
The Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (the Regulations), made under CEPA, were published in the Canada Gazette, Part II, on March 13, 2013. The GHG emission standards in the Regulations apply to vehicles and engines of the 2014 model year and subsequent model years, and reach full stringency with model year 2018. Given the integration of the North American vehicle manufacturing sector, these standards are aligned with those of the U.S. EPA.
On May 30, 2018, the Regulations Amending the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations and Other Regulations Made Under the Canadian Environmental Protection Act, 1999 (the Amendments) were published in the Canada Gazette, Part II. The Amendments established more stringent GHG emission standards that begin with the 2021 model year for on-road heavy-duty vehicles and engines. Further, the Amendments introduced new GHG emission standards that apply to trailers hauled by on-road transport tractors for which the manufacture is completed on or after January 1, 2020. The Amendments are aligned with the corresponding standards and test procedures of the U.S. EPA final rule that was published in October 2016. The Regulations apply to companies that manufacture or import new on-road heavy-duty vehicles, engines and trailers for sale in Canada.
In making the decision to include the GHG emission standards for trailers in the Amendments, Canada intended to monitor U.S. developments and to assess whether any future amendments were needed depending upon the outcome of the U.S. rulemaking and legal processes.
In January 2019, the Canadian trailer manufacturing and trucking industry reached out to the Department expressing concerns that it could face adverse economic impacts if Canada implemented the trailer standards while they were not being implemented by the U.S. EPA and recommended a delay in the implementation until further analysis was conducted by the Department.
The trailer manufacturing industry in Canada is mainly composed of small businesses with fewer than 100 employees that manufacture specialty trailers and of several larger manufacturers that manufacture mainly box van trailers and a variety of more specialized trailers.
The primary concerns raised by the Canadian industry include increased compliance costs, more limited availability of emission-reducing technology for trailers than anticipated due to reduced production in the United States, and a significant competitive disadvantage for Canada’s trailer manufacturers relative to larger U.S. manufacturers. Canadian trailer manufacturers are concerned that much larger U.S. trailer manufacturers could more easily absorb the incremental costs of implementing new technologies across a much larger market share.
CEPA provides the authority for an interim order to suspend or modify the operation of regulations governing emissions from vehicles, engines, and equipment for a period of up to one year to respond to a decision of a foreign court where the regulations in Canada are aligned with those in the other country. Pursuant to subsection 163(1) of CEPA, the Minister can issue an interim order to maintain alignment.
Two interim orders, both entitled Interim Order Modifying the Operation of the Heavy-duty Vehicle and Engine Greenhouse Gas Emission Regulations (Trailer Standards), were successively made by the Minister, the first on May 27, 2019, and the second, on May 18, 2020. These two interim orders were subsequently approved by the Governor in Council on June 9, 2019, and May 27, 2020, respectively, suspending the application of the standards for trailers in Canada for up to a year after the interim orders were made by the Minister. The second interim order temporarily suspended the application of the GHG trailer emission standards found in the Regulations until May 18, 2021.
The purpose of these two interim orders was to allow the Department to assess the economic impacts of implementing trailer standards in Canada without the standards of the U.S. EPA being in force, while waiting for more certainty on the path forward in the United States.
The Department has been monitoring the status of the trailer standards in the United States, commissioned two studies to better understand the trailer market in Canada and the United States, consulted other government departments and gathered data to inform its analysis.
The Department has completed its analysis. The analysis indicated that most Canadian trailer manufacturers would be at an economic disadvantage if trailer standards were only introduced in Canada. The main reason is that most Canadian trailer manufacturers and trucking businesses are small relative to those in the United States and have a lower share of the North American trailer market. These smaller companies have fewer opportunities to spread the costs of compliance with trailer standards across their operations. The companies would benefit from more time to adapt operations to produce and procure more GHG-reducing technologies without a regulatory framework in the United States. Therefore, it is recommended that the trailer standards be suspended in Canada until the situation is more certain in the United States.
Without this third Interim Order, companies subject to the Regulations would be required to meet the trailer standards outlined in subsections 16.1(1) or 33.1(1) or (2) of the Regulations, as the case may be. These standards are aligned with those of the U.S. EPA. The Regulations apply to certain trailers, footnote 1 as defined by the Regulations, whose manufacture was completed on or after January 1, 2020.
Under subsection 163(3) of CEPA, the Minister’s third Interim Order would cease to have effect 14 days after it was made unless approved by the Governor in Council. This Order of the Administrator in Council approves the third Interim Order to suspend the application of GHG emission standards for trailers in Canada for up to another year from the date that it is made by the Minister. Under subsection 163(5) of CEPA, the third Interim Order could cease to have effect earlier than one year if it is repealed or if the Regulations are amended or repealed to give effect to the order before that date.
As the current Interim Order expired on May 18, 2021, and given the integrated nature of the North American market, a third interim order is necessary to maintain alignment. Issuing another interim order is warranted in this situation considering the ongoing court litigation and current legal stay on the trailer standards in the United States. An interim order is the most appropriate tool to address this type of regulatory uncertainty and maintain regulatory alignment until the status of the trailer standards is clarified in the United States. The third Interim Order does not affect any provisions related to the vehicle and engine standards of the Regulations.
Suspending the application of the standards for trailers for model year 2022 would decrease the estimated GHG reductions from the Regulations by about 0.4 megatonnes (Mt) of carbon dioxide equivalent (CO2e) over the lifetime of operation of the trailers for that model year. Relative to an estimated 73 Mt of CO2e emission reductions for the 2018 Amendments as a whole for model years 2020 to 2029, suspending the trailer standards for another model year with this third Interim Order will decrease the estimated GHG emission reductions by approximately 1.2 Mt of CO2e from trailers of model years 2020, 2021 and 2022 combined.
While the third Interim Order is in place, the industry would benefit from cost savings (such as compliance costs and investment costs in new technologies), but would not realize the fuel-saving benefits associated with adopting the technologies required to meet the standards.
The Department continues to consult with the Canadian trailer manufacturing and trucking industry. Since early 2020, the Canadian trailer and trucking industry has been seeking certainty on the regulatory path forward in Canada to allow for planning and investment decisions. Industry stakeholders have continued to engage the Department to seek clarity on the path forward for trailer standards in Canada throughout the COVID-19 pandemic, and the Department presented some of the key findings in its analysis in the fall of 2020. It is expected that the Canadian industry will support the third Interim Order.
The Department is committed to ongoing consultation with all stakeholders, thoroughly considering the relevant issues raised, and communicating decisions with respect to the trailer standards in a timely manner.
Environment and Climate Change Canada
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