REGULATORY IMPACT

ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

Since 1987, the federal government has initiated several regulatory programs to either reduce or eliminate the use of ozone depleting substances (ODS) in Canada. These programs have targeted manufacturers, importers and users of these substances. At the provincial level, ODS releases from private operations and provincial government facilities are regulated.

Federal departmental and agency activities account for 5 to 10% of the ODS still in use in Canada and are not subject to provincial regulatory requirements that prohibit releases of ODS. As a result, concerns have been raised about the lack of mandatory requirements for federal operations and the inability to enforce provincial requirements in the federal house. Actions taken by federal facilities vary among departments and are uneven within individual departments, depending on the region and the priority attached to the issue. Some federal facilities have well thought-out plans while others have not yet carried out basic inventory studies or developed their strategic plans.

The federal government is promulgating the Federal Halocarbon Regulations under Part IV of the Canadian Environmental Protection Act (CEPA). Part IV of CEPA is also intended to ensure that federal lands, works and undertaking are administered or regulated to protect the environment. These Regulations are intended to ensure uniformity with respect to releases, recovery and recycling of ODS and their halocarbon alternatives in the federal house and also to ensure that these releases are minimized. Even though halocarbon alternatives to ODSs could have no impact on the ozone layer, they are green house gases and thus contribute to climate change. The Regulations will ensure that actions are taken to prevent releases of ODS and their halocarbon alternatives: to report these releases; that adequate training is provided to personnel; that operational and emergency procedures and strategic plans are developed for the use, control and phase out of these substances. Controls imposed by these Regulations also create consistency with the private sector requirements which are imposed by provincial regulations.

Alternatives

Under a voluntary approach, affected facilities would not be legally required to comply with specific criteria; consequently, this approach would not ensure that the expected objectives of controlling ODS releases and their halocarbon alternatives are achieved since government would not have any power to force facilities to address these releases. Therefore, this approach has been rejected.

An economic instrument implementing:

-- a charge, would require that affected facilities monitor their releases of ODSs and their halocarbon alternatives since a charge would be expressed in dollars per kg of releases;

--.a tradable permit system, would require that affected facilities monitor the volume of purchased or released ODSs and their halocarbon alternatives since each permit issued to facilities, would correspond to a used or released volume over one year. This annual volume would be used as a base level.

Thus, the implementation of an economic instrument would require that affected facilities put in place measures to monitor their ODSs and halocarbon alternatives uses and/or releases. In addition, the implementation of such an instrument would require that a data base be established before its promulgation which would delay the control of targeted emissions and would also require significant administration costs. Therefore, this approach has also been rejected.

A Regulation has been selected as the best option to achieve expected environmental goals of controlling ODS releases and their halocarbon alternatives in the federal house in the shortest time frame and also in terms of minimizing impacts to affected facilities.

Benefits and Costs

The present value method has been used to analyze both the costs and the benefits resulting from the implementation of these Regulations. The present value is defined as the money that is required today to cover future expenses. In this case, the considered future period is 1998 to 2060. This period has been selected because benefits resulting from a reduction in ODS emissions and their halocarbon alternatives will exist until the ozone layer recovers, expected to happen around 2060.

(Benefits of these Regulations()

These Regulations will contribute to reducing emissions of substances responsible for damaging the ozone layer. As a result, the avoided damages in terms of health care costs (non fatal skin cancer cases and cataracts), prevented deaths (fatal skin cancer cases). These Regulations will also result in financial benefits for the federal house in the form of reduced operating costs to recharge their systems.

Other benefits could be indirectly quantified: reduced damages to the fisheries; reduced agriculture damages; and reduced materials damages (buildings and equipment). To quantify these benefits, a study conducted by Applied Research Consultants (ARC) has estimated that for each dollar of health-related benefits, there are additional benefits: $0.76 related to fisheries, $1.19 related to agriculture and $0.20 related to materials.

There are other benefits that have not been quantified. These benefits are related to a reduction in damages to the immune system, as well as reduction to climate change impacts. An additional benefit that has not been quantified is related to bequest value resulting from environmental improvement. The bequest value is defined as the monetary value the current population is willing to pay to ensure that future generations will benefit from an environment that is either as good as now or better.

The annual quantified benefits resulting from these Regulations are as follows:

-- Health, fisheries, agriculture and material related benefits:

$1,136,750 per year from 1998 to 2020

$521,235 per year from 2021 to 2060

-- Financial benefits in the form of reduced operating costs:

$379,995 per year from 1998 to 2060

-- Total annual benefits are then:

$1,516,745 per year from 1998 to 2020

$901,229 per year from 2021 to 2060

The present values shown in Table 1 have been estimated for the period from 1998 to 2060 using 5%, 7.5% and 10% as discount rates. The present values of the benefits fluctuate between $14 and $25 million ($1997).

TABLE 1: Present value of benefits for three discount rates

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It should be noted that these benefits are underestimated since bequest values, prevented damages resulting from a reduction of the human immune system as well as global warming consequences, have not been quantified.

(Costs of these Regulations()

Federal facilities costs to be in compliance with these Regulations

Even though affected federal facilities will benefit from a reduction in their operating costs (see financial benefits in the benefit section), they will have to incur the costs to implement these Regulations. These costs will amount to $958,189 per year for the period from 1998 to 2019 and $574,913 per year from 2020 to 2060. The present value of these additional costs, evaluated over the period of 1998 to 2060 and using three discount rates (5%, 7.5% and 10 %), fluctuate from $9.1 to $16 million (Table 2).

(Environment Canada costs to enforce these Regulations()

There are costs associated with the development of these Regulations and ensuring that there are regular inspections and inquests. They are expected to total:

-- $240,000 in 1998 to develop the Regulations before its promulgation

--7 person-year or $595,560 per year from 1999 to 2004

--.6 person-year or $510,480 per year from 2005 to 2019

-- 5 person-year or $425,400 per year from 2020 to 2060

It should be noted that the above enforcement costs do not take into consideration expenses associated with legal fees if non compliance result in prosecutions. The rationale for a reduced number of human resource over the years could be explained by a reduction of equipment using ODSs over these years.

As shown in Table 2 below, the present values of these costs between 1998 and 2060, and using 5%, 7.5% and 10% as discount rates, vary from $5.08 to $9.39 million. The total present value of costs resulting from the implementation of these Regulations fluctuate from $14 to $25 million (Table 2).

TABLE 2: Present values of compliance costs to affected federal facilities as well as enforcement costs to Environment Canada.

*** TABLE EXTRACTED ***

Table 3 summarizes the present value of both the costs and benefits. In addition, it assesses the net present value which is defined as the present value of the benefits minus the present value of the costs. The net present value is positive, that benefits exceed costs. This occurs even with some of the benefits not quantified.

TABLE 3: Present values of costs and benefits as well as the net present values

*** TABLE EXTRACTED ***

Consultation

Consultations have been held with representatives of federal departments and agencies through the Federal Halocarbon Regulation Working Group. The socioeconomic impact study assessing the impact resulting from the implementation of these Regulations is based on data provided by the larger departments and agencies. Since the first draft of this study has been the subject of comments from departments, the study has been modified to address these comments. Prior to being published in the Canada Gazette, Part I, these Regulations were placed on Environment Canada's Web site. Comments have also been raised dealing with the practicability for affected departments to comply with these Regulations. Changes have been incorporated to address these concerns.

Further to the publication of this Regulatory Impact Analysis Statement in the Canada Gazette, Part I on August 29, 1998, these Regulations were mailed to over 2,500 stakeholders and nine comments have been raised. These comments required clarifications on specific clauses of the Regulations and did not deal with the intent of the Regulations. These requests for clarification have been answered.

Compliance and Enforcement

The Federal Halocarbon Regulations will be proclaimed under the Canadian Environmental Protection Act and will be subject to its Enforcement and Compliance Policy. The policy, among other things, outlines measures to promote compliance, including education and information promotion of technology development, and consultations on regulations development.

Enforcement will be carried out through compliance monitoring to verify compliance including provision of affected departments reports to the Department of the Environment, and through investigations of violations.

Responses to violations will be consistent with the criteria outlined in the Enforcement and Compliance Policy, i.e., the nature of the violation, effectiveness in achieving the desired result, and consistency in enforcement. Minor violations such as those for which the degree of harm or potential harm to the environment or human health is minimal could be dealt with by issuing warnings. More serious offenses such as those having serious impact on human health or the environment could lead to criminal prosecution.

Contacts

Arthur Stelzig

Head

Chemical Producers Section

National Office of Pollution Prevention

Department of the Environment

Ottawa, Ontario

K1A 0H3

Tel.: (819) 953-1131

FAX: (819) 953-5595

Internet Address: art.stelzig@ec.gc.ca

Arthur Sheffield

Chief

Regulatory and Economic Analysis Branch

Economic and Regulatory Affairs Directorate

Department of the Environment

Ottawa, Ontario

K1A 0H3

Tel.: (819) 953-1172

FAX: (819) 997-2769

Internet Address: arthur.sheffield@ec.gc.ca