Vol. 138, No. 19 — May 8, 2004

Off-Road Compression-Ignition Engine Emission Regulations

Statutory Authority

Canadian Environmental Protection Act, 1999

Sponsoring Department

Department of the Environment

REGULATORY IMPACT
ANALYSIS STATEMENT

Description

The proposed Off-Road Compression-Ignition Engine Emission Regulations (hereinafter referred to as "the proposed Regulations") introduce exhaust emission standards for compression-ignition engines (see footnote 1) (hereinafter referred to as "diesel engines") used for off road mobile applications. The proposed Regulations apply to diesel engines that are found in construction, mining, farming and forestry machines, such as tractors, excavators, and log skidders.

The proposed Regulations, under section 160 of the Canadian Environmental Protection Act, 1999 (CEPA 1999), establish Canadian emission standards aligned with the United States Environmental Protection Agency (EPA) rules for off-road diesel engines. The proposed Regulations apply to engines of the 2006 and later model year, and encompass the U.S. EPA Tier 2 and Tier 3 standards. Environment Canada plans to maintain alignment with the U.S. EPA 2008 (Tier 4) rules for off-road diesel engines, once these are finalized in the United States.

The combustion of fuel in such engines contributes to air pollution, resulting in adverse impacts on the environment and on the health of Canadians. The proposed Regulations will help to mitigate these impacts by reducing or controlling emissions of air pollutants, such as hydrocarbons (HCs), nitrogen oxides (NO_x), particulate matter (PM), carbon monoxide (CO), and other pollutants listed as "toxic substances" in Schedule 1 of CEPA 1999. (see footnote 2)

The proposed Regulations apply to persons (see footnote 3) in the business of manufacturing, distributing or importing for sale in Canada off-road diesel engines and machines, and to persons who import these engines and machines for their own use.

Environmental objective

Off-road diesel engines are a source of concern for public health, as their emissions contribute to atmospheric levels of PM and ground-level ozone, which are the main components of smog, a noxious mixture of air pollutants that can often be seen as a haze in the air, especially over urban centres. Health studies on air quality report that air pollution contributes to premature deaths and numerous health-related problems, such as cardiovascular ailments and respiratory distress, leading to an increase in the number of emergency room visits and hospital admissions.

PM, ground-level ozone, and sulphur oxides (SO_x) emitted by off-road diesel engines can also create other problems, such as acid rain, reduced productivity of vegetation, building soiling, and corrosion. These problems adversely affect natural ecosystems, and economic activities related to agriculture and forestry.

Emissions from off-road diesel engines are currently unregulated, while progressively more stringent emissions controls are being applied, by means of regulations, to on-road vehicles. Thus, emissions from off-road sources are becoming a proportionally greater source of pollution. Table 1 shows the amount of pollution from off-road diesel engines and how they contribute to the national inventory.

Table 1: Off-road Diesel Engine Emissions in Canada in 2000

Source: Environment Canada
^a Non-methane hydrocarbon (NMHC) emissions have a mass of 41.2 kilotonnes.

The Off-Road Small Spark-Ignition Engine Emission Regulations (see footnote 4) represent the first regulations for a category of off-road engines under CEPA 1999, and were used as a model for many aspects of the proposed Regulations. Regulations for other categories of off-road engines, such as outboard engines and personal watercraft, recreational vehicles, and large spark-ignition engines, are under development.

Policy framework

In the spring of 2000, the Minister of the Environment announced the federal government's integrated clean air strategy. The strategy was reaffirmed in February 2001 by the announcement of new measures to accelerate action on air quality. A key component of this strategy is the Federal Agenda on Cleaner Vehicles, Engines and Fuels, published in the Canada Gazette, Part I, on February 17, 2001. (see footnote 5) The Agenda sets out a series of measures, to be developed and implemented over the next decade, to align Canadian standards with those of the U.S. EPA. The proposed Regulations are an important element of this Agenda.

In anticipation of emissions regulations under CEPA 1999, Memoranda of Understanding (MOUs) between Environment Canada and 13 engine manufacturers came into effect in 2000. These manufacturers produce the majority of engines currently sold in Canada. Under these MOUs, manufacturers voluntarily agreed to supply off-road diesel engines designed to meet the then applicable Tier 1 emission standards of the U.S. EPA.

Under the December 2000 Ozone Annex to the 1991 Canada-United States Air Quality Agreement, Canada is committed to replacing the above-mentioned MOUs with "emission regulations under the Canadian Environmental Protection Act, 1999 for new non-road engines aligned with the U.S. federal emissions program." The proposed Regulations fulfill this aspect of Canada's bilateral agreement.

The proposed Regulations also contribute toward meeting the targets established under the Canada-wide Standards for Particulate Matter and Ozone.

The proposed Regulations

The proposed Regulations introduce Canadian emission standards aligned with those contained in the U.S. EPA rules for off-road diesel engines established under Title 40, Part 89, of the Code of Federal Regulations (see footnote 6) (CFR). These apply to engines of 2006 and later model years. Proposed U.S. EPA rules (see footnote 7) establishing more stringent emission standards for engines, to be phased in from 2008, will be the subject of a separate regulatory process.

Maximum levels of CO, PM and combined non-methane hydrocarbon (NMHC) and NO_x emissions will be established under the proposed Regulations for engine power ranges as indicated in Table 2. These standards are defined as mass of pollutant per unit of engine work, expressed in grams per kilowatt-hour (g/kWh), i.e. brake-specific emissions. A smoke opacity standard is also proposed. The Canadian regulatory standards encompass the U.S. EPA Tier 2 and Tier 3 standards and will be applied throughout the useful life of the engine. (see footnote 8)

Table 2: Emission Standards Under the Proposed Regulations

The U.S. EPA has concluded that engines can meet the most stringent emission standards under Tier 2 and Tier 3 without requiring any changes to the current sulphur level in regular diesel fuel. (see footnote 9) Therefore, the current sulphur levels of diesel fuels sold in Canada should not impede the implementation of the proposed Regulations.

General provisions concerning the performance of emissions-control devices and a prohibition on the use of a defeat device are included in the proposed Regulations. Engines equipped with adjustable parameters will have to comply with all requirements of the proposed Regulations regardless of how the parameters are adjusted.

Alternative, less stringent emission standards, consistent with those prescribed under the CFR, will be available for

— replacement engines manufactured exclusively to replace an existing engine in a machine for which no current model year engine with the necessary physical and performance characteristics exists; and

— transition engines that correspond to the flexibility provisions, available under the U.S. EPA standards, for machine manufacturers to continue using an earlier engine specification where changes to accommodate a new technology engine would be difficult.

Companies will be responsible for ensuring that their products comply and will be required to produce, upon request, evidence of such conformity. CEPA 1999 directly requires compliance with the standards as a condition of importation into Canada. Engines manufactured in Canada, however, will require a national emissions mark. Should there be a Canadian manufacturer of such engines (there are none known at present), the proposed Regulations will establish the mark and the procedures to apply for the Minister's authorization to use it.

Almost all engines are expected to demonstrate compliance through evidence of a valid U.S. EPA certificate of conformity and sales in the United States. Engines that are sold only in Canada will be required to demonstrate compliance according to the procedures set out in the proposed Regulations, which are aligned with the U.S. EPA requirements.

Although companies will not be required to maintain records within Canada, the records will have to be made available upon request by Environment Canada. The form of records, evidence of conformity and deadlines for their submission are prescribed in the proposed Regulations. These records can include copies of the U.S. EPA certificate of conformity and supporting documentation used to obtain this certificate, along with evidence demonstrating concurrent sale of engines in the United States.

Administrative requirements include

— information to be provided when importing engines;

— written instructions regarding emissions-related maintenance, to be provided to the first retail purchaser;

— information to be submitted by a company when applying for an exemption (CEPA 1999, section 156);

— procedure to be followed by a company issuing a notice of defect (CEPA 1999, section 157); and

— rental rate to be paid to the company by the Minister for the provision of a test engine (CEPA 1999, section 159).

Off-road diesel engines excluded from the proposed Regulations include

— engines designed exclusively for competition;

— engines designed to be used exclusively in underground mines;

— engines with a per-cylinder displacement of less than 50 cubic centimetres;

— engines designed to be used in military machines designed for use in combat or combat support;

— engines that are being exported; and

— engines installed in marine vessels.

The proposed Regulations are made pursuant to subsection 160(1) of CEPA 1999, and come fully into force on January 1, 2006.

Industry profile

There is no domestic production of off-road diesel engines. These engines are all imported into Canada. Some off-road diesel machines are manufactured in Canada and are installed with imported engines. About two-thirds of Canada's international trade in off-road diesel machines is with the United States. The Canadian market is supplied mainly by established manufacturers, either multinational or North American. For example, about 90 percent of new farm and industrial tractors sold in North America in 2002 were supplied by established manufacturers, with the balance supplied by manufacturers based overseas. The Canadian off-road diesel engine and machine market is significantly influenced by the larger U.S. market.

Off-road diesel machines are mainly used by the agricultural, mining, forestry and construction sectors of the economy, and represent an essential part of these sectors' operative assets. The demand in Canada for new equipment powered with off-road diesel engines was estimated at more than 65 000 units in 2000 (Table 3). Imports supplied most of the demand. Statistics Canada data indicated that $3.7 billion worth of off-road diesel machines and engines were imported in 1999 (Table 4).

Table 3: Estimated Canadian Demand and Production of Off-road Diesel Machines (2000)

^a Other includes tractors for use in airports, sweepers/scrubbers, air conditioners, snow grooming machines, utility vehicles, and lawn/garden tractors.
^b This total does not include gas compressors and pumps, because there is no disaggregate data available about these items.

Table 4: Summary of Canadian Diesel
Machine Market Statistics (1999)

^a Apparent domestic market is defined as domestic production plus imports minus exports.

About 2 400 firms imported off-road diesel machines and engines in 2002. It was estimated that about 650 were commercial dealers importing for the purpose of sale, and the rest imported for their own use. For most of the commercial imports, Canadian distributors have exclusive rights to distribute or sell products from a given manufacturer over a specific territory. Other distributors, including brokers and wholesalers, not tied to a specific territory, account for the remaining commercial imports.

Thirty-one established manufacturers producing new off-road diesel-powered machines have been identified in Canada, located primarily in Ontario. About two-thirds of these firms are Canadian-owned; the rest are wholly owned subsidiaries of multinational manufacturers. Using Statistics Canada data (given in Table 4), it was estimated that Canadian production of off-road diesel machines averaged $850 million in 1999, corresponding to less than 0.01 percent of GDP. About 10-15 percent of domestic production is sold in Canada. The remaining is exported, primarily to the United States.

Imports of loose off-road diesel engines were estimated at $189 million for 2000. These engines were imported for installation in new diesel machines by Canadian manufacturers, or to replace engines in existing applications. Imports originated from the United States (87 percent), Japan (8.5 percent), and the European Union (4 percent).

Other sectors of this industry include equipment rental and leasing, used machines resale, parts accessories and service, and financing services. Data are not available for these sectors of the industry.

Alternatives

Voluntary emission standards

Voluntary MOUs are currently in place with 13 engine manufacturers, under which manufacturers agreed to supply engines designed to meet the Tier 1 emission standards. This voluntary program could be continued to control emissions by supplying Tier 1 engines to the Canadian market, or by updating these MOUs to reflect the implementation of the United States. EPA Tier 2 and Tier 3 standards. However, the phase-in of progressively more stringent regulatory standards in the United States may increase the likelihood of more polluting engines being introduced into Canada. Moreover, the voluntary MOUs currently in place do not ensure that the standards agreed upon will be followed by all suppliers. Given these circumstances, voluntary agreements with industry are not being considered as an option to reduce air emissions from off-road diesel engines.

Regulations with unique Canadian standards

Almost all off-road diesel engines currently sold in Canada are certified to the U.S. EPA standards. Unique Canadian regulatory standards would represent a burden for Canadian suppliers, and conflict with the trend toward global harmonization of emission standards. (see footnote 10) Unique Canadian standards also entail the extensive development of testing and certification procedures.

If Canada were to adopt regulatory standards for emissions that are more stringent than those in the United States, the cost of engines and machines designed to meet unique Canadian standards would be expected to increase significantly. Further, product availability could be reduced. On the other hand, adopting regulatory standards less stringent than the U.S. EPA standards would reduce overall environmental benefits for Canada. Therefore, unique Canadian regulatory standards are not being considered.

Regulations with averaging, banking and trading provisions

The U.S. EPA emissions program for off-road diesel engines incorporates an optional averaging, banking and trading program that allows manufacturers to certify engines to a level less stringent than the prescribed standard as long as the increased emissions are offset, on a sales-weighted basis, by engines certified to be better than the standard. Engines certified under the averaging provisions cannot have emissions that exceed a prescribed maximum level.

Environment Canada has determined that administrating a Canadian averaging program for this category of engines would be a major regulatory burden without commensurate environmental benefits. The U.S. averaging program primarily applies to manufacturers that design engines, incorporate technology and plan production to meet the averages. The Canadian Regulations apply primarily to importers without any control over engine design or production. Consequently, companies would be required to establish their emissions credits and to independently manipulate Canadian sales to ensure that the required average is met. While the U.S. averaging program is available to 53 manufacturers and importers of engines, the proposed Canadian Regulations would apply to more than 650 importing companies, none of which is known to be an engine manufacturer.

As the engine manufacturing industry tends to consider North America as a single market, it is expected that product offerings and product sales mix would remain similar in Canada and the United States. Therefore, overall emissions levels from off-road diesel engines would also be similar. For these reasons, the alternative of regulations with averaging, banking and trading provisions is not being considered at this time.

Regulations with Canadian standards aligned with those of the United States

Aligning Canadian regulatory standards for emissions from off-road engines with U.S. federal regulatory standards enables manufacturers to certify engines only once for both countries. Environment Canada has selected this option because it provides for an enforceable program with comparable emissions performance on both sides of the border in a cost-effective manner.

Benefits and costs

Benefits

The proposed Regulations establish Canadian emission standards aligned with the U.S. EPA Tier 2 and Tier 3 rules. The U.S. EPA Tier 4 rule will be the subject of future regulations under CEPA 1999.

The benefits of implementing the proposed Regulations can be estimated by evaluating the relative emissions reduction under the Tier 2 and Tier 3 rules, relative to the base case—i.e. engines designed to comply with the existing MOUs which meet the U.S. EPA Tier 1 emission standards. It is possible that most new imported diesel engines will comply with U.S. regulatory emission standards, given the close integration of the North American market. Nevertheless, Canada needs to establish, by regulation, emission standards that align with the United States in order to improve air quality and to comply with Canada's international commitments, as explained earlier in the text.

The proposed standards prescribe specific maximum allowable emission levels, which result in reductions of NMHC, NO_x, PM and CO emissions. For example, for the power range 130 <= kW < 225, which is typical of engines used in excavators and graders, the proposed standards will prescribe a 63, 69 and 62 percent reduction in the maximum allowable emissions of PM, CO and combined NMHC + NO_x, respectively, in 2006, relative to engines designed to comply with the MOUs.

There are no applicable SO_x standards in the proposed Regulations and, therefore, no reduction of SO_x emissions relative to the base case is expected. Reductions in NMHC emissions as a result of the proposed regulatory standards are expected to translate into a corresponding reduction in toxic HC emissions.

The proposed Regulations generate environmental and health benefits that could be translated into economic terms. For example, health benefits could be translated into avoided costs to the health care system as well as improved individual well-being. However, the links between emissions reductions, atmospheric concentrations of pollutants, and health and environmental improvements are difficult to establish in quantitative terms, given the current available information.

Other benefits of the proposed Regulations include the following:

— all new off-road diesel engines will meet the requirements, not just the majority, as is the case under the current MOUs;

— an enforceable program will result; and

— a level playing field is created and companies are prevented from selling non-compliant engines at a lower price to gain market advantage.

Costs

Private sector costs

The sectors directly covered by the proposed Regulations are manufacturing, import and distribution of engines and machines. The machine manufacturing sector is not affected by the proposed Regulations, as it is mainly export-oriented, with most products being shipped to the U.S. market. It is expected that this sector will continue to be export-oriented. The import and distribution sectors are also expected not to be affected. A level playing field is expected to allow these two sectors to pass on any incremental price of imported Tier 2 and Tier 3 engines and machines to buyers. These sectors may experience some incremental administrative costs associated with record-keeping and reporting. These costs are not expected to be significant.

Sectors, such as agriculture and construction, that use off-road diesel engines and machines in their operations may see an increase in purchase prices. Off-road diesel engines and machines constitute part of the long-term assets and contribute to the operating costs of these sectors. The U.S. EPA had estimated in its Regulatory Impact Analysis (see footnote 11) that the proposed Tier 2 and Tier 3 standards would result in price increases for off-road diesel machines of about 0.5 to 3 percent for some engine power ranges. Based on these estimates, price increases of engines and machines as a result of the upgraded standards are not expected to have a significant impact on these sectors, such as agriculture and construction, that use this equipment.

Federal government costs

Incremental costs to the federal government associated with the development and administration of the proposed Regulations fall under a program of several integrated initiatives to reduce emissions from vehicles, engines and fuels. These costs are estimated to total $48.4 million over a four-year period starting in the 2001/2002 fiscal year. About one third of this amount is estimated to be spent in support of the proposed Regulations and the other planned off-road regulations. The major cost components include laboratory upgrades to allow for emissions testing of off-road engines, regulatory development and administration, compliance verification, and other enforcement activities.

Competitiveness implications

Neither the standards nor the administrative requirements of the proposed Regulations are expected to have a negative impact on the competitiveness of the off-road diesel engine and machine industries in Canada, or the industrial sectors using such engines and machines in their operations. Clear rules with a level playing field are expected to be beneficial to competitiveness, as all engines and machines have to meet the same standards. However, the proposed Regulations are likely to negatively affect the business of any importers and distributors who are currently marketing engines and machines that do not satisfy the proposed regulatory standards. These importers and distributors will have to change their product inventories to market only those engines and machines that satisfy the proposed standards. Although no data are available, it is believed that these players represent a very small portion of the market.

Consultation

In April 2000, the Deputy Minister of the Environment invited a wide range of stakeholders to participate in the development of the Federal Agenda on Cleaner Vehicles, Engines and Fuels. Then, in May 2000, Environment Canada convened a stakeholder workshop in Toronto to discuss measures to reduce air pollution from vehicles, engines and fuels. The workshop was attended by 125 representatives from

— federal, provincial, territorial and municipal governments;

— environmental and health organizations;

— the petroleum refining industry;

— automotive and engine manufacturers; and

— the alternative fuels sector.

Workshop presentations and related written submissions were distributed to all stakeholders in July 2000.

The consultation revealed a broad consensus that Canada's regulatory emission standards for off-road engines should be based on alignment with corresponding U.S. federal requirements. Commenters identified the integrated nature of the North American economy, and the implementation of aggressive national programs for off-road engines by the U.S. EPA, as two key elements supporting a policy of alignment with U.S. federal programs as being a logical approach for Canada to achieve significant emissions reductions in a cost-effective manner. The "Support Document to the Notice of Intent on Cleaner Vehicles, Engines and Fuels" (see footnote 12) provides detailed background on the issues, and summarizes the input provided at the workshop and through written submission.

In July 2003, Environment Canada released a discussion draft of the proposed Regulations. (see footnote 13) After the release of the discussion draft, Environment Canada officials had informal discussions with Canadian manufacturers, importers and distributors of off-road diesel engines and machines, and major industry associations. Environment Canada also sent a letter to approximately 650 firms that were identified as possible importers of dieselpowered off-road machines, to advise them of the planned Regulations and to invite them to review and comment on the discussion draft.

Environment Canada received comments on the discussion draft from ten stakeholders (five from provincial and municipal governments, and five from industry). The comments show broad support for many aspects of the proposed Regulations, and the approach of aligning Canadian regulatory emission standards with the applicable U.S. federal standards. Some of the specific comments from these stakeholders, and Environment Canada's response to them, are as follows:

— The Alberta Association of Municipal Districts and Counties suggested that the implementation of the proposed Regulations be postponed until Canada's agricultural sector has regained some stability. As noted earlier, the proposed Regulations are expected to have a minimal impact on the cost of engines and machines. Therefore, Environment Canada decided to proceed as planned with the regulatory development.

— Stevenson Equipment Ltd. voiced the concerns raised in the United States by the Independent Equipment Dealers Association with regard to obtaining the documentation required for demonstrating that an engine has been certified by the U.S. EPA. This situation could also arise in Canada, since the proposed Regulations require an importer to provide similar evidence of conformity. This issue was deemed to be a commercial matter between engine manufacturers and importers. Therefore, the requirements of the proposed Regulations regarding documents required to demonstrate conformity with the regulatory standards were not modified. However, Environment Canada is willing to revisit this matter if evidence is brought forward that the proposed Regulations may have a significant negative impact on the normal course of business for importers.

— Stevenson Equipment Ltd. also raised some concerns regarding the administration of the proposed Regulations, including application for the national emissions mark and procedures to produce the evidence of conformity. Environment Canada plans to issue a guidance document (see footnote 14) to assist companies with the administrative and technical provisions of the regulatory framework.

— The Canadian Association of Equipment Dealers and Cummins Western Canada suggested that the engine regulatory standards should exactly follow those of the U.S. EPA. Environment Canada has made every effort to align the proposed Regulations with U.S. EPA rules to the extent that the Canadian scenario and the statutory authority of CEPA 1999 permit. The Engine Manufacturers Association proposed some technical modifications to achieve further alignment of the proposed Regulations with the U.S. EPA rules. Environment Canada has modified portions of the transition engine emission regulatory standards to improve alignment with the corresponding flexibility provisions under U.S. EPA rules.

A detailed summary of Environment Canada's response to the comments received on the discussion draft are available in a separate document. (see footnote 15)

Compliance and enforcement

Environment Canada administers a comprehensive program to monitor compliance with emission standards. The program includes:

— authorizing and monitoring use of the national emissions mark;

— reviewing company evidence of conformity;

— registering manufacturers' notices of defects affecting emissions controls;

— inspection of test engines and their emissions-related components;

— laboratory emissions tests of sample new engines that are representative of products offered for sale in Canada.

Environment Canada plans to co-ordinate efforts with the U.S. EPA, by sharing information to increase program efficiency and effectiveness.

If an engine is found not to comply with the proposed Regulations, the manufacturer or importer will be subject to the provisions of CEPA 1999. In this situation, the normal course of events is to perform sufficient engineering assessment to determine if a notice of defect should be issued.

Environment Canada's Compliance and Enforcement Policy (see footnote 16) for CEPA 1999 will be applied when verifying compliance with the proposed Regulations. This Policy sets out the range of possible responses to alleged violations: warnings, environmental protection compliance orders, ticketing, ministerial orders, injunctions, prosecution, and environmental protection alternative measures (which are an alternative to a court prosecution 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 cost recovery.

Whenever a possible violation of the Regulations is identified, enforcement officers may carry out inspections, investigations or both. Alleged violations may be identified by Environment Canada's technical personnel, through information transmitted to the Department by the Canada Customs and Revenue Agency or through complaints received from the public. Enforcement activities may also include inspections by enforcement officers at Canada's international borders.

When, following an inspection or investigation, a CEPA enforcement officer discovers an alleged violation, the officer will choose the appropriate enforcement action based on the following criteria:

— Nature of the alleged violation: This includes consideration of the seriousness of the harm or potential harm to the environment, 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 with the Act 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 co-operate with enforcement officers, and evidence of corrective action already taken.

— Consistency in enforcement: Enforcement officers will consider how similar situations have been handled in determining the measures to be taken to enforce the Act.

Contacts

Mr. Malcolm McHattie, Chief, Regulatory Development Division, Transportation Systems Branch, Environment Canada, 351 Saint-Joseph Boulevard, 10th Floor, Gatineau, Quebec K1A 0H3, (819) 953-7776 (telephone), (819) 953-7815 (facsimile), malcolm.mchattie@ec.gc.ca (electronic mail); and Ms. Céline Labossière, Policy Manager, Regulatory and Economic Analysis Branch, Environment Canada, 10 Wellington Street, 24th Floor, Gatineau, Québec K1A 0H3, (819) 997-2377 (telephone), (819) 997-2769 (facsimile), celine.labossiere@ec.gc.ca (electronic mail).

PROPOSED REGULATORY TEXT

Notice is hereby given, pursuant to subsection 332(1) of the Canadian Environmental Protection Act, 1999 (see footnote a), that the Governor in Council, pursuant to section 160 of that Act, proposes to make the annexed Off-Road Compression-Ignition Engine 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 Malcolm McHattie, Chief, Regulatory Development Division, Transportation Systems Branch, Air Pollution Prevention Directorate, Environmental Protection Service, Department of the Environment, Ottawa, Ontario K1A 0H3.

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

Ottawa, May 3, 2004

EILEEN BOYD
Assistant Clerk of the Privy Council

OFF-ROAD COMPRESSION-IGNITION ENGINE
EMISSION REGULATIONS

INTERPRETATION

1. (1) The following definitions apply in these Regulations.

"Act" means the Canadian Environmental Protection Act, 1999. (Loi)

"CFR" means Title 40, chapter I, subchapter C, part 89, of the Code of Federal Regulations of the United States as amended from time to time. (CFR)

"element of design" means, in respect of an engine,

(a) any control system, including computer software, electronic control systems and computer logic;

(b) any control system calibrations;

(c) the results of systems interaction; or

(d) any hardware items. (élément de conception)

"emission control system" means any device, system or element of design that controls or reduces the exhaust emissions from an engine. (système antipollution)

"engine" means an off-road engine that is prescribed under subsection 5(1). (moteur)

"EPA" means the United States Environmental Protection Agency. (EPA)

"EPA certificate" means a certificate of conformity to United States federal standards issued by the EPA. (certificat de l'EPA)

"exhaust emissions" means substances emitted into the atmosphere from any opening downstream from the exhaust port of an engine. (émissions de gaz d'échappement)

"machine" means anything, including a vehicle, device, appliance or implement, powered by an engine. (machine)

"model year" means the year, as determined under section 4, that is used by a manufacturer to designate a model of engine. (année de modèle)

"off-road engine" means an engine, within the meaning of section 149 of the Act,

(a) that is used or designed to be used by itself and that is designed to be or is capable of being carried or moved from one location to another; or

(b) that is used or designed to be used

(i) in or on a machine that is designed to be or is capable of being carried or moved from one location to another,
(ii) in or on a machine that is self-propelled,
(iii) in or on a machine that serves a dual purpose by both propelling itself and performing another function, or
(iv) in or on a machine that is designed to be propelled while performing its function. (moteur hors route)

(2) Standards that are incorporated by reference in these Regulations from the CFR are those expressly set out in the CFR and shall be read as excluding

(a) references to the EPA or the Administrator of the EPA exercising discretion in any way;

(b) alternative standards related to the averaging, banking and trading of emission credits, to small volume manufacturers or to financial hardship; and

(c) standards or evidence of conformity of any jurisdiction or authority other than the EPA.

(3) For the purposes of these Regulations, a reference in the CFR to

(a) "nonroad vehicle" and "nonroad equipment" shall be read as "machine";

(b) "nonroad engine" shall be read as "engine"; and

(c) "Tier" shall be read as "groupe" in the French version of these Regulations.

PURPOSE

2. The purpose of these Regulations is to

(a) reduce emissions of hydrocarbons, oxides of nitrogen, particulate matter and carbon monoxide from engines by establishing emission limits for those substances or combinations of those substances;

(b) reduce emissions of the toxic substances formaldehyde, 1,3 butadiene, acetaldehyde, acrolein and benzene through the establishment of emission limits for hydrocarbons from engines; and

(c) establish emission standards and test procedures for engines that are aligned with those of the EPA.

APPLICATION

3. These Regulations apply to engines of the 2006 and later model years.

MODEL YEAR

4. (1) A year that is used by a manufacturer of an engine as a model year shall

(a) if the period of production of a model of engine does not include January 1st of a calendar year, correspond to the calendar year during which the period of production falls; or

(b) if the period of production of a model of engine includes January 1st of a calendar year, correspond to that calendar year.

(2) The period of production of a model of engine shall include only one January 1st.

PRESCRIBED ENGINES

5. (1) Subject to subsection (2), the off-road engines that are prescribed for the purposes of the definition "engine" in section 149 of the Act are those that operate as reciprocating, internal combustion engines, other than those that operate under characteristics significantly similar to the theoretical Otto combustion cycle and that use a spark plug or other sparking device.

(2) The engines referred to in subsection (1) do not include engines that

(a) are designed exclusively for competition and with features that are not easily removed and characteristics that render their use other than in competition unsafe, impractical or unlikely;

(b) are regulated by the On-Road Vehicle and Engine Emission Regulations;

(c) are designed to be used exclusively in underground mines;

(d) have a per-cylinder displacement of less than 50 cubic centimetres;

(e) are designed to be used in military machines designed for use in combat or combat support;

(f) are being exported and that are accompanied by a written statement establishing that they will not be sold or used in Canada; or

(g) are designed to be used in a vessel and for which the fuel, cooling and exhaust systems are integral parts of the vessel.

(3) For the purpose of section 152 of the Act, the prescribed engines are those referred to in subsection (1) that are manufactured in Canada, except any engine that will be used in Canada solely for purposes of exhibition, demonstration, evaluation or testing.

APPLICATION FOR AUTHORIZATION TO APPLY THE NATIONAL EMISSIONS MARK

6. (1) Any company that intends to apply a national emissions mark in relation to an engine shall apply to the Minister to obtain an authorization.

(2) The application shall be signed by a person who is authorized to act on behalf of the company and shall include

(a) the name and street address of the head office of the company and, if different, its mailing address;

(b) a statement that the company is seeking to obtain the authorization to apply the national emissions mark under these Regulations;

(c) the street address of the location at which the national emissions mark will be applied; and

(d) information to show that the company is capable of verifying compliance with the standards set out in these Regulations.

NATIONAL EMISSIONS MARK

7. (1) The national emissions mark is the mark set out in the schedule.

(2) The national emissions mark shall be at least 7 mm in height and 10 mm in width.

(3) The national emissions mark shall be located

(a) on or immediately next to the emission control information label referred to in paragraph 16(d); or

(b) if there is no such label applied to the engine, in a visible or readily accessible location.

(4) The national emissions mark shall be on a label that

(a) is permanently applied;

(b) is resistant to or protected against any weather condition; and

(c) bears inscriptions that are legible and indelible and that are indented, embossed or in a colour that contrasts with the background of the label.

(5) A company that has been authorized to apply the national emissions mark shall display the identification number assigned by the Minister in figures that are at least 2 mm in height, immediately below or to the right of the national emissions mark.

8. A company may apply the national emissions mark to an engine that is manufactured before January 1, 2006, if

(a) the engine conforms to the standards set out in these Regulations for engines of the 2006 model year; and

(b) the company meets the requirements of these Regulations in respect of that engine.

ENGINE STANDARDS

9. (1) An emission control system that is installed on an engine to enable it to conform to the standards set out in these Regulations shall not

(a) in its operation or function, release a substance that causes air pollution and that would not have been released if the system were not installed; or

(b) in its operation, function or malfunction, make the engine or the machine in which the engine is installed unsafe, or endanger persons or property near the engine or machine.

(2) No engine shall be equipped with a defeat device as defined in paragraph 107(b), subpart B, of the CFR.

10. (1) Subject to sections 12 to 14, an engine of a given model year shall conform to the exhaust, crankcase and smoke emission standards set out in sections 112, 113 and 120, subpart B, of the CFR that are applicable to engines of that model year.

(2) The standards referred to in subsection (1) apply for the useful life of the engine set out in paragraph 104(a), subpart B, of the CFR and include the test procedures, fuels and calculation methods set out in the CFR for those standards.

11. (1) In this section, "adjustable parameter" means a device, system or element of design that is physically capable of being adjusted to affect emissions or engine performance during emission testing or normal in-use operation, but does not include devices, systems or elements of design that are permanently sealed by the engine manufacturer or that are inaccessible with the use of ordinary tools.

(2) Engines equipped with adjustable parameters must comply with the applicable standards under these Regulations for any specification within the physically adjustable range.

REPLACEMENT ENGINES

12. (1) In this section, "replacement engine" means an engine manufactured exclusively to replace an engine in a machine for which no current model year engine with the physical or performance characteristics necessary for the operation of the machine exists.

(2) A replacement engine may conform to, instead of the standards set out in sections 9 to 11,

(a) in the case where there exists a replacement engine manufactured to the specifications of a model year later than the model year of the original engine and with the physical or performance characteristics necessary for the operation of the machine,

(i) the standards referred to in sections 9 to 11 applicable to an engine manufactured to the specification of the model year of the replacement engine, or
(ii) if none of the standards referred to in sections 9 to 11 apply, the manufacturer's specifications; and

(b) in any other case,

(i) the standards referred to in sections 9 to 11 applicable to the original engine, or
(ii) if none of the standards referred to in sections 9 to 11 applied, the manufacturer's specifications.

(3) A replacement engine shall bear a label that meets the requirements set out in

(a) subsections 7(3) and (4) and that sets out, in both official languages, that the engine is a replacement engine; or

(b) paragraph 1003(b)(7), subpart K, of the CFR.

TRANSITION ENGINES

13. (1) In this section, "transition engine" means an engine that is installed in or on a machine that meets the requirements set out in paragraph 102(d), subpart B, of the CFR.

(2) The standards set out in sections 9 to 11 do not apply to engines with a gross power of less than 19 kW that are transition engines of model year 2006.

(3) The standards for Tier 1 engines referred to in the CFR apply, instead of the standards set out in sections 9 to 11, to a transition engine with a gross power of

(a) 37 kW or more, but less than 75 kW, for any of model years 2006 to 2010;

(b) 75 kW or more, but less than 225 kW, for any of model years 2006 to 2009;

(c) 225 kW or more, but less than 450 kW, for either of model years 2006 and 2007;

(d) 450 kW or more, but not more than 560 kW, for any of model years 2006 to 2008; and

(e) more than 560 kW, for any of model years 2006 to 2012.

(4) A transition engine shall bear a label that meets the requirements set out in subsections 7(3) and (4) and that sets out that the engine is a transition engine.

(5) A company that imports an engine referred to in subsection (2) or (3) into Canada for installation as a transition engine in or on a machine that is to be sold in Canada and the United States in reliance on subsection 153(2) of the Act shall submit a declaration at a customs office, signed by its duly authorized representative, that contains the information described in paragraphs 19(1)(a) to (d) and subparagraph 19(1)(e)(i) and a statement that the engine will be a transition engine and will conform to the standards set out in subsections (2) to (4).

ENGINES COVERED BY AN EPA CERTIFICATE

14. (1) In this section, "an engine of a specific model year that is covered by an EPA certificate and that is sold concurrently in Canada and the United States" includes an engine that is sold in Canada and that has

(a) the same features set out in the CFR to classify engines into engine families, as an engine in an engine family covered by an EPA certificate and sold in the United States in the same model year; and

(b) no features that could cause it to have a higher level of emissions than the engine family sold in the United States.

(2) An engine of a specific model year that is covered by an EPA certificate and that is sold concurrently in Canada and in the United States shall conform to, instead of the standards set out in sections 9 to 11, the emission standards referred to in the EPA certificate.

(3) For the purposes of subsection 153(3) of the Act, the provisions of the CFR that are applicable to an engine referred to in subsection (2) pursuant to the EPA certificate correspond to the emission standards referred to in subsection (2).

(4) For the purposes of subsection 153(3) of the Act, the EPA is the prescribed agency.

EMISSION-RELATED MAINTENANCE INSTRUCTIONS

15. (1) Every company shall ensure that written instructions respecting emission-related maintenance are provided to the first retail purchaser of every engine or machine and that the instructions are consistent with the maintenance instructions set out in paragraph 109(a), subpart B of the CFR for the applicable model year.

(2) The instructions shall be provided in English, French or both official languages, as requested by the purchaser.

RECORDS

16. In the case of an engine referred to in subsection 14(2), evidence of conformity for the purposes of paragraph 153(1)(b) of the Act in respect of a company shall consist of

(a) a copy of the EPA certificate covering the engine;

(b) a document demonstrating that the engine covered by the EPA certificate is sold concurrently in Canada and in the United States;

(c) a copy of the records submitted to the EPA in support of the application for the issuance of the EPA certificate in respect of the engine; and

(d) an emission control information label that is permanently affixed in the form and location set out in section 110, subpart B, of the CFR for the applicable model year of the engine.

17. In the case of an engine other than one referred to in subsection 14(2), evidence of conformity required under paragraph 153(1)(b) of the Act shall be obtained and produced by a company in a form and manner that is satisfactory to the Minister instead of that specified in section 16.

18. On written request by the Minister for the evidence of conformity referred to in paragraphs 16(a) to (c) or section 17, the company shall provide the Minister with the evidence of conformity in respect of any engine manufactured in the eight years preceding the request, in either official language and

(a) within 40 days after the request is delivered to the company; or

(b) within 60 days after the request is delivered to the company, if the evidence of conformity must be translated from a language other than French or English.

IMPORTATION REQUIREMENTS AND DOCUMENTS

19. (1) Subject to subsection (2), any person importing an engine into Canada shall submit a declaration at a customs office, signed by that person or their duly authorized representative, that contains the following information:

(a) the name and street address and, if different, the mailing address of the importer;

(b) in respect of an engine that is not installed in or on a machine, the name of the manufacturer and the model and model year of the engine;

(c) in respect of a machine, the name of the manufacturer and the make, model and type of the machine;

(d) the date on which the engine is imported;

(e) in the case of a company,

(i) the business number assigned to the company by the Minister of National Revenue, and
(ii) a statement that the engine bears the national emissions mark, or that the company is either able to produce the evidence of conformity referred to in section 16 or complies with section 17; and

(f) in the case of a person that is not a company,

(i) a statement from the person that the engine bears
(A) the national emissions mark,
(B) the emission control information label referred to in paragraph 16(d) showing that the engine conformed to the emission standards of the EPA in effect at the time of its manufacture, or
(C) a label showing that the engine conformed to the emission standards of the California Air Resources Board in effect at the time of its manufacture, or
(ii) a statement from the manufacturer or its duly authorized representative that the engine conformed to the standards set out in these Regulations, or to the standards referred to in clause (i)(B) or (C), at the time of its manufacture.

(2) For the purposes of paragraph 153(1)(b) of the Act, any company that imports 50 or more engines into Canada in a calendar year may provide the information referred to in subsection (1) in another form and manner that is satisfactory to the Minister.

20. The declaration referred to in paragraph 155(1)(a) of the Act shall be signed by the person referred to in that paragraph or their duly authorized representative, and shall contain

(a) the information described in paragraphs 19(1)(a) to (d) and subparagraph 19(1)(e)(i);

(b) a statement that the engine will be used in Canada solely for purposes of exhibition, demonstration, evaluation or testing; and

(c) the date on which the engine will be removed from Canada or destroyed or will conform with these Regulations.

21. A company that imports an engine into Canada in reliance on subsection 153(2) of the Act shall submit a declaration at a customs office, signed by its duly authorized representative, that contains the information described in paragraphs 19(1)(a) to (d) and subparagraph 19(1)(e)(i) and, in addition,

(a) a statement from the manufacturer of the engine that the engine will, when completed in accordance with instructions provided by the manufacturer, conform to the standards prescribed under these Regulations; and

(b) a statement from the company that the engine will be completed in accordance with the instructions referred to in paragraph (a).

RENTAL RATE

22. The annual rental rate to be paid to a company by the Minister under subsection 159(1) of the Act, prorated on a daily basis for each day that an engine is made available, is 12% of the manufacturer's suggested retail price of the engine.

EXEMPTION

23. A company applying under section 156 of the Act for an exemption from conformity with any standard prescribed under these Regulations shall submit in writing to the Minister

(a) its name and street address and, if different, its mailing address;

(b) the province or country under the laws of which it is established;

(c) the section number, title and text of the standards from which an exemption is sought;

(d) the duration requested for the exemption;

(e) the estimated number of engines for which the exemption is sought and an estimate of the changes in emissions if the exemption is granted;

(f) the reason for requesting the exemption, including technical and financial information that demonstrates in detail why conformity to the standards referred to in paragraph (c) would

(i) create substantial financial hardship for the company,
(ii) impede the development of new features for emission monitoring or emission control that are equivalent or superior to those that conform to prescribed standards, or
(iii) impede the development of new kinds of engines or engine systems or components;

(g) if the basis of the application is substantial financial hardship,

(i) the world production of engines manufactured by the company or by the manufacturer that is the subject of the application in the 12-month period beginning two years before the start of the exemption period being sought, and
(ii) the total number of engines manufactured for, or imported into, the Canadian market in the 12-month period beginning two years before the start of the exemption period being sought;

(h) if the company is requesting that information submitted be treated as confidential under section 313 of the Act or otherwise, the reasons for the request; and

(i) the reasons why the granting of the exemption would be in the public interest and consistent with the objectives of the Act.

24. (1) In the case of a model of engine in respect of which the Governor in Council has, by order, granted an exemption under section 156 of the Act, the engine shall bear a label that meets the requirements set out in subsections 7(3) and (4).

(2) The label referred to in subsection (1) shall set out, in both official languages, the standard for which the exemption has been granted, as well as the title and date of the exemption order.

DEFECT INFORMATION

25. (1) The notice of defect referred to in subsections 157(1) and (4) of the Act shall be given in writing and shall contain the following information:

(a) the name of the company giving the notice;

(b) a description of each engine in respect of which the notice is given, including the model, the model year, the period during which the engine was manufactured and, if applicable, the EPA engine family identification;

(c) a description of the machine or type of machine in or on which the engine is installed or is likely to be installed;

(d) the estimated percentage of the potentially affected engines that contain the defect;

(e) a description of the defect;

(f) an evaluation of the pollution risk arising from the defect;

(g) a statement of the measures to be taken to correct the defect; and

(h) a description of the means available to the company to contact the current owner of each affected engine.

(2) A company shall, within 60 days after giving a notice of defect, submit to the Minister the initial report referred to in subsection 157(7) of the Act containing

(a) the information required by subsection (1);

(b) the total number of engines in relation to which the notice of defect has been given;

(c) a chronology of all principal events that led to the determination of the existence of the defect;

(d) a description of the measures undertaken to correct the defect; and

(e) copies of all notices, bulletins and other circulars issued by the company in respect of the defect, including a detailed description of the nature and physical location of the defect with diagrams and other illustrations as necessary.

(3) If a company submits an initial report under subsection (2), it shall submit, within 45 days after the end of each quarter, quarterly reports to the Minister respecting the defect and its correction that contain the following information:

(a) the number, title or other identification assigned by the company to the notice of defect;

(b) the number of engines in relation to which the notice of defect has been given;

(c) the date that notices of defect were given to the current owners of the affected engines; and

(d) the total number or percentage of engines repaired, including engines requiring inspection only.

COMING INTO FORCE

26. (1) These Regulations, except sections 3 to 5 and 9 to 25, come into force on the day on which they are registered.

(2) Sections 3 to 5 and 9 to 25 come into force on January 1, 2006.

SCHEDULE
(Subsection 7(1))

NATIONAL EMISSIONS MARK

[19-1-o]

Footnote 1

Nearly all compression-ignition engines burn diesel fuel, operate over the diesel cycle, and are known as diesel engines.

Footnote 2

Schedule 1 of CEPA 1999 includes the following air pollutants whose release can be linked with diesel fuel combustion in an engine: acetaldehyde, acrolein, benzene, 1,3-butadiene, formaldehyde, nitric oxide (NO), nitrogen dioxide (NO2), respirable particulate matter with a diameter of less than 10 micrometers (PM10), sulphur dioxide (SO2), and volatile organic compounds (VOCs) that participate in atmospheric photochemical reactions.

Footnote 3

Many provisions of CEPA 1999 apply to a company, which is defined as a person who (1) is engaged in the business of manufacturing engines in Canada; (2) is engaged in the business of selling engines to other persons for the purposes of resale by those persons; or (3) imports engines into Canada for the purpose of sale.

Footnote 4

Environment Canada (November 19, 2003), Off-Road Small Spark-Ignition Engine Emission Regulations, Canada Gazette, Part II, Vol. 137, No. 24.

Footnote 5

The Notice of Intent can be found at www.ec.gc.ca/Ceparegistry/documents/notices/g1-13507_n1.pdf.

Footnote 6

The U.S. CFR Web site is www.access.gpo.gov/nara/cfr/waisidx_01/40cfr89_01.html.

Footnote 7

On April 15, 2003, the EPA proposed new emission standards to further reduce emissions from off-road compression-ignition engines. The EPA proposal integrates new, tighter emission standards to be phased in between 2008 and 2014, and establishes fuel sulphur limits for regular diesel fuel. Environment Canada is also preparing regulations to introduce fuel sulphur standards for off-road diesel fuel in preparation for 2008 and later model year engines. Please see the discussion paper "Reducing the Level of Sulphur in Canadian Off-Road Diesel Fuel," which can be found at www.ec.gc.ca/energ/fuels/reports/OffRoadDiesel/
SulphurOffRoadDiesel_e.cfm.

Footnote 8

The duration of the useful life is between 3 000 and 8 000 hours of operation or five to ten years of use, depending on engine power.

Footnote 9

U.S. EPA (Oct. 2001), Nonroad Diesel Emission Standards Staff Technical Paper, EPA420-R-01-052.

Footnote 10

The European Union (EU) has already adopted, and Korea is in the process of adopting, emission standards for off-road compression-ignition engines that are essentially aligned with those of the U.S. EPA. Japan has proposed standards that, although similar in stringency to the U.S. EPA Tier 3 standards and corresponding EU standards, are not harmonized with the U.S. or EU regulations.

Footnote 11

U.S. EPA (August 1998), Final Regulatory Impact Analysis: Control of Emissions from Nonroad Diesel Engines, EPA420-R-98-016.

Footnote 12

The document is available at www.ec.gc.ca/transport/publications/support/supporttoc.htm.

Footnote 13

The discussion draft is available at www.ec.gc.ca/ceparegistry/documents/
part/offroad_dd/diesel_notice.cfm.

Footnote 14

The guidance document for the Off-Road Small Spark-Ignition Engine Emission Regulations, which shares similar provisions to that contained in the proposed Regulations, is available at www.ec.gc.ca/CEPARegistry/documents/regs/ssi_guid/toc.cfm.

Footnote 15

Environment Canada's response to comments on the discussion draft is available at www.ec.gc.ca/CEPARegistry/default.cfm.

Footnote 16

The Policy can be found at www.ec.gc.ca/CEPARegistry/documents/
policies/candepolicy/CandEpolicy.pdf.

Footnote a

S.C. 1999, c. 33

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