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Discussion Document

The Use of Temporary Waivers Under the Fuels Division1 of the Canadian Environmental Protection Act, 1999

Purpose

This paper informs interested parties of Environment Canada’s intent to develop regulations prescribing conditions under which the Minister could grant temporary waivers to fuels regulations made under the Canadian Environmental Protection Act, 1999 (CEPA 1999).

Introduction and context

CEPA 1999 stipulates: “the protection of the environment is essential to the well-being of Canadians” and “the primary purpose of this Act is to contribute to sustainable development through pollution prevention.”

Vehicle emissions are one of the major sources of pollutants that have effects on the environment and health, including premature mortality and other serious harmful effects.

Since the quality of fuels impacts directly on emissions, Environment Canada has to date developed four regulations on fuel under Part 7, Division 4 (Fuels), of CEPA 1999(see Appendix A). These regulations, as well as those on emissions from on-road vehicles, off-road vehicles and engines, are important components of the efforts that the government is making to reduce air pollution.

In certain circumstances over the past few years, the Minister of the Environment has been asked to apply section 147 (Temporary Waivers) of Part 7, Division 4 (Fuels), of CEPA 1999, which states: “The Minister may, in prescribed circumstances, grant a temporary waiver from any of the requirements of a regulation made under section 140 or 145 on any conditions and for any period that may be determined by the Minister.”

However, it is not possible to grant such temporary waivers at this time, since, for section 147 to apply, the circumstances must be “prescribed” (defined in the regulations) for determining the conditions under which the section takes effect.

Background

Environment Canada has had a number of requests for waivers over the years but has been unable to consider them, since circumstances have not been prescribed to allow the Minister to grant relief. Three primary reasons have been cited in past requests for waivers:

  • to help alleviate periods of tight fuel supply;
  • to allow the importation of fuel from the U.S. that does not comply with Canadian requirements; and
  • to provide for more time to install equipment to comply with new regulations that are coming into effect.

Canada’s fuel quality regulations provide important environmental and health benefits. The temporary waiver of such requirements could lessen such benefits.

The overall impact would depend not only on the consequent change in fuel quality, but also on in-use vehicle and engine emissions control technologies. For example, the performance of advanced emissions control after-treatment systems for diesel-powered vehicles is very sensitive to the sulphur level in diesel fuel. The use of diesel fuel with increased sulphur levels could require an increased need to regenerate particulate matter traps, which would increase fuel consumption or potentially cause plugging of particulate matter traps. Other regulated emissions could also increase due to impaired system performance.

It is unlikely that a single refuelling event would cause long-term irreversible damage; however, the impacts would persist past the actual use of the fuel and would vary depending on the design of particular systems.

Other jurisdictions

The U.S. Environmental Protection Agency (EPA) and the California Air Resources Board (CARB) both have in-depth experience in developing and administering fuels regulations. Both the EPAand CARB have provisions for granting temporary waivers from fuels regulations.

For the EPA, fees can be charged for volumes of product for which waivers apply so as to remove any financial benefit that a company might gain.

CARBhas waiver authority and a mandatory 15 cent per gallon fee applicable to volumes subject to variance. Their variances have been used on a small number of occasions, including for fuel used for experimental purposes.

The EPA approach rests on the existence of “extreme and unusual circumstances (e.g., natural disaster or Act of God) which are clearly outside the control of the refiner, importer, or oxygenate blender and which could not have been avoided by the exercise of prudence, diligence, and due care” and a determination by the administrator “that it is in the public interest to [grant a waiver]”. Waivers have been granted by the EPA in general and specific circumstances. The vast majority were in respect of 2005 hurricanes Katrina and Rita, which resulted in about 10% of the U.S. refining capacity being shut down, reducing the U.S. supply of domestically refined fuels. The actions by the EPA were part of a wide range of disaster responses, not only provided by the EPA but also by every state and national agency that could respond under the umbrella of President Bush declaring the hurricane an “incident of national significance,” a designation that triggered a national emergency plan.

Discussion

In the event of fuel supply disruptions, industry participants act to address challenges in serving customers, often in conjunction with one another. Actions taken by industry to fuel supply disruption may include draw-down of inventories, purchases of additional product from offshore and U.S. sources and transfers between refineries. In more extreme circumstances companies will allocate product among outlets or restrict the purchase volume by customers in order to stretch supply.

A critical disruption in fuel supply could lead to a breakdown in the flow of essential goods, services or resources and potentially affect the welfare and the economic stability of Canada. Market-based measures by industry to alleviate fuel supply disruptions as discussed above would be expected to have a much larger impact than temporary waivers to fuel quality requirements. However, Environment Canada considers that in the event of very severe fuel supply shortages, there may be occasions where a temporary waiver of fuel quality requirements could be warranted in order to achieve some additional marginal supply increase of fuel.

The reason for a supply disruption is not expected to be important to the end user of the fuel; what is important is the impact that disruptions might have on the Canadian marketplace. If essential fuel is not available, government action to address supply constraints by granting a temporary waiver from fuel quality requirements may be warranted.

It is recognized that granting a waiver would have competitiveness implications. For example, the price of ultra-low sulphur diesel fuel is about 2 cents per litre more than low sulphur diesel fuel (U.S. Energy Information Administration February/March 2007 data). There would therefore be a significant economic advantage for companies to buy low sulphur diesel fuel versus ultra-low sulphur diesel fuel or to use off-road diesel as a substitute for on-road. While use of fees tied to waivers could address such competitiveness issues, the existing legislation does not provide for fees beyond that of cost recovery. This is an additional reason why waivers should be constrained to the circumstances of severe fuel supply shortages.

The fuels regulations made under the Fuels Division of CEPA 1999 were put into place to protect the environment and human health. For each of these regulations, Governor in Council was of the opinion that the regulation could make a significant contribution to the prevention of, or reduction in, air pollution. Potential waivers to these regulations therefore should only be available under the most severe and extreme of circumstances.

Environment Canada considers that these circumstances are those where:

  • There is a serious fuel supply shortage;
  • Canada or a province/territory has declared under its respective legislation (appendices B and C) that there is a state of emergency;
  • The fuel shortage may be alleviated by the granting of a temporary waiver; and
  • The benefits of granting a waiver exceed the costs (e.g. of the resulting impacts on air pollution, the environment and the health of Canadians).

If waiver regulations were implemented and the prescribed conditions were met, then the granting of a temporary waiver would be at the discretion of the Minister of the Environment. If the Minister were to decide to grant a waiver, he or she could temporarily waive any of the requirements of a regulation. A stepped approach could potentially be used. For example, as a first step, requirements requiring registration 15 days in advance of first importation of fuel might be waived, if this would increase imported fuel volumes and help to alleviate an emergency fuel shortage. If necessary, subsequent consideration could be given to temporarily waiving technical specifications under a fuels regulation.

Path forward

Environment Canada plans to develop a regulation prescribing conditions under which the Minister could grant waivers to fuels regulation. The prescribed conditions set out in the regulation2 would be that:

  • Canada or a province/territory has declared under its respective legislation that there is a state of emergency.

In the event that these prescribed conditions come about, it is expected that the Minister would only exercise discretion in granting a waiver if satisfied that:

  • The emergency is related to a serious fuel supply shortage;
  • The situation may be improved by the granting of a temporary waiver; and
  • The benefits of granting a waiver exceed the resulting impacts on air pollution, the environment and the health of Canadians.3

Environment Canada plans to propose a regulation in the Canada Gazette, Part I, substantially in the form set out in Appendix D.

Parties are requested to provide their views in writing on the issues addressed in this discussion document to Environment Canada by April 30th, 2008. Comments may be provided by e-mail to Bruce.McEwen@ec.gc.ca or by fax to 819-953-8903. Written comments may be mailed to:

Fuels Waiver Regulations c/o Bruce McEwen Oil, Gas and Alternative Energy Division 351 St. Joseph Boulevard, 20th floor Gatineau, Quebec K1A 0H3

Appendix A – Fuels Regulations Under CEPA 1999

The regulations made under the Fuels Division of CEPA 1999 (Part 7, Division 4) are:

  • Gasoline Regulations: prescribe limits for lead and phosphorous in gasoline;
  • Sulphur in Gasoline Regulations: prescribe limits for sulphur in gasoline;
  • Sulphur in Diesel Fuel Regulations: prescribe limits for sulphur in diesel fuel; and
  • Fuel Information Regulations No. 1: prescribe reporting requirements for sulphur levels in fuels and density, as well as for additives.

In addition, the following regulations addressing fuels have been made under Part 5 (Controlling Toxic Substances) of CEPA 1999:

  • Benzene in Gasoline Regulations: prescribe limits for benzene and the benzene emissions number for gasoline;
  • Contaminated Fuels Regulations: prohibit the import and export of contaminated fuel; and
  • Gasoline and Gasoline Blend Dispensing Flow Rate Regulations: prescribe a flow rate limit for gasoline dispensing nozzles.

It should be noted that waiver provisions under section 147 of CEPA 1999 would apply only in respect of those regulations made under the Fuels Division.

Appendix B – Federal Government Legislation Addressing Emergencies

Federal legislation

1. Energy Supplies Emergency Act: In the 1970s when there was a clear apprehension of world oil shortages, the general question of how to respond to oil supply emergencies was a topic of government concern and legislation. Circumstances in which the government could act were set down in section 15 of the Energy Supplies Emergency Act:

15. (1) When the Governor in Council is of the opinion that a national emergency exists by reason of actual or anticipated shortages of petroleum or disturbances in the petroleum markets that affect or will affect the national security and welfare and the economic stability of Canada, and that it is necessary in the national interest to conserve the supplies of petroleum products within Canada, the Governor in Council may, by order, so declare and by that order authorize the establishment of a program for the mandatory allocation of petroleum products within Canada in accordance with this Act.

The Oil Division of the Energy Sector at Natural Resources Canada is responsible for advice on the application of this Act.

2. Emergencies Act (1985): There are four categories of emergency in the Act, for which varying provisions apply. These are: public welfare emergency, public order emergency, international emergency and war emergency. Fuel supply disruptions resulting from storms or fires would come under the category of public welfare emergency.

Some excerpts from the Act that provide context follow: [Title] An Act to authorize the taking of special temporary measures to ensure safety and security during national emergencies …

...

3. For the purposes of this Act, a “national emergency” is an urgent and critical situation of a temporary nature that

(a) seriously endangers the lives, health or safety of Canadians and is of such proportions or nature as to exceed the capacity or authority of a province to deal with it, or

(b) seriously threatens the ability of the Government of Canada to preserve the sovereignty, security and territorial integrity of Canada

and that cannot be effectively dealt with under any other law of Canada.

...

[Definitions (5.)] "public welfare emergency" means an emergency that is caused by a real or imminent

  1. fire, flood, drought, storm, earthquake or other natural phenomenon;
  2. disease in human beings, animals or plants, or
  3. accident or pollution

and that results or may result in a danger to life or property, social disruption or a breakdown in the flow of essential goods, services or resources, so serious as to be a national emergency.

6. (1) When the Governor in Council believes, on reasonable grounds, that a public welfare emergency exists and necessitates the taking of special temporary measures for dealing with the emergency, the Governor in Council, after such consultation as is required by section 14, may, by proclamation, so declare.

14. (2) The Governor in Council may not issue a declaration of a public welfare emergency where the direct effects of the emergency are confined to, or occur principally in, one province unless the lieutenant governor in council of the province has indicated to the Governor in Council that the emergency exceeds the capacity or authority of the province to deal with it.

Appendix C – Provincial/Territorial Legislation Addressing Emergencies

With regard to emergencies, provincial and territorial governments may be the first to respond and have legislated emergency powers similar to those of the federal government, albeit restricted to their own jurisdictions. A list of provincial emergency legislation is provided in the table below.

ProvinceLegislation
AlbertaEmergency Management Act
British ColumbiaEmergency Program Act
ManitobaEmergency Measures Act
New BrunswickEmergency Measures Act
Newfoundland and LabradorEmergency Measures Act
Northwest TerritoriesCivil Emergency Measures Act
Nova ScotiaEmergency Management Act
NunavutEmergency Measures Act
OntarioEmergency Management and Civil Protection Act
Prince Edward IslandEmergency Measures Act
QuebecCivil Protection Act
SaskatchewanEmergency Planning Act
YukonCivil Emergency Measures Act

Appendix D – Proposed Direction

The circumstances under which the Minister of the Environment may grant a temporary waiver from any of the requirements of a regulation made under sections 140 or 145 of the Act are the following:

  1. The declaration by the Governor in Council of an emergency under the Emergencies Act, R.S. 1985, c. 22 (4th Supp.); or
  2. The declaration by the Governor in Council of a national emergency pursuant to section 15 of the Energy Supplies Emergency Act; or
  3. The declaration of an emergency by a provincial or territorial government, a designated minister, the Lieutenant Governor in Council or the Commissioner in Executive Council.

1 Part 7, Division 4.

2 It is recognized that future regulations could always amend the prescribed circumstances should the government determine that a broader or narrower set of circumstances become desirable.

3 Consideration was given to including all of these in the regulation as prescribed conditions. That approach was rejected, as any proposed circumstance to be prescribed needs to be something the existence of which can be determined with a “yes” or “no” answer without further discretion or judgment being exercised by the Minister.

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