Vol. 132, No. 44 — October 31, 1998

Sulphur in Gasoline Regulations

Statutory Authority

Canadian Environmental Protection Act

Sponsoring Department

Department of the Environment

REGULATORY IMPACT
ANALYSIS STATEMENT

Description

The goal of the Sulphur in Gasoline Regulations is to protect the environment and the health of Canadians. Under section 47 of the Canadian Environmental Protection Act, the Governor in Council has the authority to make regulations "(a) prescribing, with respect to any fuel or fuel used for any purpose, the concentration or quantity of any element, component or additive that..., if exceeded, would, on the combustion of the fuel in ordinary circumstances, result in a significant contribution to air pollution". The Regulations limit sulphur in gasoline to an average level of 30 parts per million (ppm), with a never-to-be-exceeded maximum of 80 ppm. Low sulphur gasoline will be phased in across Canada in two stages: starting January 1, 2002, the level of sulphur in gasoline will be limited to an average level of 150 ppm, with a never-to-be-exceeded maximum of 200 ppm; and starting January 1, 2005, the level of sulphur in gasoline will be limited to an average level of 30 ppm, with a never-to-be-exceeded maximum of 80 ppm.

The phased-in approach addresses the issue of air quality in two steps. The 30 ppm limit in 2005 will achieve significant environmental and health benefits and ensures that low-emission vehicles have the fuel for which they are designed. The interim step of 150 ppm results in meaningful benefits in the short term. The phase-in provides the petroleum refining industry with the opportunity to spread out their investment expenditures over several years and take advantage of potential future lower cost sulphur reduction technology. This degree of flexibility could reduce costs. The phase-in is similar to the approach being used in Europe and the 150 ppm limit is approximately the same as the sulphur levels that will result for United States reformulated gasoline (RFG). As Europe is the principal source of Canadian gasoline imports, the level and timing specified in the Regulations provide independent marketers with a wider range of supply choices and, therefore, the ability to compete more effectively. Finally, flexibility to all suppliers is provided by the option to use annual pool averages (i.e. the average sulphur level for all gasoline produced at a facility or imported into a province from outside Canada). This innovative concept provides operational flexibility to regulatees and the opportunity to minimize investments while achieving the benefits of low sulphur levels. However, it also causes the administration of the provisions of the Regulations to be more complicated.

The Sulphur in Gasoline Regulations will protect the health of Canadians and the environment. The science is clear: gasoline with high sulphur levels significantly contributes to air pollution. Sulphur in gasoline causes increased emissions of sulphur dioxide and sulphate particles from vehicles. High sulphur levels also interfere with the performance of vehicle pollution control systems and this results in higher emissions of other gaseous pollutants. The Regulations will ensure that the full environmental benefits from current and future vehicle emissions control technologies are realized.

Problem Definition

Sulphur occurs naturally in crude oil. Its level in fuel products depends on the source of the crude oil and on the extent to which it is removed during the refining process. High sulphur levels increase emissions of a number of pollutants from vehicles and contribute significantly to air pollution.

While emissions of some pollutants have declined over the past two decades, air pollution continues to be one of Canada's priority environmental and health challenges. Many programs have been put in place to address air pollution, such as the Acid Rain and Smog programs.

Emissions of pollutants from gasoline-powered vehicles cause significant harm to the health of Canadians and to the environment. The combustion of gasoline is by far the largest national emission source of the combination of sulphur dioxide, sulphates, nitrogen oxides, volatile organic compounds and carbon monoxide. These emissions occur where people live and work, and are more acute in areas of high population density.

In cooperation with provincial governments, the federal government is putting in place a comprehensive and stringent cleaner vehicles and fuels program to reduce harmful emissions from vehicles. Actions to date include federal new vehicle emission standards, federal low sulphur diesel regulations and low benzene in gasoline regulations, British Columbia's gasoline and diesel fuel regulations, provincial requirements to reduce Reid vapour pressure (RVP) in Ontario and Quebec, and inspection and maintenance (I/M) programs in British Columbia and Ontario.

Reducing the level of sulphur in gasoline is an integral and important component of the cleaner vehicles and fuels program. A lower level of sulphur in gasoline will directly decrease vehicle emissions of sulphur-related air pollutants (SO₂, sulphate particulates) and will reduce other gaseous vehicle pollutants, such as carbon monoxide (CO), nitrogen oxides (NO_x), volatile organic compounds (VOCs), and benzene, by enabling vehicle pollution control systems to function more efficiently. The resulting lower levels of air pollution will improve the health of Canadians.

Emissions from vehicles are primarily a function of vehicle technology and the properties of the fuels. Canada has already introduced requirements for new vehicle emissions standards that are among the most stringent in the world. Motor vehicle manufacturers have made considerable progress over the past two decades towards increasing the efficiency of the combustion process and improving emission control systems. As part of the Cleaner Vehicles and Fuels program, the federal government has already put in place stringent vehicle emission standards and has initiated a process to develop a Low Emission Vehicle program. Fuels are now becoming more of an issue in the challenge to reduce vehicle emissions. Without low sulphur gasoline, the full benefits of state-of-the-art emission control technologies cannot be achieved and vehicles will emit higher levels of pollutants than their designed intent or capability. Moreover, the absence of low sulphur gasoline could be a barrier to the introduction of some new high efficiency engine technologies that are likely to be an important component of Canada's efforts to control its greenhouse gas emissions.

Sulphur Levels in Canada and Other Jurisdictions

Canadian gasoline has an average sulphur content of 360 ppm, one of the highest levels in the world. While the national average has remained fairly constant over the past four years, since 1988, the average sulphur level in gasoline has increased by approximately 42 percent (from 254 ppm to 360 ppm). There are notable regional differences within the country. In 1997, sulphur in gasoline in Ontario averaged 530 ppm while the other regions of Canada averaged between 260 and 290 ppm. Since 1988, the average sulphur level in Ontario gasoline has increased by approximately 140 percent.

According to a 1996 survey of average international gasoline sulphur levels conducted by Solomon Associates Inc., France and Latin America have sulphur levels higher than Canada (about 430 ppm and 600 ppm respectively). The United States and Britain have average levels somewhat lower than Canada (about 310 ppm and 340 ppm respectively), while the rest of Europe, Asia (excluding Japan) and Australia have average levels considerably lower than Canada (160 to 230 ppm).

Other jurisdictions have or will require low sulphur gasoline. Presently, Japan and California have low sulphur (30 ppm average) gasoline, and the European Union has recently set a similar requirement (50 ppm maximum) to come into effect in 2005 (with an interim step of 150 ppm maximum in 2000). The United States is currently assessing the need for national or regional sulphur in gasoline standards to be implemented coincidentally with Tier 2 vehicle emission standards, which are expected to be introduced for the 2004 vehicle model year.

It is clear that reducing the sulphur content of gasoline will contribute to improving air quality in Canada, particularly in urban areas, thereby reducing the adverse health and environmental impacts associated with emissions from vehicles. This will be achieved by both the cleaner characteristics of the fuel and the improved operational efficiency of vehicles' pollution control systems. Moreover, there has been a steady increase in the levels of sulphur in gasoline in specific regions of Canada. Action to limit the level of sulphur in gasoline will arrest this trend. Finally, there is considerable effort in various jurisdictions internationally to reduce sulphur levels in gasoline. The introduction of a lower level of sulphur in gasoline will align Canadian requirements with those in a number of other developed countries.

The Petroleum Industry — Overview

The Canadian petroleum products industry comprises petroleum refining, product distribution and marketing operations. Thirteen companies operate 22 refineries in Canada, 18 of which produce gasoline. Gasoline and other petroleum products are sold through a distribution network consisting of about 17,000 retail outlets.

Gasoline is the principal source of fuel for road transportation. In 1997, the total demand for gasoline in Canada exceeded 36 billion litres. The petroleum products industry employs over 150,000 people, with approximately 13,000 working in refineries and the remainder in product distribution and marketing operations. Each refinery job has been estimated to generate up to seven jobs in associated industries, while one to two jobs are created for every distribution and retail job. The export of petroleum products is a major contributor to Canada's favourable balance of trade. The financial performance of the industry has recently improved following a period of low rates of return in the early part of the decade.

In 1997, imported gasoline accounted for 6 percent of domestic supply. Shipments from Europe accounted for 90 percent of the gasoline imported into Quebec, 73 percent into Atlantic Canada and 60 percent into Ontario. Imports from western United States accounted for all of the imports into British Columbia and the Prairies.

Major petroleum producers and importers voluntarily comply with standards developed by the Canadian General Standards Board (CGSB). As well, both the federal and provincial governments regulate fuels. Gasoline and other vehicle fuels are currently subject to the following federal regulations:

— The Fuels Information Regulations No. 1 (1978) require fuel producers to report the sulphur content and the types of liquid additives in liquid fuels;

— The Gasoline Regulations (1990) establish limits on lead and phosphorous contents for both leaded and unleaded gasoline;

— The Contaminated Fuel Regulations (1991) prohibit the import or export of contaminated fuels, except for lawful destruction, disposal or recycling;

— The Diesel Fuel Regulations (1997) prohibit the production, import and sale of on-road diesel fuel with a sulphur content exceeding the specified fuel characteristics; and

— The Benzene in Gasoline Regulations (1997) will require reduced levels of benzene in gasoline effective July 1, 1999.

Many provinces have limits on summer gasoline volatility as measured by Reid vapour pressure (RVP).

In late 1995, British Columbia adopted regulations that require the use of deposit control additives in gasoline, reduce benzene and RVP, and limit gasoline formulations to control nitrogen oxides (NO_x) and toxics emissions. The regulations will be phased in between 1996 and 2001. The British Columbia regulations limit sulphur in gasoline to an annual average of 150 ppm in Southern British Columbia effective January 1, 1999, and 200 ppm throughout the rest of the province effective January 1, 2000. Those regulations include an option for suppliers to meet an emissions performance-based standard based on NO_x and toxics instead of the sulphur limits.

Effective April 1, 1995, only low-sulphur diesel fuel can be sold for on-road use in British Columbia.

Competitiveness

Canadian refineries are price takers with respect to both crude purchases and product sales. Canadian wholesale prices are strongly influenced by United States and European prices. Accordingly, refinery margins and company profits are heavily influenced by access to low-cost feedstocks, the ability to process inexpensive heavy sour crude, economies of scale, the control of operating costs and competition from imported products.

Competitive pressures and subsequent rationalization have affected both the production and distribution components of the industry. Since 1980, 14 of 36 refineries in Canada have closed. This has led to increased refinery utilization rates on a scale comparable with facilities in the northern United States. However, continued competitive pressures and technological advancement may lead to further rationalization of gasoline production and supply in Canada in the near future.

Environmental challenges are an important factor in the future of the petroleum industry. Future environmental requirements are anticipated to be more numerous and costly. However, analysis by Industry Canada suggests that, on a unit basis, Canadian refiners' environmental costs are less than those in the United States by a factor of two to three. The same work also indicates that environmental costs which affect product specifications are more likely to be recoverable in the marketplace than environmental costs needed for local site operations. This is due to the fact that all refiners, domestic and foreign, would be required to meet fuel specification requirements.

A 30 ppm sulphur in gasoline requirement will have variable impacts on the competitiveness of Canada's refineries. A consultant's report prepared for the GWG estimated that three to four refineries may have their economic viability threatened if 30 ppm gasoline is required in Canada. However, the same report stated that a small number of refineries will actually increase their profit margins under the same circumstances.

An important competitiveness consideration is the level of environmental requirements for gasoline in Canada versus those in the United States. The United States has a regional patchwork of gasoline standards that address various environmental specifications such as oxygenates, vapour pressure, toxics, and the emissions of hydrocarbons and nitrogen oxides. These requirements place restrictions on the environmental quality of gasoline exported from Canada to the United States. While Canada currently has requirements for the environmental quality of gasoline (e.g. maximum lead content), in practice our requirements do not impede imports of unleaded gasoline into Canada. This situation will change in July, 1999, when Canada's Benzene in Gasoline Regulations come into effect.

Disruption of the gasoline supply and demand balance will be minimized if other jurisdictions introduce similar requirements for sulphur in gasoline. The European Union, Canada's largest source of imported gasoline, recently announced that it will require gasoline to have sulphur levels below a maximum of 150 ppm in 2000 and below 50 ppm (i.e. approximately equivalent to the 30 ppm average sulphur option) starting in 2005. To support the interests of gasoline producers and importers, Canada will encourage the United States EPA to adopt requirements for low sulphur gasoline on a similar timetable as Canada.

Background

On November 8, 1994, the Canadian Council of Ministers of the Environment (CCME) established the Task Force on Cleaner Vehicles and Fuels, co-chaired by the federal Department of the Environment and the British Columbia Ministry of Environment, Lands and Parks, to develop options and recommendations on a national approach to new vehicle emission and efficiency standards and fuel formulations for Canada, recognizing regional and urban realities.

In October 1995, the Task Force made recommendations to the CCME. One recommendation was that:

"Environment Canada, in consultation with provinces and stakeholders, lead in the development and implementation of a regulated minimum national standard for gasoline, ..."

With respect to sulphur requirements, the parameters of the national standard for gasoline set out by the CCME include:

"A future level of sulphur should be based on the lower of: [emphasis added]

(a) recommendations that might be forthcoming from auto and oil industry studies which are aimed at setting the sulphur levels in gasoline to provide fuels compatible with low emission vehicle technologies. Recommendations in this regard should be provided by industry no later than November 1, 1996, or

(b) assessments to be undertaken by Environment Canada in consultation with provinces and stakeholders during 1996 to set a cost-effective limit for sulphur in gasoline taking into account associated health and environmental benefits.

Based on work done to date on costs, cost effectiveness and benefits, a sulphur level under 200 ppm appears to be warranted. Further work is required to set a specific number.

The final sulphur limit should become effective not later than January 1, 2000. The actual limit and implementation date should be determined by no later than January 1, 1997 to enable construction of facilities to proceed on time. As an interim measure, the 1994 Canadian average of 360 ppm should be maintained, starting January 1, 1997."

In 1996 and 1997, a fact-finding process on sulphur in fuels was directed by a multi-stakeholder steering committee consisting of representatives from the petroleum refining and automotive industry associations, other federal departments, one environmental group, and several provinces. This process was carried out by expert panels of recognized professionals and by consultants proficient in appropriate fields and representing divergent views and interests. The memberships of the expert panels were reviewed and approved by all steering committee representatives. The work of the three expert panels was coordinated by the Chair of Studies, Dr. David Johnston, Centre for Medicine Ethics and Law, McGill University.

Three expert panels were established to complete this fact-finding exercise. The expert panels were requested to gather and report factual information on:

— emissions from vehicles resulting from the sulphur content of gasoline and diesel, and the impact of those emissions on ambient concentrations;

— the effect of the ambient concentrations on the health of Canadians and their environment, and the value of avoiding those adverse effects; and

— the cost to Canadian refiners of potential reductions of the sulphur content of gasoline and diesel, and the impact on the competitiveness of the industry.

The three panels focused their attention on six sulphur in gasoline and three sulphur in diesel scenarios (all assumed to be effective January 1, 2001).

The refining industry played a key role in participating on and funding two-thirds of the cost of the additional studies carried out during 1996 and 1997. The final reports on emission reduction, atmospheric effects and associated health benefits represent the consensus of independent expert panels. Those reports and the consultants' two reports on the cost and competitiveness implications for the refining industry were accepted by the steering committee.

In parallel with the fact-finding process, the Vehicle/Fuels Compatibility Task Group, consisting of representatives from the federal government, auto and oil industries, was established to:

— address the effect of sulphur in gasoline on the emission control and monitoring technologies, including on-board diagnostics (OBD II), of low-emission vehicles (LEVs) and the ability of low-emission vehicles to meet compliance standards; and

— consider the effects of sulphur in gasoline on the "in-use" emission performance of low-emission vehicles.

The Government Working Group on Sulphur in Gasoline and Diesel Fuel (GWG) was subsequently initiated and tasked by Environment Canada in mid-1997 to analyze the expert panel reports and develop recommendations as to the appropriate levels of sulphur in gasoline and diesel. Chaired by Environment Canada, the GWG consisted of representatives from four other federal departments (Health Canada; Industry Canada; Transport Canada; and Natural Resources Canada) and all provincial governments, except the Northwest Territories.

The GWG based its deliberations primarily on the work of the expert panels and the fact-finding group on vehicle/fuel compatibility, but also considered relevant additional information. During its deliberations, the GWG assessed options which were not the same as the scenarios initially reviewed by the expert panels. This required a degree of re-aggregation of the information from the expert panels. Additional analysis was also done to permit the comparison of the benefits and costs estimates for the options under consideration.

The methodologies employed by the GWG to repackage the findings of the expert panels and supplemental studies can be found in Section Five and Appendix A of the Final Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel (July 14, 1998).

The GWG developed a series of options as to the appropriate level of sulphur in gasoline. A Preliminary Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel, was distributed to more than 250 stakeholders on April 3, 1998. Stakeholders were asked for their views with supporting rationale on an appropriate level of sulphur in gasoline. Stakeholder responses were considered by the GWG in finalizing their report. The Final Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel (July 14, 1998) was completed and forwarded to the Minister of the Environment for her consideration. At the same time, the final report was also forwarded to stakeholders and made available to the public.

The Final Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel, representing a consensus of the GWG, concluded that sulphur levels in gasoline should be reduced. The GWG identified four options for the consideration of the Minister of the Environment:

— require 30 ppm throughout Canada effective January 1, 2002;

— require 30 ppm in Quebec and southern Ontario effective January 1, 2002, and for the rest of Canada January 1, 2005;

— require 30 ppm in Quebec and southern Ontario effective January 1, 2002, and in the Lower Fraser Valley effective January 1, 2004, and requirements for the rest of Canada would match the least restrictive of possible future requirements in the United States; and

— require 150 ppm throughout Canada effective September 1, 2003, with a proviso to match the least restrictive of possible future requirements in the United States (if it is less than 150 ppm).

The Minister of the Environment tabled a status report with the CCME on implementation of the recommendations of the Task Force on Cleaner Vehicles and Fuels at each CCME meeting since 1995. At the September CCME meeting, the Minister discussed the sulphur in gasoline issue with provincial ministers of the Environment.

The Sulphur in Gasoline Regulations represent a further step by the federal government to fulfill the CCME's decision regarding a regulated national standard for gasoline in Canada. Specifically, the level of sulphur in gasoline supplied in Canada will be limited to an average of 150 ppm on January 1, 2002, and 30 ppm on January 1, 2005.

Summary of the Regulations

A summary of the Regulations is provided below. Interested parties are directed to the Regulations themselves for specific details.

The Sulphur in Gasoline Regulations specify sulphur limits for gasoline that is produced or imported for use or sale in Canada and for gasoline that is sold or offered for sale.

The compliance date for gasoline that is produced or imported to meet the 30 ppm level is January 1, 2005, with an interim requirement of 150 ppm on January 1, 2002. "Primary suppliers" are defined as producers (refiners or blenders) or importers of gasoline in Canada. Primary suppliers may meet a fixed sulphur limit for all batches of gasoline (maximum 40 ppm on January 1, 2005, preceded by an interim level of 170 ppm in 2002) or opt for a lower yearly pool average (30 ppm annual average in 2005, preceded by an interim 150 ppm annual average in 2002) and a never-to-be-exceeded per litre maximum (80 ppm in 2005, preceded by an interim level of 200 ppm in 2002).

The compliance date for gasoline sold or offered for sale in Canada at the 80 ppm level is April 1, 2005, with an interim limit of 200 ppm as of April 1, 2002. The 3-month delay for gasoline retailers is to provide time for the turnover of pre-regulation gasoline at service stations.

The Regulations do not apply to gasoline produced for export, in transit through Canada, or for use in aircraft, scientific research or competition vehicles.

The reference method for sampling is the same as that prescribed in the Benzene in Gasoline Regulations. The reference method for analysis is the recently-published method CAN/CGSB-3.0 No. 16.1. However, the current range of this method is not sufficient to determine the low sulphur concentration that will be required starting January 1, 2005. If the range of the method is not revised to include low sulphur levels by 2005, method ASTM D-2622 will become the reference method.

Every primary supplier must annually submit a report to the Minister containing the information prescribed in the Regulations.

Timing

The compositional requirements of the Regulations are phased-in beginning on January 1, 2002 (150 ppm). During consultations with stakeholders, refiners indicated that companies will require a 36-month lead time to ensure that the required changes to facilities are in place and operational prior to the compliance deadline. However, the consultant that compiled costs by individual refiners and reviewed the sulphur-reducing technology estimated that the installation of the required equipment would take 30 months. Recognizing the timing specified in the options developed by the Government Working Group and the industry's need for sufficient lead-time, Environment Canada established the compliance dates outlined in the Regulations.

Reports on Performance

Information submitted to Environment Canada in accordance with the Regulations will be treated in accordance with the provisions of the Canadian Environmental Protection Act (sections 19 to 24), the Access to Information Act and the Privacy Act. Environment Canada intends to regularly publish reports on the sulphur in gasoline levels reported by companies. These reports will compare the actual performance of each primary supplier's facilities and imports to the regulated limits for sulphur in gasoline. The reports will be made available to the public and will be distributed to interested parties. The reports will be similar in nature to the publicly-available reports on the performance of individual refineries in complying with the federal Petroleum Refining Effluent Regulations and Guidelines that are currently prepared and distributed by Environment Canada. The reports will likely be integrated with those prepared under the auspices of the Benzene in Gasoline Regulations on the performance of suppliers.

Alternatives

A number of alternatives were considered in determining the level of sulphur in gasoline necessary to achieve the desired reduction of emissions from vehicles and the resulting improvement of air quality in Canada.

The Sulphur in Gasoline Regulations are an important element of the Cleaner Vehicles and Fuels program being put in place by the federal and provincial governments. The program has a number of elements: new vehicle standards; in-use vehicle programs; fuel efficiency programs; alternative fuel vehicle initiatives; and cleaner fuel requirements. The Canadian Council of Ministers of the Environment (CCME) unanimously endorsed this comprehensive program in October, 1995. To date the federal government has introduced new vehicle emission standards, low sulphur diesel fuel regulations and low benzene gasoline regulations. An inspection and maintenance (I/M) program is in place in British Columbia, one will soon be in Ontario and a pilot project is in place in Quebec. Low sulphur gasoline requirements represent an important step in the fulfillment of the CCME's recommendations.

There are two basic alternative policy options: to maintain the status quo, or to take action to reduce the level of sulphur in gasoline. If the latter is the case, then it is necessary to address questions of timing, level, application and implementation mechanism.

(1) Status Quo:

The status quo was rejected because of the significant health and environmental impacts resulting from present levels of sulphur in gasoline. Reducing air pollution remains one of the government's highest environmental priorities and taking action to reduce sulphur in gasoline will contribute to achieving a number of air quality objectives. Moreover, sulphur levels in the gasoline in some regions of Canada have increased dramatically in recent years. Recent Health Canada scientific work advises that the health impacts on Canadians of sulphur in gasoline may be more than ten times higher than those previously estimated. Given the considerable health and environmental implications of inaction and the government's responsibility to the public to protect the health of Canadians, a continuation of the status quo was considered to be inappropriate. It should be noted that the GWG did not recommend this option for consideration by the Minister of the Environment.

(2) Harmonization with the United States:

A second option involved delaying the decision on sulphur in gasoline in Canada until a sulphur standard was determined in the United States. Waiting for the United States to set its standard for sulphur in gasoline was rejected as a course of action because the health of Canadians is compromised by current sulphur levels in Canada. Given the demonstrated health impacts that Canadians suffer because of the high levels of sulphur in gasoline, it was considered to be inappropriate to not act promptly. Furthermore, it is uncertain when the United States might decide on the level or levels of sulphur in its gasoline, but it would not be before the beginning of 2000 with implementation forecast for late 2003. Those levels may be applied regionally or seasonally, making it impossible for Canada to have a national standard that matches several U.S. standards.

(3) Complete Ban of Sulphur in Gasoline:

A third option is to require the complete removal of sulphur from gasoline supplied in Canada (0 percent sulphur content). This course of action was rejected for socio-economic reasons. While it may be technically possible to remove all the sulphur from gasoline, the direct costs to do so would be prohibitive. Rapidly rising costs generate diminishing returns as the sulphur level in gasoline is reduced below 30 ppm towards zero. An outright ban of sulphur in gasoline would result in the closure of a number of refineries in Canada and severe dislocation within the sector. Consumers would also be faced with a significant increase in the price of gasoline, with considerable effects being felt throughout the economy. It should be noted that the GWG did not recommend this option for consideration by the Minister of the Environment.

(4) Sulphur Freeze:

A fourth option is to freeze the level of sulphur in gasoline at 1994 levels (360 ppm). This course of action was rejected for the same environmental and health arguments outlined above (Nos. 1 and 2). There would be no appreciable improvement in air quality in Canada. Given the potential health benefits of reducing sulphur levels further and the technical capability to do so, a more stringent level of sulphur was considered to be appropriate. As well, a sulphur freeze at 360 ppm would not permit Canadians to receive the full benefits from current and future vehicle emission control technologies. It should be noted that the GWG did not recommend this option for consideration by the Minister of the Environment.

(5) Reduce the Level of Sulphur in Gasoline:

A fifth option is to introduce regulations requiring lower levels of sulphur in Canadian gasoline. This option has been selected in order to protect the environment and the health of Canadians.

The federal-provincial Government Working Group on Sulphur in Gasoline and Diesel Fuel analyzed the expert panel reports, reviewed additional information and consulted widely with stakeholders. The GWG concluded that the level of sulphur in Canadian gasoline should be reduced. In the course of its consultations, the GWG found that virtually all stakeholders also agreed that the level of sulphur in gasoline should be reduced.

While there is general agreement that the level of sulphur in gasoline should be reduced, there are different views as to what Canada should do. As a result, the GWG's final report submitted four options to the Minister of the Environment for consideration. These options are discussed below under (a) to (d):

(a) Regulations Requiring 30 ppm Sulphur Gasoline Throughout Canada in 2002

Regulations were considered that limited the level of sulphur in gasoline to an average of 30 ppm throughout Canada, effective January 1, 2002. This course of action was rejected.

The introduction of this measure would provide all Canadians with the greatest protection of their environment and health. This approach ensures that the stringency of action to protect the health of all Canadians is the same and that the full benefits from current and future vehicle emission control technologies would be achieved at the earliest possible time. However, at the same time this option places the greatest degree of pressure on the refining industry and independent suppliers.

(b) Regulations Phasing in 30 ppm Sulphur Gasoline Regionally

Regulations were considered limiting the level of sulphur in gasoline to an average of 30 ppm in Quebec and southern Ontario effective January 1, 2002, and in the rest of Canada effective January 1, 2005. This course of action was rejected.

The introduction of this option would protect the environment and health of all Canadians. It would ensure that Canadians eventually receive the full benefit from current and future vehicle emission control technologies. This approach addresses the most severe problem areas first, specifically Central Canada. Southern British Columbia already has provincial controls in place for sulphur in gasoline and is therefore not included in the early action. This approach ensures that by 2005 the stringency of action to protect the health of all Canadians is the same.

The option's regional approach also has several drawbacks. This approach would result in inequities between regions of Canada prior to 2005. Available health data indicates that all Canadians, in particular the residents of all major cities across the country, would benefit from reduced levels of sulphur in gasoline. As well, this option could impact on independent suppliers and their ability to provide price discipline in the gasoline market. Finally, during detailed discussions with other government departments, some concern was raised regarding the appropriateness of introducing regulations under section 47 of the existing Canadian Environmental Protection Act that have varying regional requirements. Therefore, the regional phase-in approach was also rejected.

(c) Regulations Requiring 30 ppm Sulphur Gasoline Only in the Most Populous Areas

Regulations were considered limiting the level of sulphur in gasoline to 30 ppm in Quebec and southern Ontario effective January 1, 2002, and the Lower Fraser Valley (British Columbia) effective January 1, 2004. Action in the rest of Canada would be delayed until a sulphur standard for conventional gasoline is determined in the United States, and would then be based on the yet-to-be-determined standard. This course of action was rejected.

Concern was expressed that this option would not adequately protect the environment and health of Canadians outside the most populous areas. It would mean that low-emission vehicles in much of the country would be operated using a fuel for which they are not designed, resulting in higher emissions and possible irreversible degradation to their catalytic converters. Furthermore, this option could also limit the availability of vehicles with high-efficiency engine technologies in those areas for a period of time.

It was also noted that the European Union, the major source for gasoline imported into Canada, is setting a maximum level for sulphur in gasoline of 50 ppm (about the same as an average of 30 ppm) in 2005. Under this option, markets in eastern Canada could be subject to price deterioration from the marketing of fuels that do not meet the European standard. Such a situation would have potential detrimental impacts on refining margins, but would be advantageous to the independent marketers and consumers.

This option has the same drawbacks with respect to regional differences as discussed under 5(b) above.

(d) Regulations Limiting Sulphur in Gasoline to 150 ppm

Regulations were considered that limited sulphur in gasoline to an average level of 150 ppm, effective September 1, 2003. Associated with those regulations, a policy decision would be made to require further reductions in the level of sulphur if the future least stringent standard adopted by the United States is lower than 150 ppm. This course of action was rejected.

Considerable concern was expressed that this option would not provide the same extent of protection to the environment and health of Canadians as the first two options. This option would result in Canadian sulphur levels being controlled at the same level as the highest United States levels. Under this option, low-emission vehicles would be operated for an undetermined amount of time using a fuel for which they are not designed, resulting in higher emissions. The availability of some advanced technology vehicles could be limited for a period of time under this option.

As with the previous option, eastern Canada would be vulnerable to imports of fuel from Europe that do not meet the 50 ppm standard. This potentially would have detrimental impacts on refining margins, but would be advantageous to independent marketers and consumers.

This option would provide approximately two-thirds of the benefits of the most stringent scenario at about one-half of the costs. Some benefits to refiners in terms of potential investment cost reductions and independent marketers in terms of more supply choices would result from the later implementation date of September 1, 2003.

(e) Regulations Phasing in 30 ppm Gasoline in Two Stages

Regulations were considered limiting the level of sulphur in gasoline to an annual average of 150 ppm throughout Canada effective January 1, 2002, followed by an annual average of 30 ppm throughout Canada effective January 1, 2005. This course of action is implemented by the Regulations.

This option was not one of the four options put forward by the GWG in its report to the Minister of the Environment. The decision to implement this option was made after deliberation on the four options and the comments received from stakeholders, provinces and other government departments following the completion of the GWG's report.

Briefly, the phase-in ensures that a significant level of environmental and health benefits are achieved in Canada, approximately 96 percent of those achieved by a 30 ppm national standard in 2002. This option also ensures that low-emission vehicles have the fuel for which they were designed. The phase-in provides the petroleum refining industry with a degree of flexibility that could reduce costs by giving industry the opportunity to spread out its investments and take advantage of new, lower-cost sulphur reduction technologies. Nevertheless, a small number of refineries could face difficult strategic decisions when required to produce 30 ppm gasoline. The phase-in approach in Canada is similar to the sulphur reduction required in Europe, and the 150 ppm limit is largely the same as the requirement for United States reformulated gasoline (RFG). This provides independents with a wider range of supply choices.

Further details on the benefits and costs of this option can be found in the "Benefits and Costs" section that follows.

Which Mechanism Will be Used to Achieve the Policy Objective?

A number of alternative management options were considered to achieve the reduction of sulphur levels in gasoline outlined in the Regulations. These are discussed in the following paragraphs.

Regulations Under CEPA

Section 47 of the Canadian Environmental Protection Act provides the Governor in Council with the authority for the making of regulations "(a) prescribing, with respect to any fuel or fuel used for any purpose, the concentration or quantity of any element, component or additive that..., if exceeded, would, on the combustion of the fuel in ordinary circumstances, result in a significant contribution to air pollution". A regulation under section 47 of CEPA is the mechanism that has been selected to reduce sulphur in gasoline.

Environment Canada has introduced several regulations pertaining to transportation fuels, the most recent being the Benzene in Gasoline Regulations (1997).

One of the recommendations of the CCME Task Force on Cleaner Vehicles and Fuels (1995) to the CCME was that:

"Environment Canada, in consultation with provinces and stakeholders, lead in the development and implementation of a regulated minimum national standard for gasoline..."

The CCME's endorsement of this recommendation by its task force provided clear direction for a national regulation for gasoline, including controls on sulphur content.

Finally, the industry has periodically requested that, if environmental controls on fuels are required, then action be in the form of a regulation. Regulations ensure the greatest degree of certainty and fairness for all industry members potentially affected by the environmental measure.

Voluntary Measures

A voluntary program was rejected because of the nature of the environmental problem and because competitive factors, including the availability of cheaper product from foreign sources, would make widescale voluntary conformance difficult. It has been shown that emissions from gasoline-powered vehicles have a significant adverse impact on the health of Canadians, especially in urban areas. As well, Canadian refineries market the majority of their products regionally. Currently, there are large differences in the sulphur level of gasoline produced at the various refineries, with some producing gasoline with an average level of sulphur of less than 40 ppm. If certain primary suppliers did not meet the new sulphur standard, the distribution of gasoline with higher levels of sulphur could be concentrated either regionally or locally. There is also the competitiveness issue of instituting a level playing field for all primary suppliers. Since full and consistent compliance is a key issue, given the importance of the human health and environmental considerations and the need for equity throughout Canada, a voluntary program was considered inappropriate.

Economic Instruments

An economic instrument, such as an emissions tax or charge, was rejected for many of the same reasons identified for the voluntary program. Most importantly, this type of management option would not ensure that appropriate mitigative action was undertaken by all suppliers across Canada within the prescribed time frame. There is no authority in the existing Canadian Environmental Protection Act (CEPA) to impose taxes or charges, although such authority could be found under other federal legislation.

A trading scheme to reduce the sulphur level in gasoline was considered but rejected for reasons similar to those outlined under "voluntary measures". Most importantly, in the past, concern has been expressed as to the impacts of trading on potential health benefits amongst regions. A situation could arise whereby the sale of high sulphur gasoline becomes concentrated in a single region. Such regional differences could be avoided by imposing a ceiling or cap on the sulphur level in gasoline on a regional basis, but the limited number of suppliers within each region would make the workability and effectiveness of a trading scheme questionable. In theory, a trading scheme also might permit the industry to meet the target more quickly and efficiently. However, the dominance of certain suppliers in certain regions could result in the creation of a situation where unfair competitive advantages may occur.

After careful consideration of all of the management options, it was determined that regulations under CEPA are the most appropriate measure in this situation.

Benefits and Costs

Benefits

Health and Environmental Benefits

The estimation of environmental and health impacts associated with reducing the sulphur level in Canadian gasoline is more difficult than estimating the financial costs to industry, individuals and governments. The work undertaken by the Expert Panel employed a methodology called the "damage function approach". The damages refer to the adverse effects on the environment and human health caused by the activity that is subject to the regulation. The benefits are the reductions of those damages resulting from the introduction of the regulation or, in other words, the avoided adverse environmental and health effects. The methodology consists of four key stages:

— estimate change in vehicle emissions;

— estimate change in ambient air quality;

— estimate environmental or health impact; and

— value environmental or health impact.

The Atmospheric Science Panel evaluated improvements expected in air concentrations of specific substances (particulate matter — PM₁₀, PM_2.5, and sulphate [SO₄]; sulphur dioxide — SO₂; carbon monoxide — CO; nitrogen oxides — NO_x; volatile organic compounds — VOCs; and ground level ozone) from reductions in the level of sulphur in gasoline and diesel fuels in seven urban centres (Vancouver, Edmonton, Winnipeg, Toronto, Montréal, Saint John and Halifax). The Atmospheric Panel reviewed available data on emissions, air quality and modeling methodologies from existing studies, updated the information where possible and conducted original analyses when the work was warranted and could be performed within the study's time frame.

The Atmospheric Panel found that the introduction of low sulphur gasoline will significantly reduce air pollution in Canada. Specifically, reducing sulphur in gasoline will reduce emissions of SO₂ proportionally to the reductions in the fuel sulphur content and will reduce emissions of CO, NO_x and VOCs. For example, in the case of Toronto, the first year would result in a reduction of ambient levels of sulphur dioxide (25 percent), ammonium sulphates (a fine particulate) [7 percent], nitrogen oxides (6 percent), carbon monoxide (6 percent), volatile organic compounds (3 percent) and total fine particulate (1 percent).

These reductions result in large health benefits for Canadians. The Health and Environmental Impact Assessment Panel Report estimated that over the 20-year period of analysis (2001-2020; this time period was selected by the Health Panel to correspond with that used in the calculation of the costs), for seven Canadian cities, reducing sulphur levels in gasoline to 30 ppm would result in approximately 1,352 avoided premature deaths, 58,429 avoided respiratory cases in children, 2,086,511 fewer acute asthma symptom days and a large reduction in other respiratory problems. The reduced health impacts would be expected to result in reductions in health care costs and increased labour productivity as a result of fewer employee sick days.

The Health Panel used 0 percent and 3 percent discount rates in its calculation of benefits. Using a 3 percent discount rate, the GWG estimated the net present value of the benefits of reducing sulphur in gasoline nationally to 30 ppm is $8.0 billion (sensitivity of NPV; $4.1 billion at 10 percent) over 20 years.

The Health Panel focused its analysis on seven Canadian cities which represented 39 percent of the total population. The Health Panel suggested in its report that the benefits for the remainder of Canada would be approximately 25 to 50 percent of those for the seven cities. To determine a more accurate estimate for the remainder of Canada, the GWG employed a methodology to encompass an additional 19 urban centres, representing a further 20 percent of the Canadian population (in 1995), and made further assumptions of the per capita benefits for the rest of Canada. This methodology resulted in estimates of national benefits 59 percent greater than those for the seven cities studied. More details on the GWG's extrapolation of the Health Panel's estimates can be found in The Final Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel (July 14, 1998), section 5.4 and Appendix A.

The extrapolation to the total Canadian population of the Health Panel's results by the GWG estimated that over a 20-year period, reducing sulphur in gasoline to 30 ppm would result in approximately 2,100 avoided premature deaths, 90,000 avoided respiratory cases in children, 3,200,000 fewer acute asthma symptom days and a significant reduction in other respiratory problems.

It is important to note that the discussion of benefits above focuses on the GWG's Option A.1, the introduction of an annual average of 30 ppm throughout Canada in 2002. The Regulations include an interim step of reducing sulphur in gasoline to 150 ppm in 2002, prior to reducing sulphur in gasoline to 30 ppm in 2005. As a result, the benefits of the selected option will be slightly less than those associated with Option A.1. It is estimated that the Regulations will achieve approximately 96 percent of the benefits of Option A.1.

Estimated Health Effects Avoided over a 20-Year Period, of Reducing Sulphur in Gasoline to an Average of 150 ppm in 2002 and 30 ppm in 2005

HEALTH EFFECTS AVOIDED	ESTIMATE FOR SEVEN CITIES	EXTRAPOLATION FOR TOTAL POPULATION	AVERAGE HEALTH EFFECTS AVOIDED PER WEEK
Premature Mortality	1,300	2,100	2
Hospital Admissions	1,500	2,400	2
Emergency Room Visits	4,100	6,600	6
Chronic Bronchitis	4,600	7,300	7
Bronchitis in Children	56,000	90,000	86
Restricted Activity Days	960,000	1,500,000	1,400
Asthma Symptom Days	2,000,000	3,200,000	3,100
Acute Respiratory Symptoms	6,900,000	11,000,000	11,000

The health benefits estimated by the Health Panel were calculated using sulphate particles as an index of the pollutant mix, primarily because a large body of relevant scientific literature was available associating sulphates with various health end-points. The Health Panel recognized that to the extent that those health end-points respond independently to carbon monoxide, nitrogen oxides and sulphur dioxide, the total health benefits are likely to be underestimated by this procedure, in some cases greatly so.

A Health Canada study published in the Canadian Journal of Public Health (June 1998)(see footnote 1) supports the Expert Panel's conclusion. While definitive conclusions cannot be drawn on the basis of a single study, the Health Canada study, which examined only the effects of air pollution on premature mortality, estimates that the potential benefits of reducing sulphur in gasoline may be 10 to 12 times higher than those estimated by the Health Panel.

It is important to note that the Health Panel focused its efforts on health effects that could be readily quantified and valued. As a result, a number of potential benefits were not evaluated, such as the impacts of reduced emissions from vehicles on crop and forest yields, structural deterioration, ecosystem integrity and other human health effects. While it was not possible to evaluate the significance of these other potential effects, it is reasonable to assume that if the level of sulphur in gasoline is reduced, these other benefits will be positive.

Economic and Social Benefits

A number of economic and social benefits to Canadians will also be derived from the Regulations.

First, refiners in Quebec and Atlantic Canada have historically been victims of the marketing of poor quality, lower-priced gasoline from Europe once destined for the United States. According to industry estimates, margins for conventional gasoline have been curtailed by as much as 2 cents per litre in Quebec due to this practice. Since marginal volumes can set the price of gasoline in a region, those imports can have a significant impact on the margins for Canadian east coast refiners. It is especially significant given the potential to market off-specification gasoline in eastern Canada once Europe requires low sulphur gasoline. By introducing standards similar to those in Europe, the Regulations will reduce this practice, representing a direct benefit to Canadian refiners in eastern Canada, and ensure that all Canadians can purchase the same quality of gasoline.

Second, expenditures by the industry to meet the new fuel specifications will generate economic activity in Canada. It is estimated that in excess of 50 percent of the capital investment and the majority of operating expenditures will be made in Canada, contributing a degree of economic benefit to the construction sector and companies supplying equipment and services to the refining industry. The vast majority of this additional economic activity will occur in the period leading up to the full phase-in of the Regulations in 2005. The net impact of these expenditures on the Canadian economy is expected to be very small.

Finally, on average, industry has the opportunity to recover most, if not all, of its costs to reduce the sulphur content in gasoline by increasing the price of gasoline. The industry's ability to recoup its investment costs in the marketplace will depend on a number of factors, including the decision in the United States on the level of sulphur in its gasoline. In the long-run, it is expected that gasoline consumers, rather than the industry, will pay for a large portion of the changes required to reformulate gasoline. Since the distribution of the compliance costs will vary considerably from facility to facility, some companies will actually be in a position to generate additional profits from an increase of gasoline prices.

Vehicle/Fuel Compatibility Benefits

The Regulations will have a positive impact on the emissions performance of Canadian vehicles. The findings of the Vehicles/ Fuels Compatibility Task Group can be found in their entirety in the report entitled Initiative on the Potential Impact of Sulphur in Gasoline on Motor Vehicle Pollution Control and Monitoring technologies. The Final Report of the Industry-Government Fact-Finding Group, July 30, 1997. The findings of the Task Group are summarized below:

— Sulphur in gasoline reduces catalyst efficiency which leads to higher emissions of all regulated pollutants. The effects of sulphur on catalyst efficiency increases with the sulphur content of the gasoline used. Therefore, vehicles operating on higher sulphur gasoline have higher emissions than vehicles operating on lower sulphur gasoline.

— In some instances, sulphur in gasoline may degrade the performance of oxygen sensors on vehicles, resulting in higher emissions.

— In some instances, sulphur in gasoline may impair the performance of on-board diagnostic systems of vehicles.

— Although the magnitude of sulphur effects on in-use emissions is variable, no systems are immune to sulphur effects.

— The effects of high sulphur gasoline on catalysts, oxygen sensors and on-board diagnostic systems may not be completely reversible for low-emission vehicles.

Recent studies conducted jointly by the auto and oil industries provided additional information on the effects of sulphur on exhaust emissions from low-emission vehicles, confirming some of the earlier findings concerning vehicle/fuel compatibility. Specifically:

— reducing the sulphur level in gasoline produces statistically significant reductions in emissions of non-methane hydrocarbons, CO and NO_x;

— the relationship between fuel sulphur levels and emissions is non-linear for vehicles with aged catalytic converters, with the largest sulphur effects occurring at low sulphur levels;

— the increases in emissions due to sulphur are greater for low-emission vehicles than current or past technology vehicles; and

— all models show the same directional response to sulphur although some models have responses to sulphur that are different in magnitude from the fleet average.

Limited data also suggests that sulphur's effects on low-emission vehicle technology may not be fully reversible under typical in-use driving conditions due to the more exacting control of air/fuel ratio. The GWG report indicates that the potential for fully reversing sulphur's effects may be further hindered when low-emission vehicles are required to meet off-cycle emission standards. This would lead to a permanent degradation of emission performance if those vehicles are operated on high sulphur gasoline.

Finally, high sulphur gasoline can also impair the performance of some advanced high-efficiency vehicle technologies (e.g. direct injection/lean NO_x catalysts). As a result, the availability of these vehicles, capable of providing significant reductions in greenhouse gas emissions, may be limited in Canada.

The introduction of a 30 ppm sulphur standard in gasoline nationally will ensure that the catalysts, oxygen sensors and on-board diagnostic systems of all vehicles in Canada, and in particular low-emission vehicles, will not be adversely affected by the level of sulphur in gasoline. This standard will also facilitate the introduction of some high-efficiency vehicle technologies capable of providing Canada with important greenhouse gas reductions.

Benefits of Regulatory Efficiency

A number of features have been incorporated into the design of the Regulations in order to minimize impacts on the private and public sectors.

First, the phase-in achieves 96 percent of the benefits associated with a nation-wide 30 ppm standard. In addition, the phase-in provides industry with a degree of flexibility to make strategic decisions (i.e., capital investment; marketing; alternative supply). Refiners have the choice to meet the 30/80 ppm (2005) requirement in one or two steps, whichever is most advantageous. It also allows companies that currently can produce gasoline with sulphur levels less than 150/200 ppm but more than 30/80 ppm three additional years to meet the more stringent requirements. As well, by setting sulphur limits similar to those in Europe and United States RFG, independent suppliers have a wider range of supply options, and therefore the ability to compete more effectively, than would have been the case under several of the other options being considered.

Second, the Regulations include a degree of flexibility in meeting the new requirements, thereby providing companies with the opportunity to find the most cost-effective response. Suppliers have the option to meet either a 40 ppm limit for every litre of gasoline, or to meet a 30 ppm annual average with an associated never-to-be-exceeded 80 ppm per litre limit. Suppliers have the opportunity to select their preferred option based on their own individual situation.

Third, the Regulations attempt to minimize the paper burden associated with their administration and enforcement. The sampling, testing and reporting requirements parallel those in place under the Benzene in Gasoline Regulations. Specifically, the monitoring and reporting requirements focus on suppliers (refineries, importers, blenders) rather than retailers (service stations), thereby limiting the number and scope of the reporting and monitoring program. Reducing the paper burden not only reduces the cost to the private sector, but the cost to the public sector to administer and enforce the Regulations.

Costs

The Cost and Competitiveness Assessment Panel engaged consultants to undertake two studies. The first focused on the capital and operating costs required at Canadian refineries to produce low sulphur gasoline and diesel fuel. The second assessed the impacts of those costs on the competitiveness and viability of the Canadian refining industry. The results of these two studies were used by the GWG in its analysis and deliberations.

It is important to note that the GWG did not assess the precise option being implemented by the Regulations. Since refiners have a choice as to whether they meet the 30 ppm (2005) requirement in one or two steps (i.e. 150 ppm in 2002 and 30 ppm in 2005), it is difficult to predict what course of action will be followed by companies for each refinery. However, if one assumes that all refiners will opt for the most cost-effective course of action, then the costs and impacts on the industry will be less than those associated with the GWG's Option A.1. Therefore, the numbers and discussion outlined below should be viewed as "upper bound" estimates of the costs and impacts on industry, with the actual costs and impacts on industry being less than those stated.

Impacts on the Refining Industry

The Cost and Competitiveness Assessment Panel Report estimated that the costs to reduce sulphur in gasoline to 30 ppm would be $1.8 billion in capital expenditures and $119 million per year in operating costs. The costs would be borne unequally amongst Canadian refineries. Some refineries will face economic challenges in meeting the low sulphur gasoline requirements while others will actually profit. The consultant on the competitiveness study noted that experience shows that cost estimates are frequently high and the actual costs borne by the industry are much less than anticipated. Likewise, the experience in the United States on reformulating fuels shows that compliance costs are usually less, and sometimes much less, than first estimated.

At a 3 percent discount rate, the net present value of the costs of reducing sulphur in gasoline is $3.5 billion (sensitivity of NPV; $2.5 billion at 10 percent) over a 20-year period.

Over the past two decades, there has been significant rationalization of refining capacity in Canada. Potentially large investments to reduce sulphur in gasoline or diesel could cause a refiner to minimize investments and operating costs by consolidating operations, making arrangements to buy product from other domestic refiners, or by importing. Also, a varying proportion of the total cost of reducing sulphur in gasoline is expected to be recovered by the industry from consumers via a product price increase. Those refineries experiencing higher costs and less capability to recover those costs in the marketplace may face economic challenges. In its analysis for the Cost and Competitiveness Panel, the consultant indicated that 3 to 4 refineries (1 in western Canada, 1 to 2 in Ontario, 1 in eastern Canada) could have their economic viability threatened and choose to shut down rather than make the necessary investment to produce 30 ppm gasoline. The consultant estimated that 1 to 3 refineries could have their economic viability threatened if required to produce 150 ppm gasoline. A typical refinery employs approximately 350 persons directly (range 100 to 800) and supports another 1 500 to 3 000 indirect jobs.

New analysis provided by the Canadian refining industry as part of its comments to the GWG indicated that the potential to recover compliance costs in the marketplace are improved from the original consultant's report if the United States also reduces the level of sulphur in its gasoline. Assuming no refineries shut down, the analysis indicated that refiners have a better opportunity to recover their costs in the marketplace when product specifications are similar in Canada and the United States. The same analysis suggested that the worst case scenario was Canada adopting a 150 ppm level and the United States a 30 ppm level.

Given the interrelationship between potential price uplift, refinery viability and who eventually pays to reduce sulphur in gasoline, the new analysis suggests that the refining industry will be able to recover a greater proportion of its compliance costs from consumers via an increase of gasoline prices than was estimated by the consultant in its analysis for the Cost and Competitiveness Panel. This would mean a higher level of cost recovery for refiners and a lessening to some degree of the economic challenges facing certain facilities.

The United States EPA intends to regulate sulphur in gasoline, with controls likely to be introduced in 2003 at the earliest. Canadian refiners advise that any difference between United States and Canadian sulphur requirements would result in a smaller increase in the price of gasoline than would otherwise occur. A smaller price increase would result in lower financial rates of return on investments made by refineries to reduce sulphur. According to a recent industry study, a smaller price increase would occur both for the situation where Canadian requirements are more stringent than United States requirements, and where they are less stringent.

Natural Resources Canada, based on information from the sulphur in fuels process and on discussions with oil companies, indicated that up to four refineries could choose to close if required to produce gasoline with 30 ppm sulphur (2 in western Canada, 1 in Ontario, and 1 in Quebec/Atlantic Canada). NRCan also indicated that only one refinery would consider closing if the industry was required to produce gasoline with 150 ppm sulphur (2002). The closure of four refineries would result in the loss of approximately 1 000 direct jobs. Construction activity at other refineries to reduce sulphur would partially offset the refinery job losses in the short-term.

Impacts on Independent Suppliers

In addition to domestic refiners, importers and blenders of gasoline will be affected by the Regulations. These companies will have to ensure that their product meets the requirements of the new Regulations. Presently, independent distributors import gasoline from Europe and the United States when the price differential is sufficient to offset the transportation costs. The introduction of a Canadian standard for sulphur in gasoline will reduce the number of sources from which importers can purchase. This is expected to affect the competitiveness of those independent distributors who presently import a large proportion of their gasoline.

Independent suppliers may have more difficulty obtaining supplies of low sulphur gasoline both domestically, if there is a rationalization of Canadian refineries, and from foreign sources, if volumes cannot be obtained at a competitive price. This could put the economic viability of some independent suppliers at risk. In its report to the Cost and Competitiveness Panel, the consultant identified the potential difficulty some independents may have obtaining product if requirements in Canada were significantly lower than the United States and if Canadian refineries shut down. Both factors would increase the competitive pressure on the independent sector. In response, independents may need to join forces to increase their buying power in order to obtain product with the appropriate characteristics. Although the Canadian independent sector would need to be prepared to face some increased competitiveness in the marketplace, the consultant concluded that "[refiners]... should still be able to obtain sufficient supplies from off-shore as well as U.S. refiners".

The phase-in will introduce sulphur in gasoline standards in Canada that are similar to those in Europe, and the 150 ppm interim level will be approximately the same as United States RFG requirements. Data from Statistics Canada and Revenue Canada show that, at present, Europe is by far the largest supplier of imported gasoline, especially in eastern and central Canada. The European Union recently announced that low sulphur gasoline (50 ppm maximum limit) will be required in 2005, with an interim step of 150 ppm in 2000. It is expected that the European Union will introduce fiscal measures to encourage earlier production of low sulphur gasoline. Under these conditions, Canadian independents with access to European markets should be able to obtain gasoline meeting the Canadian standard. Independents will also be able to import United States RFG during the period prior to 2005. As a result, the level and timing specified in the Regulations provides independent marketers with a wider range of supply choices and, therefore, the ability to compete more effectively.

Costs to Individuals and Consumers

Individuals will be affected economically by the Regulations in two ways: one, as part of the labour force for industry; and two, as consumers of gasoline.

As previously mentioned, the analysis done for the Cost and Competitiveness Panel indicates that at the 30 ppm level, 3 to 4 refineries may have their economic viability threatened and could choose to shut down. The closure of a refinery would result in the loss of direct and indirect employment. A typical refinery employs approximately 350 persons directly (range 100 to 800) and supports another 1 500 to 3 000 indirect jobs.

Even in an extreme case (i.e. four refinery closures), the macro-economic impact of the Regulations on employment is expected to be minimal. In the short-term, employment losses resulting from closures will be offset to a large extent by increased opportunities in other sectors (e.g. construction, metal manufacturing). However, the local impacts of a refinery closure may be significant.

Refiners will attempt to recover their costs and a return on their investment from consumers via a gasoline price increase. For the 30 ppm case, the consultant for the Cost and Competitiveness Panel estimated a price increase between 0.5 and 1.0 cent per litre. This translates on average to about $20 annually in fuel costs per car. Prices to the consumer could be higher or lower than this estimate, depending on market conditions.

The direct and indirect impacts of higher fuel prices on consumer spending will vary spatially and between groups. The rate of change in the demand for gasoline may decline slightly, but the net impact on the economy as a whole is expected to be very small.

Interrelationship Between Refiners, Independents, and Consumers

It is important to note that the impacts on refiners, independent suppliers and consumer prices are not exclusive, but rather are very interdependent. Independent suppliers play an important role by limiting the dominant influence of the refiners in setting domestic fuel prices. If the independents have more difficulty in accessing supplies of product, refiners are in a better position to recover a greater proportion of their costs via higher domestic gasoline prices. The interrelationship between the three can vary considerably over time. However, as a general rule, action that improves the refiners' position adversely affects that of independents and leads to higher gasoline prices for consumers, and vice versa.

Monitoring

The federal government is responsible for the monitoring and enforcement of the Regulations. Enforcement and compliance issues are addressed in a later section.

Environment Canada presently monitors some aspects of gasoline quality (e.g. benzene, aromatics, sulphur and additives). The estimated annual cost of this activity is about 25 percent of one full-time employee and $40,000 operating and management (O & M) costs. Given the monitoring and data gathering requirements of the Regulations, it is not expected that changes will be required to the current annual allocation of resources.

During the implementation period, it is anticipated that one-time administrative requirements will be approximately one full-time employee and $30,000 O & M.

Consultation

Stakeholders have been integrally involved in this process from the outset. As a result, Environment Canada has benefited from a constant stream of advice and comments from a wide range of stakeholders throughout the development of this course of action.

The CCME Cleaner Vehicles and Fuels Task Group consisted of representatives from the federal and provincial governments. It consulted with industry and other non-government organizations. Stakeholders had direct input into the numerous background papers that were completed to support that process, as well as in the development of the Report to the Canadian Council of Ministers of the Environment by the Task Force on Cleaner Vehicles and Fuels (October 23, 1995).

Following the release of the CCME Report, some stakeholders expressed concern about the information used for the CCME Report and were of the opinion that further research was required before a sulphur level in gasoline could be determined. Environment Canada responded by developing, in collaboration with public and private sector stakeholders, a process to determine an appropriate level of sulphur in gasoline and diesel fuel.

A multipartite steering committee was formed to oversee the fact-finding exercise. Funding was provided by both the private and public sectors. Expert panels were selected by the steering committee based on their knowledge and expertise in relevant fields. The steering committee made a conscious effort to ensure that panel members represented a broad spectrum of views. As members of the steering committee, stakeholders had considerable input in the makeup of the expert panels, their mandates, scope of work and the final panel reports.

A draft of each report was circulated to stakeholders for comment prior to their completion and final release to the general public in August 1997. Stakeholders were requested to submit their views on an appropriate level of sulphur in gasoline and diesel. Fourteen submissions were received from stakeholders by the end of October 1997.

The Government Working Group (GWG) consisted of federal and provincial representatives. The Preliminary Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel was distributed in April 1998 to over 250 stakeholders representing a wide range of public and private organizations. Stakeholders were requested to comment on the appropriate level of sulphur and to indicate which of the options in the preliminary report they supported. More than 30 responses were received from stakeholders, and each was given due consideration by the GWG in the completion of the final report.

Stakeholders were afforded the additional opportunity to elaborate on their written submissions at a workshop held in Toronto on May 21, 1998. Seven stakeholders chose to make a presentation to the GWG at that time.

The Final Report of the Government Working Group on Sulphur in Gasoline and Diesel Fuel. Setting a level for Sulphur in Gasoline and Diesel Fuel was distributed to over 300 stakeholders on July 14, 1998. Environment Canada continued to receive and consider comments from stakeholders until the end of August 1998.

Stakeholders' Views

The submissions by stakeholders clearly identified two schools of thought with respect to a decision on sulphur in gasoline. The majority of the respondents, including the Ontario Medical Association, the Montréal Urban Community, several cities in Ontario, and vehicle manufacturers (Canadian Vehicule Manufacturers' Association [CVMA] and Association of International Automobile Manufacturers of Canada [AIAMC]), favoured reducing sulphur in gasoline to 30 ppm. These stakeholders cited the potential health benefits and/or the vehicle/fuel compatibility issues as the reasons for immediate action. The second perspective, offered primarily by the petroleum products industry, considered the costs and competitiveness considerations to be too severe to warrant unilateral action by Canada. Instead, the petroleum industry favoured matching sulphur standards in Canada with those to be established in the United States for conventional gasoline under the Environmental Protection Agency (EPA)'s Tier 2 vehicle emission standards process. This position was also supported by the Independent Retail Gasoline Marketers Association of Canada, whose major concern was continued access to low-priced products in the future.

Compliance and Enforcement

The Regulations represent a balance between environmental objectives, enforceability and flexibility for the regulated community. The option to use yearly pool averages was incorporated into the Regulations to enhance the degree of operational flexibility required by industry. However, this very option also increases the cost and complexity of the Regulations, particularly the enforcement provisions.

In the case where a primary supplier chooses to meet the requirements of the Regulations on the basis of per-litre limits (i.e. 40 ppm sulphur), there is very little administrative burden on the primary supplier. As well, enforcement by the government is relatively straightforward although labour-intensive.

In contrast, the provisions necessary to permit the effective enforcement of a yearly pool average (i.e. 30 ppm sulphur) are more onerous, both to the primary suppliers and to the government. Under this option, all batches of gasoline must be sampled and analyzed by the supplier. Primary suppliers using a yearly pool average are also subject to accompanying requirements for demonstrating that they comply with the average, independent auditing, records and reports. Finally, all gasoline produced or imported under a yearly pool average is still subject to a never-to-be-exceeded cap of 80 ppm sulphur.

The never-to-be-exceeded cap associated with the yearly pool averages for sulphur in gasoline is crucial to the enforcement of the yearly pool averages. This cap restricts the amplitude of possible variations of gasoline quality and permits testing of individual batches for compliance purposes.

The overall need for a high standard of enforcement is an Environment Canada priority. Enforcement of the Regulations will require a wide range of planned and ad hoc inspections, audits, samplings, analyses, investigations and legal action by Environment Canada officials. In verifying compliance with the Regulations and when responding to violations, Environment Canada inspectors and investigators will abide by the Enforcement and Compliance Policy. In most cases, the compliance promotion, compliance verification activities and responses to violations will be done in tandem with those conducted for the Benzene in Gasoline Regulations.

The incremental cost of enforcing the Regulations is estimated at $590,000 per annum for the first two years of Phase 1 (beginning on April 1, 2002) and the first year of Phase 2 (beginning on April 1, 2005). Costs are expected to decrease in subsequent years as industry establishes new systems and procedures, and as compliance rates increase.

Contacts

Ross White, Oil, Gas and Energy Branch, Air Pollution Prevention Directorate, Environment Canada, (819) 953-1120 (Telephone), or Arthur Sheffield, Regulatory and Economic Analysis Branch, Economic and Regulatory Affairs Directorate, Environment Canada, (819) 953-1172 (Telephone).

PROPOSED REGULATORY TEXT

Notice is hereby given, pursuant to subsection 48(1) of the Canadian Environmental Protection Act(see footnote a), that the Governor in Council proposes, pursuant to sections 47(see footnote b) and 87 of the Act, to make the annexed Sulphur in Gasoline Regulations.

Interested persons may make written representations with respect to the proposed Regulations to the Minister of the Environment within 60 days after the date of publication of this notice.

Any person may, pursuant to subsection 48(2) of the Canadian Environmental Protection Act(see footnote c), file a notice of objection concerning the proposed Regulations with the Minister of the Environment within 60 days after the date of publication of this notice, requesting that a board of review be established under section 89 of that Act and stating the reasons for the objection.

All such representations and notices must cite the Canada Gazette, Part I, and the date of publication of this notice and be addressed to the Manager, Oil, Gas and Energy Branch, Air Pollution Prevention Directorate, Environmental Protection Service, Department of the Environment, Ottawa, Ontario K1A 0H3.

Ottawa, October 22, 1998

MICHÈLE CURRIE
Acting Assistant Clerk of the Privy Council

SULPHUR IN GASOLINE REGULATIONS

INTERPRETATION

1. (1) The definitions in this subsection apply in these Regulations.

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

"additive" means a substance that is added to gasoline, that does not materially affect the gasoline's composition and that has been demonstrated to improve the gasoline's characteristics so as to enhance engine performance, and includes metal deactivators, oxidation inhibitors, corrosion inhibitors, icing inhibitors and induction system detergents. (additif)

"auditor", in respect of a primary supplier, means a person who

(a) is independent of the primary supplier; and

(b) is certified, for the purposes of carrying out International Organization for Standardization quality assurance (ISO 9000 series) assessments, by

"authorized official" means

(a) in respect of a corporation, an officer of the corporation who is authorized to act on its behalf;

(b) in respect of any other person, that person or a person authorized to act on behalf of that person; and

(c) in respect of any other entity, a person authorized to act on behalf of that entity. (personne autorisée)

"batch" means an identifiable quantity of gasoline with a single concentration of sulphur, as sampled and measured in accordance with section 3. (lot)

"blend" means the production of a batch by mixing gasoline or gasoline components, including oxygenates, but does not include

(a) the mixing of only low-sulphur gasolines or California Phase 2 gasolines, or both; or

(b) the adding of only additives, sulphur-limited butane or sulphur-limited oxygenates to low-sulphur gasoline or California Phase 2 gasoline. (mélange)

"blending facility" means a facility in Canada in which blending occurs, and includes a cargo tanker, railway car, boat, marine vessel or other type of mobile facility in which blending occurs. (installation de mélange)

"California Phase 2 gasoline" means gasoline that

(a) meets the compositional requirements described in Article 1, Subarticle 2 of the California Reformulated Gasoline Regulations, California Code of Regulations, Title 13, Chapter 5; and

(b) has been identified as California Phase 2 gasoline under section 5. (essence Californie Phase 2)

"cargo tanker" means a motor vehicle or trailer on which a bulk liquid tank is mounted. (camion-citerne)

"competition vehicle" means a vehicle, boat or marine vessel that is used exclusively for competition. (véhicule de compétition)

"gasoline" means

(a) a fuel that is sold or represented as gasoline; or

(b) a petroleum distillate, or a mixture of petroleum distillates, oxygenates or additives, that is suitable for use in a spark ignition engine and that has

as determined from the applicable test method listed in the National Standard of Canada standard CAN/CGSB-3.5-94, Unleaded Automotive Gasoline. (essence)

"gasoline-like blendstock" means gasoline that is intended to be further refined or blended to produce low-sulphur gasoline and that has been identified as gasoline-like blendstock under section 5, but excludes gasoline dispensed from a refuelling facility. (composé de base de type essence automobile)

"grade" means the differentiation of gasoline by a minimum antiknock index. (qualité)

"imported" means imported into Canada for use or sale in Canada. (importer)

"low-sulphur gasoline" means gasoline that meets the requirements of subsections 2(1) to (3) and that has been identified as low-sulphur gasoline under section 5. (essence à faible teneur en soufre)

"oxygenate" means an oxygen-containing, ashless, organic compound that, when added to gasoline, increases the oxygen content in the gasoline. (produit oxygéné)

"primary supplier" means

(a) in respect of gasoline that is produced at a refinery or blending facility, a person who

(b) in respect of gasoline that is imported, the importer. (fournisseur principal)

"produced" means produced in Canada for use or sale in Canada. (produire)

"refinery" means a facility in Canada that separates and converts crude oil or other feedstock into liquid petroleum products, and includes any producing, processing, blending, shipping and packaging facilities located on the property of such a facility. (raffinerie)

"registration number" means a number provided by the Minister pursuant to section 7 of the Benzene in Gasoline Regulations. (numéro d'enregistrement)

"scientific research" does not include research into the preferences of consumers for differing properties of gasoline or marketing research. (recherche scientifique)

"sulphur-limited butane" means butane with a sulphur concentration that does not exceed

(a) in respect of butane added to gasoline before January 1, 2005, 0.014% by weight; and

(b) in respect of butane added to gasoline on or after January 1, 2005, 0.004% by weight. (butane à concentration limitée en soufre)

"sulphur-limited oxygenate" means an oxygenate with a sulphur concentration that does not exceed

(a) in respect of oxygenate added to gasoline before January 1, 2005, 0.017% by weight; and

(b) in respect of oxygenate added to gasoline on and after January 1, 2005, 0.004% by weight. (produit oxygéné à concentration limitée en soufre)

"year" means a calendar year. (année)

"yearly pool average", in respect of a refinery, blending facility or province, or any combination thereof, means the volume-weighted average concentration of sulphur in gasoline produced at that refinery or blending facility or imported into that province, or produced at or imported into that combination, during a year, calculated in accordance with section 10. (moyenne annuelle)

(2) Any regulation, standard or method that is incorporated by reference in these Regulations is incorporated as amended from time to time.

PART 1

REQUIREMENTS PERTAINING TO SULPHUR IN GASOLINE

Prescribed Levels

2. (1) For the purposes of section 46 of the Act, the concentration of sulphur in each batch of gasoline produced or imported by a primary supplier that shall not be exceeded is

(a) where the primary supplier has elected under section 9 to calculate the sulphur concentration of that gasoline on the basis of a yearly pool average,

(b) in any other case,

(2) For the purposes of section 46 of the Act, the yearly pool average for each refinery, blending facility or province of importation, or any combination thereof, in respect of which a primary supplier has elected under section 9 that shall not be exceeded is

(a) for the period beginning on January 1, 2002 and ending on December 31, 2004, 0.0150% by weight; and

(b) on and after January 1, 2005, 0.0030% by weight.

(3) For the purposes of section 46 of the Act, the concentration of sulphur in gasoline sold or offered for sale that shall not be exceeded is

(a) for the period beginning on April 1, 2002 and ending on March 31, 2005, 0.020% by weight; and

(b) on and after April 1, 2005, 0.008% by weight.

(4) Subsections (1) to (3) do not apply to

(a) gasoline for use in aircraft, if the gasoline has an octane number of at least 99.5, or contains at least 5 mg/L of lead, measured in accordance with the methods set out in the National Standard of Canada standard CAN-CGSB-3.25-94, Aviation Gasoline (Grades 80, 100 and 100LL);

(b) gasoline for use in competition vehicles, if the gasoline has an antiknock index of at least 100;

(c) gasoline for use in scientific research in Canada;

(d) gasoline exported from Canada or in transit through Canada from a location outside Canada to another location outside Canada; or

(e) gasoline-like blendstock.

(5) Subparagraph (1)(b)(ii) does not apply to California Phase 2 gasoline.

Methods for Sampling and Analysis

3. (1) For the purposes of these Regulations,

(a) where a method is being used at a site pursuant to subsection 6(1) of the Benzene in Gasoline Regulations, samples at that site shall be taken by that method; and

(b) in any other case, samples shall be taken in accordance with the sampling method described in the National Standard of Canada standard CAN/CGSB-3.5-94, Unleaded Automotive Gasoline.

(2) Subject to subsection (3), for the purposes of these Regulations, the concentration of sulphur in gasoline shall be measured in accordance with the National Standard of Canada method CAN/CGSB-3.0 No. 16.1-98, Sulphur in Gasoline by Energy Dispersive X-Ray Fluorescence Spectrometry.

(3) If the range for the method referred to in subsection (2) is not amended before November 2, 2004 to include sulphur concentrations in gasoline as low as, or lower than, 0.0010% by weight, for the period beginning on January 1, 2005 and ending 60 days after the day on which such an amendment is made, for the purposes of these Regulations, the concentration of sulphur in gasoline shall be measured in accordance with the American Society for Testing and Measurements method ASTM D2622-94, Standard Test Method for Sulfur in Petroleum Products by X-Ray Spectrometry.

(4) For the purposes of these Regulations, the concentration of sulphur in oxygenate shall be measured in accordance with the American Society for Testing and Measurements method ASTM D2622-94, Standard Test Method for Sulfur in Petroleum Products by X-Ray Spectrometry.

(5) For the purposes of these Regulations, the concentration of sulphur in butane shall be measured in accordance with the American Society for Testing and Measurements method ASTM D2784-92, Standard Test Method for Sulfur in Liquefied Petroleum Gases (Oxy-Hydrogen Burner or Lamp).

Report

4. (1) For each year in which a primary supplier produces or imports gasoline identified under section 5 as low-sulphur gasoline, California Phase 2 gasoline or gasoline-like blendstock, the primary supplier shall submit to the Minister a report, on or before February 15 of the following year,

(a) for each refinery and blending facility at which it produced that gasoline and for each province into which it imported that gasoline; and

(b) for each combination thereof in respect of which it elected under section 9.

(2) A report submitted under subsection (1) shall be signed by an authorized official of the primary supplier and contain

(a) the name and address of the primary supplier and the registration number pertaining to the refinery, blending facility or province to which the report applies;

(b) the name, title and telephone number of the authorized official;

(c) for gasoline produced or imported by the primary supplier and identified under section 5 as low-sulphur gasoline,

(d) for gasoline produced or imported by the primary supplier and identified under section 5 as California Phase 2 gasoline, the volume thereof and, subject to subsection (3), the highest concentration of sulphur in that gasoline; and

(e) for gasoline produced or imported by the primary supplier and identified under section 5 as gasoline-like blendstock, the volume thereof.

(3) In a report submitted under subsection (1), measurements obtained by a method used pursuant to subsection 6(2) of the Benzene in Gasoline Regulations or a record of analysis referred to in subsection 8(3) of those Regulations may be used for the purposes of subparagraph (2)(c)(ii) or paragraph (2)(d).

(4) Subsection (3) shall not be interpreted as an exemption from any requirement of section 2.

Records of Type of Gasoline

5. (1) Subject to subsection (3), a primary supplier may, before importing a batch of gasoline or dispatching a batch of gasoline from a refinery or blending facility, identify and record the gasoline as

(a) low-sulphur gasoline;

(b) gasoline for use in aircraft;

(c) gasoline for use in competition vehicles;

(d) gasoline for use in scientific research;

(e) gasoline for export;

(f) gasoline in transit through Canada;

(g) California Phase 2 gasoline; or

(h) gasoline-like blendstock.

(2) Any batch of gasoline dispatched by a primary supplier from a refinery or blending facility, or imported by a primary supplier, that has not been identified and recorded under subsection (1) is considered, for the purposes of these Regulations, to have been identified as low-sulphur gasoline.

(3) Every primary supplier shall maintain a record that establishes

(a) that each batch that it identified under any of paragraphs (1)(b) to (f) was sold or delivered for the use appropriate to the identified type; and

(b) that each batch that it identified under paragraph (1)(g) meets the compositional requirements for California Phase 2 gasoline.

Gasoline-like Blendstock

6. (1) For every batch identified under section 5 as gasoline-like blendstock, a primary supplier shall, before the batch is dispatched from its refinery or blending facility or imported, record the name and address of the person who purchases or receives the batch, the date of its dispatch or importation and the volume of the batch.

(2) Every primary supplier shall provide the Minister with the information described in subsection (1) as an annex to the report required under section 4, for each batch of gasoline-like blendstock that was dispatched or imported during the period covered by the report.

(3) Every person who purchases or receives a batch of gasoline-like blendstock shall record

(a) the name and address of the primary supplier who originally produced or imported the batch and the registration number pertaining to the refinery or blending facility at which the batch was produced or to the province into which it was imported;

(b) the name and address of the seller or provider of the batch;

(c) the date of purchase or transfer of ownership of the batch; and

(d) the volume of the batch.

(4) Every person who has purchased or received a batch of gasoline-like blendstock and sells or transfers ownership of the batch shall, before the sale or transfer of ownership, make a record of

(a) the name and address of the person who purchases or receives the batch;

(b) the date of sale or transfer of ownership of the batch; and

(c) the volume of the batch.

Retention of Records

7. Every person required to make a record under section 5 or 6 shall maintain the record in Canada for a period of three years after the date on which the record was made.

Submission of Samples and Records

8. At the Minister's request, any person who produces, imports or sells gasoline or offers it for sale shall submit to the Minister

(a) a sample of the gasoline;

(b) a copy of any records required by section 5, 6 or 11; and

(c) the name and address of any person from whom the gasoline was acquired and the date of acquisition.

PART 2

REQUIREMENTS PERTAINING TO A YEARLY POOL AVERAGE

Yearly Pool Average Election

9. (1) A primary supplier may elect to calculate the concentration of sulphur in gasoline on the basis of a single yearly pool average for

(a) gasoline produced at a particular refinery or blending facility or imported into a particular province, or

(b) gasoline produced at two or more refineries and blending facilities that are located in the same province, if their combined annual production is not more than 12,000 m³, or

(c) gasoline imported into a province and gasoline produced at one or more refineries or blending facilities that are located in that province, if the total amount produced and imported annually is not more than 12,000 m³,

by notifying the Minister to that effect at least 120 days before the start of the first year in respect of which the calculation will be made on that basis.

(2) Notice of an election under subsection (1) shall

(a) specify the refinery, blending facility or province of importation, or the combination thereof, to which the election applies; and

(b) describe the techniques that the primary supplier will use to construct and evidence the yearly pool average, including

(3) At least 45 days prior to implementation of any change that affects information provided under subsection (1), a primary supplier shall submit a notice containing the updated information to the Minister.

(4) A primary supplier may withdraw an election made under subsection (1) by submitting to the Minister a notice to that effect at least 60 days before the end of the last year to which the election applies.

(5) All notices submitted under this section shall be signed by an authorized official and sent by registered mail or courier.

Calculation of Yearly Pool Average

10. (1) Subject to subsections (2) to (4), a primary supplier shall calculate a yearly pool average for each refinery, blending facility and province of importation, and for each combination thereof, in respect of which it elected under section 9, for all gasoline identified as low-sulphur gasoline under section 5.

(2) In calculating a yearly pool average, a primary supplier shall exclude all batches of low-sulphur gasoline that were exported by the primary supplier or an affiliate of the primary supplier.

(3) Where a primary supplier imports and delivers a batch of low-sulphur gasoline to a refinery or a blending facility, the primary supplier may include that batch in the yearly pool average for the refinery or blending facility if the batch is excluded from the yearly pool average for the province of importation.

(4) Where a primary supplier dispatches from a refinery and delivers, or imports and delivers, gasoline-like blendstock to a blending facility where it is blended to produce a batch of low-sulphur gasoline, the primary supplier may include that batch in the yearly pool average for the refinery or province of importation, as the case may be, if

(a) the primary supplier owns the gasoline-like blendstock; and

(b) the gasoline-like blendstock is segregated from all other batches of gasoline stored at the blending facility.

(5) Where a primary supplier dispatches from a refinery or imports a batch of low-sulphur gasoline that is subsequently mixed with a sulphur-limited oxygenate or sulphur-limited butane in a facility, the primary supplier may adjust the recorded concentration of sulphur of the batch to reflect the addition of the sulphur-limited oxygenate or the sulphur-limited butane, and may use the adjusted recorded concentration, instead of the measured concentration for that batch, in calculating the yearly pool average for the refinery or province of importation, as the case may be, if

(a) the primary supplier owns the batch; and

(b) where the facility is not a mobile facility, the primary supplier's refinery or source of importation is the facility's sole source of gasoline.

Record of Composition

11. A primary supplier shall maintain a record in Canada, for a period of three years after the date on which the record was made, for each batch in respect of which it made an election under section 9, that includes

(a) a unique identification number that links the batch to any sample taken;

(b) the date or dates on which the primary supplier dispatched or imported the batch; and

(c) the concentration of sulphur, the volume and the grade of the batch.

Auditor's Reports

12. A primary supplier shall, for each refinery, blending facility and province of importation in respect of which it made an election under section 9,

(a) have the records required under sections 5, 6 and 11 and the reports required under section 4 audited by an auditor; and

(b) not later than May 31 of the year following the year in respect of which the audit was carried out, submit to the Minister a report, signed by the auditor, that contains

PART 3

COMING INTO FORCE

13. (1) These Regulations, other than sections 2 to 8 and 10 to 12, come into force on September 1, 2001.

(2) Sections 2 to 8 and 10 to 12 come into force on January 1, 2002.

[44-1-o]

Footnote 1

Dr. Rick Burnett, Dr. Sabit Cakmak and Dr. Jeffrey Brook. "The Effect of the Urban Ambient Air Pollution Mix on Daily Mortality Rates in 11 Canadian Cities." Canadian Journal of Public Health, Vol. 89, No. 3, 1998: 152-156.

Footnote a

R.S., 1985, c. 16 (4th Supp.)

Footnote b

S.C., 1992, c. 1, s. 144 (Sch. VII, s. 18)

Footnote c

R.S., 1985, c. 16 (4th Supp.)

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