Vol. 150, No. 25 — June 18, 2016

Locomotive Emissions Regulations

Statutory authority

Railway Safety Act

Sponsoring department

Department of Transport

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues: Criteria air contaminant (CAC) emissions cause localized deterioration in air quality and contribute to smog and acid rain, which pose significant health and environmental damage risks. CAC emissions from locomotives, including nitrogen oxides (NOx), particulate matter (PM), hydrocarbons (HC), carbon monoxide (CO) and sulphur oxides (SOx), pose health and environmental risks to local communities and to Canadians who live and work close to rail yards and rail lines.

The transportation sector in Canada generated 56.0% of all NOx emissions and 9.2% of all PM emissions in 2013. Of these amounts, rail transportation was responsible for 11.1% of NOx and 4.6% of PM emissions. It is important to keep CAC emissions at their lowest practical level because rail traffic in Canada is expected to grow and many rail corridors run through heavily populated areas where air pollutant emissions are already at higher concentrations.

Description: Transport Canada is proposing to introduce the Locomotive Emissions Regulations (the proposed Regulations), under the Railway Safety Act, to control CAC emissions from locomotives. The proposed Regulations would come into force on the day on which they are registered and would apply to railway companies as they are defined in the Railway Safety Act.

Locomotive emission standards would be specified for smoke opacity and air pollutant emissions, including NOx, PM, HC and CO. The standards would align with those specified in the U.S. regulations. Other requirements for controlling idling, labelling, testing, record keeping and reporting would also be specified in the proposed Regulations.

Cost-benefit statement: The cost-benefit analysis estimates that the proposed Regulations will cost approximately $162.3 million over 10 years, assuming a 7% discount rate and including costs to the railway companies and to the federal government. It is expected that the proposed Regulations would result in a reduction of locomotive emissions of approximately 79.6 kilotonnes and 1.4 kilotonnes of NOx and PM emissions, respectively (or a reduction of 9.3% and 8.0% of NOx and PM, respectively), over a 10-year analysis period. The total quantifiable benefits are monetized at approximately $244.9 million over 10 years, assuming a 7% discount rate. This does not include a valuation of the health benefits due to limitations on the availability of the geographic density of these emissions. The net benefits are estimated at approximately $82.7 million over the first 10 years of implementation of the proposed Regulations. Overall, benefits exceed costs by a ratio of approximately 1.5:1.

The stakeholders most affected would be those railway companies required, under the proposed Regulations, to operate locomotives that meet the emission standards (identical to those of the United States) and comply with the other regulatory requirements. These railway companies could pass on, at least in part, the costs of compliance to their customers (i.e. shippers) in the form of increased shipping fees. These additional costs are not expected to have a significant impact on business and consumers.

“One-for-One” Rule and small business lens: The “One-for-One” Rule applies to this regulatory proposal and the proposed Regulations are considered an “IN” under the Rule. The proposed Regulations would introduce new administrative costs to railway companies. Costs were monetized at a total annualized average of approximately $24,461 for all railway companies to which the proposed Regulations apply for three categories of administrative functions: familiarization with the regulatory requirements and compliance program, record keeping and reporting, and inspection activities.

In the development of the proposed Regulations, Transport Canada has taken impacts on small business into consideration. First, the proposed Regulations include flexibility in order to reduce the burden on small railways. A small railway company is a railway company that realizes gross revenues of $30 million or less from the provision of rail transportation services. The proposed Regulations would exclude remanufactured locomotives operated by small railway companies for the provision of freight services or tourist and excursion services from having to meet the emission standards unless they are covered by an Environmental Protection Agency certificate. Second, small railway companies have a substantial number of locomotives (approximately 30 to 40% of their fleet) that may be exempt from the emission standards since they were built before 1973; therefore, the small companies would also be less affected by the proposed Regulations.

Domestic and international coordination and cooperation: The rail industries in Canada and the United States are highly integrated. Companies operating on integrated rail networks build track to a standard gauge and maintain track to similar safety standards. Loaded rail cars are usually pulled by locomotives owned and operated by the owner of the track on which they operate, but Canada–U.S. integration allows railway companies to interchange or hand off cars and locomotives that meet industry standards to other railway companies to complete a journey. Almost all locomotives used by Canadian and U.S. railway companies are built to U.S. manufacturing standards and new equipment is certified for service only after successfully passing performance tests. The alignment of emission standards for locomotives for the Canadian and U.S. rail industries would reflect this highly integrated nature.

Throughout the regulatory development process, Transport Canada has coordinated the alignment of the proposed Regulations with the U.S. EPA. Consultations were held with industry and other stakeholders on the development of the proposed Regulations between December 1, 2010, and February 14, 2011. Discussions with the United States were undertaken as part of the consultation process, and a total of 16 formal written submissions were received from a broad range of stakeholders, including industry associations, Canadian railway companies, unions, provincial and municipal governments, manufacturers, suppliers, industry experts and the general public. Since 2011, there have been continuous discussions with the rail industry on emissions-related issues. These consultations and discussions confirmed support for the proposed Regulations, aligned, to the extent possible, with those of the United States.

1. Background

More and more Canadians are aware of the impact of local air pollutants on their health and on the air quality in their communities. Air pollutants, or criteria air contaminant (CAC) emissions, include sulphur oxides (SOx), nitrogen oxides (NOx), particulate matter (PM), carbon monoxide (CO), ammonia (NH3), ground-level ozone (O3), and volatile organic compounds (VOCs), including hydrocarbons (HC). NOx and PM are two of the most harmful CACs that are emitted from locomotive engines. They can lead to the formation of smog and acid rain and have been linked to premature mortality, asthma, some forms of heart disease and aggravated cardiac and respiratory diseases. Groups most at risk are the elderly, children and people with respiratory issues. Emitting these CACs into the air damages the environment and lowers the quality of life of people.

In 2013, Canada’s transportation sector accounted for 56.0% of all NOx emissions and 9.2% of all PM emissions. Of all transportation-related emissions, rail accounted for 11.1% of NOx and 4.6% of PM emissions. (see footnote 1) It is important to keep CAC emissions to their lowest practical level, as rail traffic in Canada is expected to grow and many rail corridors run through heavily populated areas where air pollutant emissions are already at higher concentrations.

Railway companies have been voluntarily implementing measures to reduce emissions from the rail sector. The rail industry has been working with the Government of Canada through a series of Memoranda of Understanding (MOU) to reduce emissions since 1995. (see footnote 2) These voluntary agreements have resulted in railway companies adopting commercially viable and feasible technologies and adjusting operations to reduce emissions. The first MOU was in effect from 1995 to 2005. It reflected a commitment between the Railway Association of Canada (RAC) and Environment Canada to maintain NOx emissions below a threshold of 115 000 tonnes per year. During this time frame, railway activity grew significantly while NOx emissions declined.

The United States started regulating CAC emissions from locomotives in 2000. These regulations were updated in 2008. The U.S. regulations set emission standards for NOx, PM, HC, CO and standards for smoke opacity which become increasingly stringent over time.

In October 2006, the Government of Canada issued the Notice of intent to develop and implement regulations and other measures to reduce air emissions (Notice of Intent) (see footnote 3) to regulate air emissions, including those from the rail sector. The proposed Regulations would be implemented under the Railway Safety Act. This commitment was reiterated in the 2007 Regulatory Framework for Air Emissions (see footnote 4) and is also in subsequent Transport Canada Reports on Plans and Priorities. (see footnote 5)

As a bridge to regulations, a second MOU between the Railway Association of Canada, Transport Canada and Environment Canada was signed in 2007, for the 2006–2010 period, and set targets to reduce the intensity of greenhouse gas (GHG) emissions and encouraged the reduction of CAC emissions. It has been effective in both preparing the industry for the regulatory requirements and reducing emissions.

A third successive MOU was signed, this time between the Railway Association of Canada and Transport Canada in 2013 for the 2011–2015 period. (see footnote 6) In 2015, this MOU was extended by one year to 2016. This agreement includes measures, targets and actions that will further reduce the intensity of greenhouse gas emissions from rail operations and includes a commitment to continue to monitor criteria air contaminants. It is intended to complement the proposed Regulations and encourages Railway Association of Canada members to continue to conform to U.S. emission standards (Title 40 of the Code of Federal Regulations of the United States, Part 1033) until the proposed Regulations are introduced.

According to the 2013 Locomotive Emissions Monitoring Program report, the Railway Association of Canada reported that NOx emissions intensity from total railway operations decreased by 56.1% from 1990, while railway freight traffic increased by 69.6% over the same time period.

2. Issues

The Government of Canada aims to protect the environment and the health of Canadians by addressing CAC emissions and greenhouse gas (GHG) emissions. Reducing emissions from transportation, including rail, is an essential element. CAC emissions from other transportation sources have dropped significantly as a result of long-standing regulations. As a result, emissions from railway locomotives, particularly NOx, have become a larger proportion of total transportation emissions.

Railway companies have been encouraged to comply with U.S. regulations through the MOU. Railway companies have been voluntarily meeting U.S. emission standards to the extent possible. In some cases, locomotives have been manufactured or remanufactured to meet some, but not all, of the emission standards. As the MOU is a voluntary agreement, it is not enforceable by law.

3. Objectives

The objective of the proposed Locomotive Emissions Regulations (the proposed Regulations) is to reduce CAC emissions, namely NOx, PM, HC and CO, and smoke, from the operation of locomotives by establishing mandatory emission standards and test procedures for new locomotives. The proposed Regulations would be established under the authority of subsection 47.1(2) of the Railway Safety Act.

To support the transition to a cleaner transportation sector, the Government of Canada is developing regulations and standards that will limit emissions from all transportation modes. This effort focuses on aligning Canadian regulations with U.S. and international standards, improving the efficiency of our transportation system, and advancing green technologies. These proposed Regulations are an important part of this effort.

This initiative builds on the extensive collaboration between the Canadian and U.S. governments on air emissions from locomotives. Under the framework of the Regulatory Cooperation Council, Transport Canada and the U.S. Environmental Protection Agency (EPA) are working collaboratively on the development of potential strategies for the reduction of GHG emissions from locomotives. Transport Canada has worked closely with the U.S. EPA on the development of the proposed Regulations, as these would align with the existing U.S. standards. (see footnote 7)

The Canada–U.S. rail industries are highly integrated and almost all new locomotives in Canada are imported from the United States and built to U.S. manufacturing standards. The alignment of the proposed Canadian Regulations with the existing U.S. regulations would ensure that regulatory requirements are consistent with one another, particularly for railway companies that operate on both sides of the border.

Aligned standards and requirements would allow Canadians to enjoy the health and environmental benefits of reduced emissions from locomotives, without causing barriers to trade or otherwise having a negative impact on the Canada–U.S. rail transportation system.

4. Description

The proposed Regulations, made under the Railway Safety Act, would introduce progressively more stringent CAC emission standards. They would come into force on the day on which they are registered and apply to railway companies as they are defined in the Railway Safety Act.

The proposed Regulations would be aligned with the existing U.S. regulations. (see footnote 8) The U.S. regulations set emission standards that vary according to the type of locomotive and its year of original manufacture. The proposed Regulations would incorporate the U.S. emission standards and associated testing procedures by reference.

The proposed Regulations would require railway companies to meet emission standards, undertake emission testing, and adhere to anti-idling provisions, which would benefit human health and the environment. Some of the regulatory requirements would apply in respect of all locomotives in a railway company’s fleet, immediately following the coming into force, while others would apply in respect of locomotive only if it is placed into service following the coming into force.

More specifically, the proposed Regulations would set out emission standards for NOx, PM, HC, and CO and standards for smoke opacity. After the Regulations come into force, locomotives that are placed into service by railway companies would be subject to the emission standards as well as to the provisions for testing and labelling. Placing a locomotive into service refers to the initial operation of a new locomotive. New locomotives are freshly manufactured, remanufactured, upgraded, or imported.

Locomotives that were manufactured or remanufactured prior to the coming-into-force date of the proposed Regulations would not be subject to these provisions until the next time they are placed into service. This means that locomotives already in service at the time of the coming into force of the proposed Regulations would not be required to meet the emission standards or the testing and labelling requirements. When such locomotives are removed from service to be remanufactured, refurbished or upgraded, they would be required to meet these requirements before they are placed back into service.

The proposed Regulations also include flexibility for small railway companies. In this context, a small railway company is a railway company that realizes gross annual revenues of $30 million or less from the provision of rail transportation services. The proposed Regulations would exclude remanufactured locomotives operated by small railway companies for the provision of freight services or tourist and excursion services from having to meet the emission standards unless they are covered by a U.S. EPA certificate.

Locomotives that were built before 1973 are exempt from the emission standards in the proposed Regulations unless they are upgraded (which is defined as a type of remanufacture specific to locomotives built before 1973). As a substantial number of small railway companies’ locomotives (approximately 30 to 40% of their fleet) were built before 1973, this is an additional flexibility for them and for other railway companies with older locomotives.

All locomotives operated by railway companies would be subject to requirements for idling, record keeping and reporting immediately after the coming into force of the proposed Regulations.

Key elements of the proposed Regulations

The proposed Regulations set out several requirements for railway companies relating to the operation of locomotives. Below is a brief description of the key regulatory requirements.

Emission standards: Based on the type of locomotive and the year of original manufacture, new locomotives would be required to meet the increasingly stringent tier level standards for NOx, PM, HC and CO emissions, as well as smoke opacity. These standards would be incorporated by reference to the U.S. regulations. Locomotives would be required to meet the applicable tier level standards for their entire useful life and, in certain cases, for their entire service life. The useful life is the period during which the locomotive is designed to properly function in terms of reliability and fuel consumption without being remanufactured, and during which a locomotive is required to comply with all applicable emission standards. The minimum useful life of a locomotive is 10 years. (see footnote 9) Service life is the total life of a locomotive and ends when the locomotive is permanently removed from service. The typical service life of a locomotive is 40 years. (see footnote 10)

Table 1: Line-haul locomotive emission standards

Year of Original Manufacture

Tier of Standards

Standards (g/bhp-h)

NOx

PM

HC

CO

1973–1992

Tier 0

8.0

0.22

1.00

5.0

1993–2004

Tier 1

7.4

0.22

0.55

2.2

2005–2011

Tier 2

5.5

0.10

0.30

1.5

2012–2014

Tier 3

5.5

0.10

0.30

1.5

2015 or later

Tier 4

1.3

0.03

0.14

1.5

Source: CFR 1033.101, Table 1

Table 2: Switch locomotive emission standards

Year of original manufacture

Tier of Standards

Standards (g/bhp-h)

NOx

PM

HC

CO

1973–2001

Tier 0

11.8

0.26

2.10

8.0

2002–2004

Tier 1

11.0

0.26

1.20

2.5

2005–2010

Tier 2

8.1

0.13

0.60

2.4

2011–2014

Tier 3

5.0

0.10

0.60

2.4

2015 or later

Tier 4

1.3

0.03

0.14

2.4

Source: CFR 1033.101, Table 2

Table 3: Smoke standards for locomotives

Tier of Standards

Standards (Percent Opacity)

Steady State

30-s Peak

3-s Peak

Tier 0

30

40

50

Tier 1

25

40

50

Tier 2 and later

20

40

50

Source: CFR 1033.101, Table 3

In the United States, manufacturers have the option to certify locomotive engine families to a family emission limit. Family emission limits are alternate emission standards for locomotives created under the U.S. Averaging, Banking and Trading (ABT) program. Under the proposed Regulations, approved family emission limits would be accepted for locomotives that are part of the U.S. ABT program and covered by a U.S. EPA certificate as long as they conform to the applicable provisions of the proposed Regulations.

New locomotives would also be prohibited from releasing crankcase emissions directly into the atmosphere.

Testing: Prior to placing a new locomotive into service in Canada, a railway company would be required to test the locomotive to prove that it meets the applicable emission standards. The testing procedures would be incorporated by reference from the U.S. regulations. Those locomotives covered by a U.S. EPA certificate would be able to use the certificate as proof of compliance with this requirement.

Beginning in 2018, Class I railway companies would also be required to select and test 0.075% of their fleet of freight locomotives annually to demonstrate compliance with the emission standards throughout their useful life. This testing is referred to as in-use testing.

Labelling: Railway companies would be required to label all new locomotives with an engine label and a locomotive label. The proposed Regulations prescribe the form, content and placement of such labels.

Idling: All locomotives would be prohibited from idling for more than 30 minutes unless there is a valid reason for the extended idling. For example, idling may be permitted if it is necessary to prevent engine damage, such as to prevent the engine coolant from freezing. In addition, railway companies would be required to have an anti-idling policy and to submit it with the initial report (see “Reporting” section).

Record keeping: Railway companies would be required to keep a detailed record of all locomotives in their fleet. The record would include information such as the type of locomotive, date of original manufacture, tier level, identification number and model.

Reporting: The proposed Regulations would prescribe specific reporting requirements for railway companies. Railway companies would be required to file an initial report, an annual report, and an in-use test report with the Minister, as applicable.

Initial report: Railway companies would be required to file a report with the Minister 90 days after the coming into force of the proposed Regulations that provides information on each locomotive within its fleet.

Annual report: Railway companies would be required to file a report with the Minister annually 45 days after the end of each calendar year which provides information on all locomotives that were placed into service, or removed from the fleet, during the previous calendar year.

In-use test report: Beginning with the report for the 2018 calendar year, Class I railway companies would be required to file a report with the Minister 90 days after the end of each calendar year with respect to each in-use freight locomotive tested during the previous calendar year.

5. Regulatory and non-regulatory options considered

Three options were considered for the development of the proposed Regulations: a voluntary approach, a regulatory approach aligned with the United States, and a regulatory approach with unique Canadian standards.

5.1 Voluntary approach (status quo)

Canadian railway companies have voluntarily managed locomotive emissions in Canada since 1995, under three MOUs. (see footnote 11) Under the 2006–2010 voluntary agreement, four of Canada’s largest railway companies (Canadian National, Canadian Pacific, VIA Rail and GO Transit) agreed to take action to reduce CAC emissions through such measures as

Under the 2011–2015 MOU (extended in 2015 to 2016), Railway Association of Canada members are encouraged to continue to conform to United States emission standards (Title 40 of the Code of Federal Regulations of the United States, Part 1033) until the proposed Regulations are introduced.

While positive results have been achieved, the voluntary agreements and other non-compulsory measures cannot offer guaranteed reductions of CAC emissions and are not enforceable. Regulations are enforceable and require emission reductions on a reliable schedule, as well as ensure emissions monitoring and transparent reporting.

For the above-mentioned reasons, this option was not selected.

5.2 Regulatory approach

The Government of Canada first announced its commitment to take regulatory action to reduce emissions from the rail sector in the Notice of Intent published in the Canada Gazette, Part I, on October 21, 2006. (see footnote 12) The regulations referred to in the Notice of Intent would establish nationally consistent emission standards to address all major sources of air emissions in Canada, including all modes of transportation, the industrial sectors and from consumer and commercial products.

With respect to the rail sector, the Minister of Transport is responsible for the development and implementation of new regulations under the Railway Safety Act.

5.2.1 Regulations that set emission standards in alignment with U.S. emission standards

The integrated nature of rail transportation systems between Canada and the United States is a strong rationale for a policy of alignment, as is the dominance of the U.S. manufacturing sector in the Canada–United States locomotive supply chain. Common Canada–United States emission standards, established through regulations, would benefit the environment and health of the people on both sides of the border. The Canadian rail industry also broadly supports a policy of alignment with U.S. standards.

The primary difference between the authorities of the Canadian Railway Safety Act and the U.S. Clean Air Act (see footnote 13) is that the United States regulate locomotive manufacturers whereas Canada regulates railway operations (that is, railway companies). Despite this difference in regulatory approach, regulations made under the Railway Safety Act would align with those in place in the United States to the extent possible and would achieve the same environmental results.

The U.S. emission standards are both stringent and achievable for reducing locomotive CAC emissions. They are progressively stringent technology-driven standards that take advantage of advances in control and mitigation of engine emissions.

In addition, alignment of the proposed Regulations with U.S. regulations would ensure that new locomotives with higher emissions are not sold for service in Canada when they are no longer permitted in the U.S., while maintaining a level playing field for the Canadian and U.S. rail industries. This option would maintain trade flows while not imposing undue costs to the industry.

For the above-mentioned reasons, the Government of Canada has adopted this regulatory approach.

5.2.2 Implementation of unique Canadian emission standards

This option is recognized as unrealistic commercially and operationally, given that there is a high degree of integration between the Canadian and U.S. railway networks, that locomotives are almost exclusively designed and manufactured in the United States, and that the major Canadian railway companies have been buying and maintaining locomotives in accordance with the U.S. regulations since 2000.

While it would be technically possible to develop separate locomotive emission standards for locomotives operated in Canada, the challenges and risks this option would far outweigh any potential gain in health or environmental benefits.

Developing unique Canadian locomotive CAC emission standards could have a negative impact on trade flow between Canada and the United States, and could impose undue costs to the rail industry.

The option of adopting standards that are different from U.S. emission standards was not selected.

6. Benefits and costs

An analysis of the costs and benefits of the proposed Regulations was conducted in order to estimate and monetize the impacts of the regulatory proposal on Government and stakeholders, including industry and the Canadian public. While the proposed Regulations would impose costs on industry and Government, the benefits to Canadians from reduced criteria air contaminant emissions, including nitrogen oxides (NOx) and particulate matter (PM) emissions, would result in a net benefit.

The present value of total incremental costs of the proposed Regulations is estimated to be $162.3 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations. These costs include the costs to railway companies and those to the federal government, the majority of which would be borne by railway companies. Environmental benefits would result from the proposed Regulations, with the reductions in NOx and PM emissions estimated at 79.6 kilotonnes and 1.4 kilotonnes, respectively, over the analysis period. The total present value of the incremental benefits is estimated to be $244.9 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations. The proposed Regulations are estimated to result in a net benefit of approximately $82.7 million, over the first 10 years of implementation of the proposed Regulations. Overall, the benefits exceed costs by a ratio of approximately 1.5:1.

A summary of the cost-benefit analysis is presented below. The full cost-benefit analysis document is available upon request (see section 13 for departmental contact information).

6.1 Analytical framework

The approach to cost-benefit analysis identifies, quantifies and monetizes, to the extent possible, the incremental costs and benefits of the proposed Regulations. The cost-benefit analysis framework consists of the following elements:

Incremental impact: The incremental impacts were determined by comparing two scenarios: a base case scenario and a “with regulations” scenario. The two scenarios are described in more detail below.

Time frame for analysis: The time horizon used for evaluating the economic impacts is 10 years; 2015 to 2024 was selected for this analysis.

Approach to cost and benefit estimates: All costs and benefits have been estimated in monetary terms to the extent possible and are expressed in 2012 Canadian dollars. Whenever this was not possible, due either to lack of appropriate data or difficulties in valuing certain components or data inputs, the costs and benefits were evaluated in qualitative terms.

The proposed Regulations would introduce incremental costs to railway companies, including compliance and administrative burden costs, and to Government. The compliance cost estimates are mostly based on the U.S. EPA’s technology cost estimates to comply with the U.S. regulations, supplemented by additional information from Canada-specific sources.

The proposed Regulations would lead to environmental benefits from reduced emissions. While the proposed Regulations would reduce emissions of criteria air contaminants, including NOx, PM, hydrocarbons, and carbon monoxide, the cost-benefit analysis focused on NOx and PM, as these pollutants are of primary concern in terms of magnitude and impact. The environmental impact of the proposed Regulations is estimated using the quantified benefits associated with the volumetric change in NOx and PM emissions between the two scenarios described below. It was not possible to analyze directly the impact of NOx and PM emission reductions attributable specifically to the proposed Regulations on ambient air quality improvement and related environmental and human health benefits. However, using unit air pollution costs from existing Canadian literature, it was possible to monetize the expected environmental benefits of the proposed Regulations.

Discount rate: In line with Treasury Board of Canada Secretariat guidance, a discount rate of 7% was used for this analysis.

6.2 Analytical scenarios

The incremental impacts of the proposed Regulations were determined by comparing two scenarios:

  1. A base case where it is assumed that there are no regulations; and
  2. A “with regulations” scenario where it is assumed that Canada develops regulations that set emission standards in alignment with U.S. emission standards.

A number of assumptions were made for each of the scenarios. The base case scenario assumes that Canadian railway companies would partially comply with the existing U.S. emission standards. The “with regulations” scenario assumes that the proposed Regulations would be implemented beginning in 2015. The “with regulations” scenario assumes that Canadian railway companies would comply with the proposed Regulations.

The incremental impact of the proposed Regulations is the estimated change in costs and benefits between these two scenarios over the analysis period. The following provides a high level summary of the methodology that was used to estimate the incremental annual costs and benefits:

A model was developed to help define the scenarios and simplify the projections and emissions calculations. For the purpose of analysis, railway companies were grouped according to the following categories: Class I Freight, Class I Passenger, and non-Class I. Other than administrative burden costs, it was assumed that there would be no incremental costs or benefits to U.S. Class I companies that operate in Canada due to their compliance with existing U.S. regulations.

6.3 Costs

The incremental costs identified in this analysis were the compliance costs and administrative burden costs incurred by railway companies and the administrative costs incurred by government to implement the proposed Regulations.

6.3.1 Costs to railway companies

In order to comply with the proposed Regulations, railway companies would bear compliance and administrative burden costs.

Compliance costs

Under the proposed Regulations, railway companies would be required to operate locomotives that meet the emission standards and to comply with the other regulatory requirements. Compliance costs would vary depending on the existing fleet and stock turnover decisions of railway companies. The incremental compliance costs could include costs related to compliance with Tier 0 and Tier 4 and testing. The Tier 0 and Tier 4 compliance cost estimates are mostly based on the U.S. EPA’s technology cost estimates to comply with the U.S. regulations, supplemented by additional information from Canada-specific sources.

Note that railway companies may also carry additional compliance costs to comply with the other requirements of the proposed Regulations, such as the costs related to prohibitions against the discharge of crankcase emissions and to labelling. These costs were considered negligible compared to the Tier 0- and Tier 4-related costs and testing costs described below and were therefore not included in the cost-benefit analysis.

Tier 0-related costs

Tier 0-related costs are the costs associated with remanufacturing locomotives to meet the current Tier 0 standard. While costs could vary depending on the locomotive engine model, it is estimated that the incremental costs associated with a Tier 0 remanufacture would be approximately $99,091 (2012 Canadian dollars). This estimated cost is based on literature that references Tier 0 technology costs and it combines estimated costs to remanufacture to the original Tier 0 standards ($31,650 in 2003 U.S. dollars (see footnote 14) or $52,511 in 2012 Canadian dollars) with estimated costs to meet the current, more stringent Tier 0 standards ($33,800 in 2005 U.S. dollars (see footnote 15) or $46,579 in 2012 Canadian dollars).

Tier 4-related costs

Tier 4-related costs are those incremental costs associated with purchasing new locomotives that meet the Tier 4 standard. The cost increase of a Tier 4 locomotive is assumed to be mainly due to additional equipment required, such as exhaust aftertreatment technologies. (see footnote 16) Based on available sources at the time of this analysis, the total incremental cost of a Tier 4 locomotive is estimated to be $115,551 (2012 Canadian dollars). (see footnote 17)

Testing

The proposed Regulations include two requirements for locomotive emissions testing: (1) initial testing and (2) in-use testing for Class I freight locomotives. Railway companies would be expected to bear the testing costs. Based on current testing costs, it is estimated that locomotive emissions testing costs would be approximately $20,000 to $40,000. For the purpose of this analysis, the cost of a locomotive emissions test was estimated at $30,000 (2012 Canadian dollars).

The number of initial tests would depend on the railway company’s decision to operate or place into service locomotives covered by a U.S. EPA certificate.

With respect to in-use testing, since the Class I freight railway companies in Canada already participate in the in-use testing program of the United States, no incremental costs are expected.

The initial testing costs to railway companies could be considered as a benefit to locomotive test facilities; however, this benefit was not quantified.

Administrative burden costs

The incremental administrative burden costs to railway companies are associated with the need for familiarization with the regulatory requirements and compliance program, record keeping and reporting, and inspection activities. These costs are described in section 8.

6.3.2 Costs to Government

In order to develop and enforce the proposed Regulations, the federal government is expected to incur some additional costs. The administrative costs to Government for the proposed Regulations include those associated with compliance and enforcement.

6.4 Benefits

The incremental benefits identified by this analysis were the environmental benefits of the proposed Regulations.

6.4.1 Environmental benefits to Canadians

6.4.1.1 Quantified benefits to Canadians

Total NOx and PM emissions were calculated for each of the scenarios and the change in emissions levels was determined. Table 4 below shows the projected total locomotive emissions for NOx and PM for the base case scenario and the “with Regulations” scenario along with the emissions reductions. Figures 1 and 2 present (in graphical form) the estimated emissions trends for NOx and PM in these two scenarios.

The cumulative reductions in NOx and PM emissions over the first 10 years of implementation of the proposed Regulations are estimated at 79.6 kilotonnes and 1.4 kilotonnes, respectively (or a reduction of 9.3% and 8.0% for NOx and PM, respectively).

Table 4: Estimated emissions reductions

Year

Base case (kilotonnes)

With Regulations (kilotonnes)

Reductions (kilotonnes)

NOx

PM

NOx

PM

NOx

PM

2015

90.5

2.1

88.9

2.0

1.6

0.0

2016

89.0

2.0

86.0

1.9

3.0

0.1

2017

87.4

1.9

83.0

1.8

4.4

0.1

2018

85.9

1.8

80.0

1.7

5.9

0.1

2019

84.3

1.7

76.9

1.6

7.3

0.1

2020

82.8

1.6

73.9

1.5

8.9

0.2

2021

82.2

1.6

71.7

1.4

10.5

0.2

2022

83.1

1.6

71.4

1.4

11.6

0.2

2023

84.0

1.6

71.3

1.4

12.7

0.2

2024

84.9

1.6

71.3

1.4

13.7

0.2

Total

854.0

17.5

774.4

16.1

79.6

1.4

Note that the sum may not equal the total due to rounding.

Figure 1: Estimated NOx emissions

Figure 1 shows the estimated NOx emissions.

Figure 2: Estimated PM emissions

Figure 2 shows the estimated PM emissions.

6.4.1.2 Monetized benefits to Canadians

As indicated in the previous section, the proposed Regulations are expected to reduce NOx and PM emissions, which in turn would reduce ambient ozone levels and PM levels, thereby improving air quality and resulting in health benefits for Canadians.

The rail sector is one of many sources of NOx and PM emissions, representing 11.1% and 4.6% of all transportation-related NOx and PM emissions, respectively, in Canada. (see footnote 18) There is very limited data on the geographic density of these emissions. As a result, estimating the change in ozone level and PM concentration attributable specifically to the proposed Regulations poses a significant challenge and estimates were not included in this cost-benefit analysis. Similarly, and as a direct consequence, the potential health benefits were not quantified in this analysis.

Despite this limitation, it is expected that the proposed Regulations would result in some improvements in air quality and would subsequently result in health benefits. While these benefits were not quantified in this analysis, an effort was made to monetize the environmental benefits using the best available Canada-specific literature, more specifically Transport Canada’s Full Cost Investigation (FCI) synthesis report. (see footnote 19)

The FCI report indicates that average unit air pollution costs per tonne of NOx and PM emitted are estimated at $3,580 for NOx and $12,600 for PM 2.5 (2000 Canadian dollars) (see footnote 20) or $4,567 for NOx and $16,074 for PM (2012 Canadian dollars). These estimates are conservative when compared to those in the European literature (see footnote 21) and in a study undertaken by ICF Marbek in 2011. (see footnote 22) Additional details on these comparisons can be found in the full cost-benefit analysis document available upon request (see section 13 for departmental contact information). The benefits of the proposed Regulations were monetized by multiplying the FCI unit cost of air pollution by the estimated NOx and PM emission reductions. These results are shown in Table 5.

Of note, the FCI estimates were derived at a macro level using aggregated costs associated with air pollution from all transportation activity in Canada. The cost-benefit analysis assumes that the FCI estimates can be proportionally adjusted at the micro level. For example, it assumes that one tonne of emission has one thousandth the cost impact of a thousand tonnes of the same emission. The reality is that the health and environmental impacts of air pollution are not necessarily linear in nature, as existing concentrations in the atmosphere also play a role. One tonne of NOx or PM emissions by itself can potentially have little impact on human health and the environment. For example, one tonne of NOx, emitted gradually in the span of one year in non-populated areas, is unlikely to have a measurable impact. The estimates of Table 5 should be used in consideration of the information above.

Table 5: Monetized benefits

Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total
NOx emission reduction (kilotonnes) 1.6 3.0 4.4 5.9 7.3 8.9 10.5 11.6 12.7 13.7 79.6
Monetized value of NOx emission reductions ($ per tonne of NOx reduced) 4,567 4,567 4,567 4,567 4,567 4,567 4,567 4,567 4,567 4,567
Benefits of NOx reductions (millions of dollars) 7.2 13.7 20.1 26.9 33.6 40.5 48.1 53.2 57.8 62.4 363.5
PM emission reduction (kilotonnes) 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 1.4
Monetized value of PM emission reductions ($ per tonne of PM reduced) 16,074 16,074 16,074 16,074 16,074 16,074 16,074 16,074 16,074 16,074
Benefits of PM reductions (millions of dollars) 0.4 0.8 1.2 1.7 2.1 2.5 3.0 3.3 3.6 3.9 22.6
Total benefits (millions of dollars) 7.7 14.6 21.4 28.5 35.6 43.0 51.1 56.5 61.5 66.3 386.0
Total benefits: 7% discount (millions of dollars) 7.2 12.7 17.4 21.8 25.4 28.7 31.8 32.9 33.4 33.7 244.9

Note that the sum may not equal the total due to rounding.

6.5 Impact on stakeholders

This section describes the impact of the proposed Regulations on the identified stakeholders.

Impact on railway companies

The stakeholders most affected by the proposed Regulations would be the railway companies required, under the proposed Regulations, to operate locomotives that meet the emission standards (identical to those of the United States) and to comply with the other regulatory requirements. The impacts on railway companies are based on the current composition of and projections related to their fleets.

Class I freight: These railway companies would be the most affected by the proposed Regulations as they operate the majority of the locomotives, account for the majority of the traffic handled, and consume the most fuel of the railway companies in Canada to which the proposed Regulations would apply. In 2010, Class I freight railway companies operated approximately 80% of all locomotives operated in Canada, accounted for almost 94% of freight traffic and consumed almost 92% of the total freight fuel. (see footnote 23)

For Class I freight railway companies, the analysis included compliance costs associated with meeting Tier 0 and Tier 4 emission standards and performing initial testing as well as administrative burden costs. Overall, it is estimated that the proposed Regulations would cost Class I freight railway companies a net present value of approximately $153.8 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations.

Class I passenger: Class I passenger railway companies would be less affected by the proposed Regulations than Class I freight railway companies due to the size and composition of their locomotive fleet. For Class I passenger railway companies, the analysis included compliance costs associated with meeting Tier 0 emission standards and performing initial testing as well as administrative burden costs. Overall, it is estimated that the proposed Regulations would cost Class I passenger railway companies a net present value of approximately $1.3 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations.

Non-Class I: These railway companies would be much less affected by the proposed Regulations than Class I railway companies. For non-Class I railway companies, the analysis included compliance costs associated with meeting Tier 0 emission standards and performing initial testing as well as administrative burden costs. Overall, it is estimated that the proposed Regulations would cost non-Class I railway companies a net present value of approximately $1.9 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations.

U.S. Class I: For U.S. Class I railway companies, the analysis assumed that these railway companies would comply with U.S. regulations and would not carry any incremental compliance costs; however, the administrative burden costs would apply. Overall, it is estimated that the proposed Regulations would cost the U.S. Class I railway companies a net present value of approximately $0.04 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations.

Impact on shippers

In 2011, the Railway Association of Canada reported that railway companies carried approximately 305.8 million tonnes of goods. (see footnote 24) If it is assumed that the growth in tonnes is the same as the growth rate for revenue tonne-kilometres (RTK) [that is, 2.5% growth in RTK in 2011–2015, 2% growth in 2016–2020, (see footnote 25) and 2% in 2021–2024] the total tonnage forecast to be transported by railway companies over the analysis period is estimated to be 3 695.9 million tonnes. Based on the Class I freight railway companies’ share of fuel consumed from total freight operation (92%), (see footnote 26) Class I freight railway companies would carry 3 407.7 million tonnes of goods over the analysis period. Assuming Class I freight railway companies were to pass on all costs of complying with the proposed Regulations to customers, shipping fees would increase by an estimated 5 cents per tonne transported, assuming a 7% discount rate. If costs are not fully passed on, shipping fees would increase by less.

A similar analysis can be made for carloads transported. The Railway Association of Canada reported that approximately 4.0 million carload movements occurred in 2011. (see footnote 27) Using the same projections as for tonnage transported, it can be projected that Class I freight railway companies would transport a total of approximately 45.1 million carloads during the analysis period. The cost of the proposed Regulations expressed in dollars per carload is therefore estimated at $3.41, assuming a 7% discount rate. These additional costs are not expected to have a significant impact on business.

As a basis for comparison, a carload of bituminous coal with the Standard Transportation Commodity Code (STCC) of 1121290 shipped from Calgary, Alberta, to Thunder Bay, Ontario, costs approximately $13,000 in shipping. (see footnote 28) In this particular instance, the proposed Regulations would lead to a cost increase of less than 0.1%.

Impact on Government

The administrative costs to Government for the proposed Regulations include those associated with compliance and enforcement. The total incremental costs of implementing and enforcing the proposed Regulations are estimated at a net present value of approximately $5.3 million for the first 10 years of implementation, discounted at 7%. Costs are expected to decrease in subsequent years.

Impact on Canadians

The proposed Regulations would lead to environmental benefits to Canadians from reduced emissions. The cumulative reductions in NOx and PM emissions over the first 10 years of implementation of the proposed Regulations are estimated at 79.6 kilotonnes and 1.4 kilotonnes, respectively (or a reduction of 9.3% and 8.0% of NOx and PM, respectively). As described in section 6.4, the emission reductions were monetized such that the proposed Regulations would lead to an estimated benefit to Canadians of $244.9 million, discounted at 7%, over the first 10 years of implementation of the proposed Regulations. The environmental benefits resulting from the proposed Regulations would lead to improved air quality and associated health benefits to Canadians.

Impact on other stakeholders

Other indirectly affected stakeholders are locomotive manufacturers, remanufacturers and part suppliers, which would be asked by railway companies to supply locomotives and parts that meet the regulatory requirements. Locomotive test facilities would experience a positive impact since railway companies would be required to perform locomotive emissions testing to prove compliance with the emission standards.

6.6 Dealing with uncertainty

A sensitivity analysis was conducted to test the robustness of the results based on variations in some of the variables used in the analysis. It examined variations in the discount rate, the price of fuel, the growth rate of economic activity and the capacity utilization of locomotives to ensure the validity and robustness of the results and that the proposed Regulations will yield a positive net benefit. Overall, the sensitivity analysis determined that the proposed Regulations are likely to result in a positive net benefit, even with variations in the above-listed variables.

6.7 Cost-benefit statement

The net benefits of the proposed Regulations are estimated at approximately $82.7 million over the first 10 years of implementation of the proposed Regulations and are expected to increase steadily post-2024. Overall, the benefits exceed the costs by a ratio of approximately 1.5:1.

Table 6 summarizes the cost-benefit analysis estimates, over the analysis period, of the annual incremental costs and benefits of the proposed Regulations compared to those of the base case scenario. All monetized impacts are in 2012 Canadian dollars and are discounted at 7%.

Table 6: Cost-benefit statement

Category Stakeholder 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Total Annualized Average
A. Quantified impacts (in 2012 Canadian dollars [millions, 7% discount])
Costs Class I 12.59 13.22 14.49 15.66 16.62 17.51 18.03 15.90 15.71 15.35 155.08 22.08
Non-Class I 0.30 0.23 0.21 0.20 0.21 0.17 0.16 0.15 0.16 0.13 1.94 0.28
U.S. Class I 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.04 0.01
Government 0.76 0.64 0.60 0.56 0.53 0.49 0.46 0.43 0.40 0.37 5.25 0.75
Benefits Canadians 7.16 12.75 17.44 21.76 25.40 28.66 31.79 32.87 33.43 33.68 244.95 34.88
Net benefits   82.65 11.77
B. Quantified impacts (in non-dollars)
Benefits: Reduction of NOx in kilotonnes Canadians 1.58 3.01 4.41 5.88 7.35 8.87 10.53 11.64 12.67 13.66 79.59
Benefits: Reduction of PM in kilotonnes Canadians 0.03 0.05 0.08 0.10 0.13 0.16 0.19 0.21 0.22 0.24 1.40
C. Qualitative impacts
(1) Railway company customers (i.e. shippers): These stakeholders may be affected by the proposed Regulations because railway companies could pass on, at least in part, the costs of compliance to their customers in the form of increased shipping fees. These additional costs are not expected to have a significant impact on business and consumers.
(2) Locomotive manufacturers, remanufacturers and parts suppliers: These stakeholders may be affected by the proposed Regulations because railway companies would likely choose to purchase locomotives and locomotives parts that are certified by the U.S. EPA. As a result, there could be a reduction in demand for locomotives and locomotive emission-related parts that are not U.S. EPA certified.
(3) Locomotive test facilities: Locomotive test facilities would be positively impacted since railway companies would be required to perform locomotive emission testing to prove compliance with the emission standards.
(4) Canadians: The emission reductions realized by the proposed Regulations would lead to improvements in air quality and in associated health benefits to Canadians.

Note that the sum may not equal the total due to rounding.

7. Small business lens

In the development of the proposed Regulations, Transport Canada has taken impacts on small business into consideration. The larger railway companies account for the majority of the emissions from railway operations in Canada. In fact, smaller railway companies account for less than 3% of total rail operations’ fuel consumption (and emissions). (see footnote 29)

The proposed Regulations include flexibility in order to reduce the burden on small railway companies. In this context, a small railway company is a railway company that realizes gross revenues of $30 million or less from the provision of rail transportation services. The proposed Regulations would exclude remanufactured locomotives operated by small railway companies for the provision of freight services or tourist and excursion services from having to meet the emission standards unless they are covered by a U.S. EPA certificate.

Furthermore, small railway companies would be less affected by the proposed Regulations as they have a substantial number of locomotives (approximately 30% to 40% of their fleet) that may be exempt from the emission standards since they were built before 1973.

Regulatory flexibility analysis

As part of the small business lens analysis, (see footnote 30) Transport Canada assessed two options for small railway companies:

(1) an initial option, which does not provide flexibility to small railway companies; and

(2) a flexible option, which provides flexibility for small railway companies.

The Treasury Board of Canada Secretariat defines a small business as “any business, including its affiliates, that has fewer than 100 employees or generates between $30,000 and $5 million in annual gross revenue.” (see footnote 31) As mentioned above, under the proposed Regulations, a small railway company is a railway company that realizes gross revenues of $30 million or less from the provision of rail transportation services. This broader definition of small business was used in order to better align with the definition of small railway used in the United States.

The rail industry, including small railway companies, was consulted during the preliminary consultation period. The rail industry expressed interest in a provision for small railway companies in Canada similar to what is included in the U.S. regulations.

Using the methodology described in section 6, the incremental costs and benefits to small railway companies were determined for each of the options. According to the data available at the time of the analysis, it was assumed that there were 16 small railway companies operating in Canada. The analysis included the compliance costs associated with meeting Tier 0 emission standards and performing initial testing as well as administrative burden costs. For the initial option, no flexibility provided to small railway companies, it was assumed that the incremental compliance costs would begin in the first year, following the proposed Regulations coming into force. For the flexible option, the proposed Regulations would exclude remanufactured locomotives that are operated by small railway companies for the provision of freight services or tourist and excursion services from having to meet the emission standards unless the locomotives are already covered by a U.S. EPA certificate. There would be no incremental compliance costs under this option. The administrative burden costs were assumed to be the same for each of the two options and include familiarization with the regulatory requirements and compliance program, record keeping and reporting, and inspection activities (see section 8 for more detail).

The compliance and administrative burden costs for both options are presented in Table 7. The flexible option was selected for the proposed Regulations in order to reduce the burden on small railway companies.

Table 7: Small business flexibility statement (2012 Canadian dollars, 7% discount)

  Initial Option Flexible Option
Short description Beginning when the proposed Regulations come into force, any new locomotive, including remanufactured locomotives, placed into service by a small railway company would be required to meet the applicable emission standards. The proposed Regulations would exclude remanufactured locomotives that are placed into service by small railway companies from having to meet the emission standards.
Number of small businesses impacted 16 (see note *) 16 (see note **)
  Annualized Average ($ millions) Present Value ($ millions) Annualized Average ($ millions) Present Value ($ millions)
Compliance costs        
Tier 0-related costs 0.35 2.44 0.00 0.00
Testing costs 0.01 0.07 0.00 0.00
Compliance costs (total) 0.36 2.51 0.00 0.00
Administrative burden costs (total) 0.01 0.09 0.01 0.09
Total costs (all small businesses) 0.37 2.59 0.01 0.09
Average cost per small business 0.03 0.22 0.00 0.01
Risk considerations The estimated monetized benefits from the reduction of emissions from small railway companies in this option ($3.4 million) represent approximately 1.4% of the benefits estimated from Class I railway companies ($236.3 million). The estimated cost savings to small railways in this option as compared to the initial option are $2.5 million. There are no environmental or health benefits with this option. Providing flexibility to small railways poses minimal risk to the environment and human health.

Note that the sum may not equal the total due to rounding.

8. “One-for-One” Rule

The “One-for-One” Rule applies to this regulatory proposal and the proposed Regulations are considered an “IN” under the Rule. The proposed Regulations would introduce a new regulatory title, requiring that existing Regulations be repealed.

The proposed Regulations would introduce new administrative costs to railway companies. Costs were monetized at a total annualized average of approximately $24,461 (2012 Canadian dollars, 7% discount) for all railway companies for three categories of administrative functions: familiarization with the regulatory requirements and compliance program, record keeping and reporting, and inspection activities.

Familiarization with the regulatory requirements and compliance program: It was estimated that a designated officer from each railway company would require two days of training to learn about the regulatory requirements and how to use the compliance program information system for reporting.

Record keeping and reporting: Regarding the administrative costs for record keeping under the proposed Regulations, it was estimated that each railway company would require approximately 8 hours for record keeping. The administrative costs for reporting relate to the three types of reports that would be required under the proposed Regulations. For the one-time initial report, it was estimated that one person from each railway company would require a total of 36.5 hours to compile, review and approve and submit the report. For the annual report, it was estimated that one person from each railway company would require a total of 10.5 hours to compile, review and approve and submit the report. This is likely an over-estimate since the annual report is only intended to report on any changes from the initial report. For the in-use testing report, it was estimated that one person from each Class I freight railway company would require a total of 6.5 hours to compile, review,approve and submit the report.

Inspection activities: Inspection activities would be incremental to the existing regime. It was estimated that each railway company would require no more than one day per year to provide information to a railway safety inspector and to supervise inspections.

9. Rationale

The Government of Canada has proposed a regulatory approach that sets emission standards for locomotives in alignment with U.S. emission standards. This would support the integrated nature of the Canadian and American railway industries and trade between Canada and the United States.

Implementation of the proposed Regulations is expected to reduce NOx and PM emissions by 9.3% and 8.0%, respectively, over the first 10 years of implementation. The net benefits are estimated at approximately $82.7 million over the first 10 years following implementation of the proposed Regulations. Without regulations, emissions of air pollutants would be higher (>8%).

New technologies would assist locomotive operators in achieving emission reductions. Without regulations, these new technologies would likely penetrate the Canadian fleet more slowly, potentially hindering the adoption of advanced emission reduction technologies in Canada. During Transport Canada’s consultation process, it was noted that investments in advanced emission control and mitigation technologies have yielded positive results in the United States, leading locomotive manufacturers, parts manufacturers, and remanufacturers to rapidly advance towards creating cleaner and more efficient engines. The proposed Regulations would encourage greater and more consistent investment in, and the uptake of, new emission control and mitigation technologies in Canada.

Canadian and U.S. industry stakeholders expressed support for alignment of the proposed Canadian Regulations with existing U.S. regulations.

10. Consultation

Preliminary stakeholder consultations were held from December 1, 2010, to February 14, 2011. The primary stakeholders for the proposed Regulations are railway companies. Other stakeholders include manufacturers, suppliers, industry experts and associations, unions, non-governmental organizations, provincial and municipal governments, academia and the general public.

Transport Canada launched consultations with the release of a consultation paper and an issue brief (see footnote 32) in December 2010, developed to stimulate discussion and feedback from stakeholders on the design of a Canadian regulatory regime for the reduction of CAC emissions from locomotives. A series of six stakeholder consultation sessions were held in Ottawa, Montréal, Vancouver and Detroit during the consultation period.

Transport Canada received 16 written submissions from a range of stakeholders, (see footnote 16) including industry associations, Canadian railways companies, unions, provincial and municipal governments, industry experts and the general public. Transport Canada has taken these comments into account in developing the proposed Regulations. The key issues raised by stakeholders, and the manner in which the questions were addressed, are summarized below.

Alignment with U.S. emission standards

Stakeholders generally expressed support for the proposed Canadian Regulations to be aligned with U.S. regulations. However, many stakeholders asked for further clarification with regard to the extent of this alignment in practice, given the different legal and industrial contexts, as well as the differences in geography and climate of the two countries. The emissions standards set out in the proposed Regulations are identical to those of the U.S. regulations.

Applications and exemptions

The scope and application of the proposed Regulations were key points of interest among stakeholders, and a number of differing views were presented. The scope and application are addressed in the proposed Regulations. The following is intended to clarify areas, raised by stakeholders, where the proposed Regulations do not apply:

Compliance

Questions were raised about compliance costs. Compliance activities would be undertaken in cooperation with the regulated industry. In the case of unresolved non-compliance, penalties, as set out in the Railway Safety Act, would apply.

The cost of compliance was another key issue upon which many stakeholders commented. Transport Canada has estimated the costs of the proposed Regulations for industry and Government over the analysis period. These costs and the corresponding benefits are summarized in section 6.

Testing

There was interest among stakeholders about the proposed testing requirements. Testing would be performed in accordance with test procedures specified in the proposed Regulations. The test procedures from the U.S. regulations are incorporated by reference; therefore, the proposed Regulations would automatically incorporate any changes made to these U.S. test procedures.

The proposed Regulations specify the test procedures, but not the location or facilities at which testing could be undertaken. Test facilities would not be regulated under the proposed Regulations. Railway companies sending locomotives for testing would be required to ensure that the applicable test procedures are followed. Record keeping and reporting requirements would also apply.

Idling

Through the consultations, Transport Canada received multiple requests to address locomotive idling in the proposed Regulations. The proposed Regulations respond to this concern through the inclusion of mandatory locomotive shut-down requirements to eliminate unnecessary idling. Railway companies could meet this requirement through the use of anti-idling equipment (e.g. automatic engine start-stop devices) or through company procedures that would require the manual shutdown of locomotives. In addition, railway companies would be required to have an anti-idling policy.

Labelling

Many Canadian locomotives operate on both sides of the border. To streamline labelling requirements, the proposed Regulations would require that all locomotives be labelled with the same information required for U.S. locomotives and locomotive engine labels. This means that locomotives with labels that meet the U.S. requirements would not need a second Canadian label.

Reporting

There was interest among stakeholders in the proposed reporting requirements. Reporting requirements are addressed in the proposed Regulations and would include one initial fleet inventory report, followed by annual fleet monitoring reports and annual locomotive emissions in-use testing reports, as applicable. Stakeholders were supportive of the proposed approach of consolidated reporting rather than that of preparing individual reports each time a locomotive is placed into service.

Complementary measures

Many stakeholders proposed potential complementary measures that could strengthen industry compliance with the proposed Regulations. The measures proposed include coordination with provincial authorities, research and development (R&D) funding programs and financial incentives to industry.

Transport Canada and provincial authorities have a strong history of collaboration on the alignment of rail safety regulations. Transport Canada will liaise with interested provincial parties on collaborative and consistent regulatory frameworks in Canada, where appropriate.

Transport Canada has identified R&D in the areas of rail transportation and the environment as a priority. Over the 2011–2016 period, the Department allocated close to $4 million to R&D that supports and complements the proposed regulatory activities. R&D efforts assess innovative technologies from a safety and environmental performance perspective, and focus on research that can leverage investment in and accelerate implementation of the more promising technologies that can reduce air emissions.

Since 2011, there have been continuous discussions with the rail industry on emissions-related issues through the negotiation and oversight of the current MOU between Transport Canada and the Railway Association of Canada, and through the Canada–United States Regulatory Cooperation Council Locomotive Emissions Initiative.

11. Implementation, enforcement and service standards

Transport Canada would administer a comprehensive compliance and enforcement program to verify compliance with the proposed Regulations. The Department already administers programs pertaining to federal safety regulations, rules and guidelines under the Railway Safety Act, with a network of railway safety inspectors in all regions of the country to perform audits and inspections, as well as monitor compliance. The implementation of these proposed Regulations would leverage existing departmental resources and the Department’s long- standing and productive relationship with Canadian railway companies and their association, the Railway Association of Canada.

Railway companies would be responsible for ensuring that their locomotives that are subject to the proposed Regulations comply with them and would be required to produce and maintain evidence of such conformity.

The compliance and enforcement program would include

  1. Promoting compliance by ensuring clear and enforceable requirements, by providing information and training, and by educating stakeholders;
  2. Monitoring the use of locomotive labels and locomotive engine labels;
  3. Reviewing and monitoring all evidence of conformity with the emission standards and other requirements;
  4. Undertaking inspections of locomotives to ensure compliance;
  5. Requiring laboratory emission tests on new locomotives and a prescribed sample of in-use locomotives; and
  6. Administering enforcement activities for non- compliance.

The program would use an automated online information system that would store data submissions and allow for easy reporting. Railway safety inspectors would undertake periodic inspections and audits and would note their findings. Departmental officials would assess compliance based on the submissions by railway companies and data gathered by railway safety inspectors.

Transport Canada would monitor the CAC emission performance of locomotives and locomotive fleets and compliance with the proposed Regulations. All enforcement activities would be determined in accordance with the Railway Safety Act. If a locomotive is found not to comply with the Regulations, the railway company could be subject to prosecution pursuant to section 41 of the Railway Safety Act. Specific provisions of the Locomotive Emissions Regulations could also be designated by an amendment to the Railway Safety Administrative Monetary Penalties Regulations, which would allow for the issuance of a notice of violation imposing an administrative monetary penalty for a contravention of the proposed Regulations.

For situations where non-compliance persists, the Department would determine the appropriate enforcement action based on the following factors:

In its administration of the compliance and enforcement program for the proposed Regulations, Transport Canada would provide the following services in a timely manner:

Detailed service standards related to the proposed Regulations are under development and would be available at the time of final publication of the proposed Regulations in the Canada Gazette, Part II.

The Department intends to develop a guidance document describing the required evidence of conformity specified in the proposed Regulations and the procedures to be followed when submitting required documentation.

12. Performance measurement and evaluation

Establishing a framework for measuring and evaluating the performance of the proposed Regulations is necessary to ensure that they achieve the intended outcomes in an effective, efficient and transparent manner. Regularly scheduled data collection and program evaluation activities are proposed as evaluation tools.

A performance measurement and evaluation plan (PMEP) is being developed, with the goals of

An electronic database system would be used to store and manage the data gathered through the regulatory program. Measurements of all indicators would be drawn primarily from this system that would include inspection and audit reports compiled by railway safety inspectors, testing data and other fleet data provided by railway companies, records of industry–government interaction, and records of Transport Canada enforcement actions and decisions. Other departmental records would also be surveyed and be factored into reports as necessary to measure performance.

A report on the status of performance measurement would be compiled and the PMEP would be revisited or revised if necessary. A full evaluation would be conducted four years following the implementation of the proposed Regulations. This evaluation would examine the relevance and performance of the Regulations and the related program activities.

The full PMEP will be available upon request following the publication of the Regulations in the Canada Gazette, Part II.

13. Contact

For further information on the Regulatory Impact Analysis Statement, please contact

Diane McLaughlin
Manager
Regulatory Policy
Environmental Policy
Transport Canada
Place de Ville, Tower C, 26th Floor
330 Sparks Street
Ottawa, Ontario
K1A 0N5
Telephone: 613-998-2661
Fax: 613-949-9415
Email: diane.mclaughlin@tc.gc.ca

Small Business Lens Checklist

1. Name of the sponsoring regulatory organization:

2. Title of the regulatory proposal:

3. Is the checklist submitted with a RIAS for the Canada Gazette, Part I or Part II?

A. Small business regulatory design

I

Communication and transparency

Yes

No

N/A

1.

Are the proposed Regulations or requirements easily understandable in everyday language?

2.

Is there a clear connection between the requirements and the purpose (or intent) of the proposed Regulations?

   

3.

Will there be an implementation plan that includes communications and compliance promotion activities, that informs small business of a regulatory change and guides them on how to comply with it (e.g. information sessions, sample assessments, toolkits, Web sites)?

   

4.

If new forms, reports or processes are introduced, are they consistent in appearance and format with other relevant government forms, reports or processes?

   

II

Simplification and streamlining

Yes

No

N/A

1.

Will streamlined processes be put in place (e.g. through BizPaL, Canada Border Services Agency single window) to collect information from small businesses where possible?

   

2.

Have opportunities to align with other obligations imposed on business by federal, provincial, municipal or international or multinational regulatory bodies been assessed?

   

3.

Has the impact of the proposed Regulations on international or interprovincial trade been assessed?

   

4.

If the data or information, other than personal information, required to comply with the proposed Regulations is already collected by another department or jurisdiction, will this information be obtained from that department or jurisdiction instead of requesting the same information from small businesses or other stakeholders? (The collection, retention, use, disclosure and disposal of personal information are all subject to the requirements of the Privacy Act. Any questions with respect to compliance with the Privacy Act should be referred to the department’s or agency’s ATIP office or legal services unit.)

 

 

While some information requirements for the initial report are similar to those under other regulations, that information is not sufficient and cannot be used to assess or enforce compliance with emission regulations. In addition, efforts will be undertaken to ensure that unnecessary duplication is avoided and that regulatory information requirements are streamlined where possible.

5.

Will forms be pre-populated with information or data already available to the department to reduce the time and cost necessary to complete them? (Example: When a business completes an online application for a licence, upon entering an identifier or a name, the system pre-populates the application with the applicant’s personal particulars such as contact information, date, etc. when that information is already available to the department.)

   

6.

Will electronic reporting and data collection be used, including electronic validation and confirmation of receipt of reports where appropriate?

   

7.

Will reporting, if required by the proposed Regulations, be aligned with generally used business processes or international standards if possible?

   

8.

If additional forms are required, can they be streamlined with existing forms that must be completed for other government information requirements?

   

III

Implementation, compliance and service standards

Yes

No

N/A

1.

Has consideration been given to small businesses in remote areas, with special consideration to those that do not have access to high-speed (broadband) Internet?

   

2.

If regulatory authorizations (e.g. licences, permits or certifications) are introduced, will service standards addressing timeliness of decision making be developed that are inclusive of complaints about poor service?

   

No regulatory authorizations will be introduced as a result of these Regulations.

3.

Is there a clearly identified contact point or help desk for small businesses and other stakeholders?

   

B. Regulatory flexibility analysis and reverse onus

IV

Regulatory flexibility analysis

Yes

No

N/A

1.

Does the RIAS identify at least one flexible option that has lower compliance or administrative costs for small businesses in the small business lens section?

Examples of flexible options to minimize costs are as follows:

  • Longer time periods to comply with the requirements, longer transition periods or temporary exemptions;
  • Performance-based standards;
  • Partial or complete exemptions from compliance, especially for firms that have good track records (legal advice should be sought when considering such an option);
  • Reduced compliance costs;
  • Reduced fees or other charges or penalties;
  • Use of market incentives;
  • A range of options to comply with requirements, including lower-cost options;
  • Simplified and less frequent reporting obligations and inspections; and
  • Licences granted on a permanent basis or renewed less frequently.

2.

Does the RIAS include, as part of the Regulatory Flexibility Analysis Statement, quantified and monetized compliance and administrative costs for small businesses associated with the initial option assessed, as well as the flexible, lower-cost option?

   

3.

Does the RIAS include, as part of the Regulatory Flexibility Analysis Statement, a consideration of the risks associated with the flexible option? (Minimizing administrative or compliance costs for small business cannot be at the expense of greater health, security or safety or create environmental risks for Canadians.)

   

4.

Does the RIAS include a summary of feedback provided by small business during consultations?

   

V

Reverse onus

Yes

No

N/A

1.

If the recommended option is not the lower-cost option for small business in terms of administrative or compliance costs, is a reasonable justification provided in the RIAS?

   

The flexible option was selected.

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to subsection 47.1(2) (see footnote a) of the Railway Safety Act (see footnote b), proposes to make the annexed Locomotive Emissions Regulations.

Interested persons may make representations concerning the proposed Regulations within 90 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be sent to Diane McLaughlin, Manager, Regulatory Policy, Clean Air Policy and Analysis, Transport Canada, Place de Ville, Tower C, 330 Sparks Street, Ottawa, Ontario K1A 0N5 (email: diane.mclaughlin@tc.gc.ca).

Ottawa, June 9, 2016

Jurica Čapkun
Assistant Clerk of the Privy Council

Locomotive Emissions Regulations

Interpretation
Definitions

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

CFR means Title 40, Part 1033, of the Code of Federal Regulations of the United States, as amended from time to time. (CFR)

crankcase emissions means substances emitted into the atmosphere from any portion of the ventilation or lubrication system of a locomotive crankcase. The crankcase is the housing for the crankshaft and other related internal parts. (émissions du carter)

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

EPA certificate means a certificate of conformity to United States federal standards that is issued by the EPA under the CFR. (certificat de l’EPA)

exhaust emissions means substances emitted into the atmosphere from any opening that is downstream from the exhaust port or exhaust valve of a locomotive engine. (émissions de gaz d’échappement)

family emission limit means the maximum level of nitrogen oxides or particulate matter, or the maximum combined level of nitrogen oxides and hydrocarbons, that a locomotive covered by an EPA certificate and belonging to an engine family may emit under paragraph 4(4)(b). The family emission limit is determined by the manufacturer or remanufacturer of the locomotive in accordance with Subpart H of the CFR and is set out in the EPA certificate. (limite d’émissions de la famille de moteurs)

freshly manufactured locomotive means a locomotive that contains less than 25 percent previously used parts. (locomotive nouvellement construite)

line-haul locomotive means a locomotive that has a total rated power of more than 1 715 kW (2,300 horsepower). (locomotive de ligne)

locomotive means a self-propelled piece of on-track railway equipment that is designed for moving or propelling railway cars that are designed to carry freight, other equipment, or passengers, but that itself is not designed to carry freight, other equipment, or passengers other than those operating the locomotive. It does not include railway equipment that

locomotive engine means an engine that propels a locomotive. (moteur de locomotive)

new locomotive means

particulate matter means respirable particulate matter with a diameter of less than or equal to 10 microns. (particules)

percent previously used parts means the percentage, calculated in accordance with paragraph 1033.640(c) of the CFR, that represents the total dollar value of the previously used parts of the locomotive relative to the total dollar value of the unused parts and previously used parts of the locomotive. (% de pièces usagées)

place into service means to place a new locomotive into initial operation or to permit the placement of a new locomotive into initial operation. (mettre en service)

power assembly means, in respect of a locomotive engine, a module in which the combustion of fuel occurs, which consists of the cylinder, the piston and piston rings, the valves and ports for the admission of charge air and the discharge of exhaust gases, the fuel injection components and controls, and the cylinder head and its associated components. (ensemble de puissance)

refurbished locomotive means a locomotive that contains less than 50 percent previously used parts. (locomotive remise à neuf)

remanufactured locomotive means a locomotive that was originally manufactured after January 1, 1973, that contains more than 25 percent previously used parts, and that

remanufactured locomotive engine means a locomotive engine that

repowered locomotive means a previously used locomotive whose engine has been replaced with a locomotive engine that has never been remanufactured and that has never been installed in a locomotive. (locomotive réalimentée)

service life means the total life of a locomotive. Service life begins when the locomotive is originally manufactured and ends when the locomotive is permanently removed from service. (durée de service)

switch locomotive means a locomotive that has a total rated power of 1 715 kW (2,300 horsepower) or less. (locomotive de manœuvres)

tier means the tier of standards set out in Tables 1 to 3 to section 1033.101 of the CFR that applies in respect of a locomotive according to its year of original manufacture. (niveau)

upgraded locomotive means a locomotive that was originally manufactured before January 1, 1973, and that is

useful life means the period during which an emission standard applies in respect of a locomotive or locomotive engine, as determined in accordance with paragraph 1033.101(g) of the CFR. (durée de vie utile)

year of original manufacture means the calendar year of the date of original manufacture of a locomotive, as determined in accordance with subsection (3). (année de construction initiale)

Total rated power

(2) The total rated power of a locomotive is equal

Date of original manufacture

(3) The date of original manufacture of a locomotive is

Purpose
Protection of environment

2 The purpose of these Regulations is to

Emission Standards, Testing And Labelling
Application

Application — sections 4 to 9

3 (1) Subject to subsections (2) and (3), sections 4 to 9 apply in respect of a new locomotive for the duration of its useful life if the locomotive is placed into service on or after the day on which these Regulations come into force.

Exception — locomotive covered by EPA certificate

(2) If a new locomotive placed into service on or after the day on which these Regulations come into force is covered by an EPA certificate that sets out family emission limits, section 4 applies in respect of the locomotive for the duration of its service life.

Exception — remanufactured locomotive

(3) Sections 4 to 9 do not apply in respect of a new locomotive placed into service on or after the day on which these Regulations come into force if the locomotive

Emission Standards
Exhaust Emissions

Prohibition against placing into service

4 (1) A railway company must not place into service a locomotive unless, when tested in accordance with section 8, the locomotive conforms to the applicable exhaust emission standards set out in Tables 1 and 2 to section 1033.101 of the CFR and in paragraph 1033.101(f)(1) of the CFR.

Exception

(2) Subsection (1) does not apply in respect of a locomotive that is covered by an EPA certificate and that is affixed with the EPA locomotive label and EPA locomotive engine label described in section 1033.135 of the CFR.

In-use — without family emission limits

(3) If a locomotive is not covered by an EPA certificate that sets out family emission limits, a railway company must not operate the locomotive after the locomotive has been placed into service unless, when tested in accordance with section 8, the locomotive conforms to the applicable exhaust emission standards set out in Tables 1 and 2 to section 1033.101 of the CFR and in paragraph 1033.101(f)(1) of the CFR.

In-use — with family emission limits

(4) If a locomotive is covered by an EPA certificate that sets out family emission limits, a railway company must not operate the locomotive after the locomotive has been placed into service unless, when tested in accordance with section 8, the locomotive conforms to

Footnotes

(5) For the purposes of this section, footnotes d and e to Table 1 and footnotes b and c to Table 2 of section 1033.101 of the CFR do not apply.

Smoke Emissions

Placing into service

5 (1) A railway company must not place into service a locomotive unless, when tested in accordance with section 8, the locomotive conforms to the smoke standards set out in Table 3 to section 1033.101 of the CFR that correspond to the locomotive’s tier level.

Exceptions to subsection (1)

(2) Subsection (1) does not apply in respect of a locomotive that

In-use

(3) A railway company must not operate a locomotive after the locomotive has been placed into service unless, when tested in accordance with section 8, the locomotive conforms to the applicable smoke standards set out in Table 3 to section 1033.101 of the CFR.

Exception to subsection (3)

(4) Subsection (3) does not apply in respect of a locomotive that emits 0.05 grams per brake horsepower-hour of particulate matter or less.

Crankcase Emissions

Prohibition — crankcase emissions

6 (1) A railway company must not operate a locomotive that releases crankcase emissions directly into the atmosphere.

Exception — treated crankcase emissions

(2) When crankcase emissions are routed to the exhaust upstream of the exhaust aftertreatment, the release is deemed not to be a direct release into the atmosphere.

Testing

Initial testing

7 (1) A railway company must test a locomotive in accordance with section 8 before placing the locomotive into service.

Exception

(2) Subsection (1) does not apply in respect of a locomotive that is covered by an EPA certificate and is affixed with the EPA locomotive label and EPA locomotive engine label set out in section 1033.135 of the CFR.

In-use testing

(3) In every calendar year beginning with the 2018 calendar year, a railway company that has realized gross revenues of $250 million or more for the provision of rail transportation services in each of the two preceding calendar years must test, in accordance with section 8, a sample of locomotives that is determined in accordance with subsections (4) and (5).

In-use test sample characteristics

(4) The locomotives in the sample referred to in subsection (3) must

In-use test sample size

(5) The number of locomotives that the railway company must test under subsection (3) is

Testing required by the Minister

(6) The Minister may require a railway company to test any locomotive that it operates, if the Minister determines that it is necessary to do so in order to ascertain whether the locomotive conforms to section 4 or 5.

Test procedures

8 A locomotive tested for conformity to section 4 or 5 must be tested in accordance with the test procedures set out in Subpart F of the CFR.

Labelling

Locomotive engine label and locomotive label

9 (1) Subject to subsection (2), a railway company must not operate a locomotive unless

Additional label for refurbished locomotives

(2) In addition to the labels required by subsection (1), a refurbished locomotive must be affixed with a label containing the following information:

Labelling

(3) A label referred to in subsection (1) or (2) must

Language

(4) A label referred to in subsection (1) or (2) must be worded in English, French or both.

Idling

Prohibition — idling

10 (1) Subject to subsection (2), a railway company must ensure that the locomotives in its fleet do not idle for more than 30 minutes.

Exceptions

(2) A locomotive may idle for more than 30 minutes to the extent necessary to

Keeping documents

(3) A railway company must

Records and Information
Contents of records

Contents of records — all locomotives

11 (1) A railway company must keep, for each locomotive in its fleet, a record containing the following information:

Additional information — new locomotives covered by EPA certificates

(2) In addition to keeping a record containing the information set out in subsection (1), a railway company must keep, for each locomotive in its fleet that is covered by an EPA certificate and to which the exhaust emission standards referred to in section 4 apply, a record containing the following information:

Additional information — new locomotives not covered by EPA certificates

(3) In addition to keeping a record containing the information set out in subsection (1), a railway company must keep, for each locomotive in its fleet that is not covered by an EPA certificate and to which the exhaust emission standards referred to in section 4 apply, a record containing the following information:

Locomotives removed from fleet

(4) In addition to keeping a record containing the information set out in subsections (1) to (3), as applicable, a railway company must keep, for each locomotive that is removed from its fleet, a record containing the following information:

Initial Report

Filing of initial locomotive fleet report

12 (1) A railway company must file with the Minister

Contents of initial locomotive fleet report

(2) A report referred to in subsection (1) must contain the following information:

Annual Report

Filing of annual locomotive fleet report

13 (1) A railway company must file with the Minister, within 45 days after the end of each calendar year, a report with respect to each locomotive added to or removed from its fleet in that calendar year.

Contents of annual locomotive fleet report

(2) The report referred to in subsection (1) must contain the following information:

In-use Test Report

Filing of in-use test report

14 (1) A railway company must file with the Minister, within 90 days after the end of each calendar year, a report with respect to each locomotive tested under subsection 7(3) in that calendar year.

Contents of in-use test report

(2) The report referred to in subsection (1) must contain the following information:

Report Certification

Certification

15 The reports referred to in sections 12 to 14 must include a certification, by the person responsible for the oversight of the railway company’s environmental program or by a person authorized to act on that person’s behalf, that all the information they contain is accurate.

Keeping of Records and Information

Records — duration

16 (1) A railway company must keep every record referred to in section 11 for at least four years after the day on which the locomotive is permanently removed from its fleet.

Reports — duration

(2) A railway company must keep every report referred to in sections 12 to 14 for at least eight years after the day on which it is filed.

Records and reports — form

(3) A railway company must keep every record and report in written form or in a readily readable electronic or optical form.

Coming Into Force

Date of registration

17 These Regulations come into force on the day on which they are registered.

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